The largest casino slot floor in the U.S. is at Oklahoma’s
WinStar World, which offers 8,500 machines. Golden Entertainment operates well more than that outside of casinos.
“Distributed gaming” is the industry term for route operations, which in Golden’s case, amounts to nearly 11,000 machines across Nevada and Montana.
Route operators have the unique task of managing, marketing and operating slot machines not in one room, but in hundreds of rooms at once, spread across a given state, under the identifier “video gaming terminals” or VGTs, or in some cases, “video lottery terminals” or VLTs.
In the case of Golden Entertainment, one of the largest distributed gaming operators in the U.S., those locations in Nevada consist of 65 wholly owned taverns under PT’s Entertainment Group in addition to around 700 convenience stores, truck stops and grocery stores. The company’s Montana division consists of a network of nearly 3,000 games in 300 locations.
The PT’s chain in Nevada is rivaled by the Dotty’s tavern chain, which has 175 locations in Nevada, Oregon and Montana; and the oldest route operator in Nevada, Century Gaming Technologies, which operates at convenience stores, grocery stores and other operator-owned locations in Nevada and Montana.
Century Gaming, which had operated a Montana route since the state first legalized VGTs at bars and taverns in 1986, entered Nevada in a big way in 2004 by acquiring United Coin Machine Company, with more than 7,000 machines in the state’s oldest route of convenience stores, gas stations, grocery stores and other non-casino locations. United Coin, founded in 1958, is now Century Gaming Technologies Nevada.
When it comes to growth in the distributed gaming sector, the attention is normally directed to potential new jurisdictions beyond the current Nevada, Montana, South Dakota, Oregon and Illinois markets.
In the case of Illinois, the VGT routes, which began with the 2009 law that legalized the machines in bars and taverns, have seen growth stalled at fewer than 30,000 machines. It is a state already oversaturated with slot machines—a situation that is about to become much worse with 10 new casinos (including one in Chicago) and slots at airports.
The Illinois legislature’s new gaming package has put the brakes on the route markets there, which had been hot for acquisition earlier this decade. Four years ago, Penn National Gaming acquired an Illinois route of 1,100 VGTs across 270 locations. In May 2016, Delaware North bought a route with 1,800 VGTs at 438 sites in Illinois.
Last year, Boyd Gaming bought Lattner Entertainment Group Illinois, LLC, which operates nearly 1,000 gaming units in more than 200 locations across the state.
The new Illinois law has now thrown all of those operations into crisis mode, not to mention bringing potential expansion of the VGT route market to a grinding halt.
Distributed gaming operators are now turning their attention to potential new markets in states like Pennsylvania, Indiana and Missouri, each of which has been debating bills for years to add video gaming terminals to bars and taverns.
In Pennsylvania, the tavern owners’ association was stymied when VGTs for bars and taverns were stripped from the massive gaming expansion law passed late in 2017. In its place was a much more modest provision for VGTs in truck stop locations that had to meet strict specifications to qualify. A more recent law—being challenged in court by the Rudder’s convenience store chain—allows for local municipalities to ban VGTs in their jurisdictions, even for stores already licensed by the state for the machines.
Indiana and Missouri lawmakers seem to debate bar VGTs at every session, and each state has seen grassroots organizations rise up on both sides of the issue. In Indiana, the Video Gaming Coalition holds a “Legislative Reception” every January to educate the public on VGTs, which it says would generate $165 million in new tax revenue.
In Missouri, the Video Lottery Control Act, introduced by state Senator Denny Hoskins, would tax and regulate an estimated 4,000 “gray-area” video gaming machines already in bars.
Route operators like Golden Entertainment are doing everything they can to promote these new growth opportunities.
“We’ve worked very hard from a lobbying perspective in all the new jurisdictions, particularly Pennsylvania and Missouri, which have both had bills in their legislative sessions in the last year,” says Blake Sartini II, senior vice president of distributed gaming for Golden Entertainment, Inc. “We have been fighting for VGTs in Pennsylvania now for almost three years. We’ve gone out and done our due diligence, and we’ve partnered up with a few amusement and coin operators out there, to give us the ability to grow when the bill ultimately gets passed.”
Just as in Illinois, though, state lawmakers in Pennsylvania are holding back efforts to create a new VGT market, first by reducing the potential of the market. “The state, in our eyes, took a step back from the original direction that they proposed to go, in the sense that the Pennsylvania VGT law right now only allows for five VGTs at any truck stop that hits certain milestones. So, it took the ultimate opportunity from 3,000 or so locations around the state now down to around 200 truck stops around the state.”
Still, Sartini says the company will be ready when VGTs in bars eventually happen. “We’re licensed in Pennsylvania; we’re waiting for the full-blown opportunity,” he says. “Right now, I think we’re better focused in the state of Montana and in Nevada, from a distributive perspective, just because we know we can grow within those markets.”
Staying Strong
While operators large and small continue to promote opportunities in new jurisdictions, the distributed gaming segment hasn’t needed new states to remain a healthy arm of the industry.
“As route operators, we’re 100 percent healthy and stronger than we have been in a long, long time,” comments Tim Cogswell, vice president and general manager of Century Gaming Technologies in Nevada. “We’ve still been able to grow significantly as a route operator—specifically in Montana, where we’ve almost quadrupled ourselves within the past four or five years. We’re now by far the largest operator in Montana by triple.”
Cogswell says route operations are seeing plenty of growth without new states, and separately from the casino business at large. “We’ve proven and shown that the route operation is a completely different segment from the casino business,” he says.
Golden’s Sartini reports similar robust business in Nevada, with the PT’s brand surging. “We’ll be at 65 wholly owned taverns here by the end of the year, and we could easily get to 85 or 90 of our own wholly owned here in Nevada,” he says.
(Officials of Dotty’s declined to comment for this article.)
Each route operation also has a unique advantage that distinguishes it from other operators. For Golden Entertainment, it is its status not only as an operator of wholly owned PT’s locations but as a multi-property operator of traditional casino-hotels in Nevada.
In October 2017, Golden acquired American Casino & Entertainment Properties. In addition to the routes, the company now operates 10 casinos, including the Stratosphere (recently rebranded as “The Strat”), the Arizona Charlie’s properties on Boulder Highway and Decatur, and Laughlin’s Edgewater and Colorado Belle.
Sartini says that while the casino business is totally separate from the routes, the routes benefit from the consequent relationships with suppliers.
“The good news for us is that with our casino assets in the proximity of our home office here in Las Vegas, near what we call Manufacturer’s Row, we clearly sit right in the middle of the action, and our large casino slot machine buys definitely help us with terms on the distributed side of the business. Being diversified clearly helps the route side of the business, anytime we need to do a manufacturing deal or work with the manufacturers on slot machines.”
Century Gaming gets an extra boost from being a manufacturer of its own proprietary machines, which it places on its routes in both Nevada and Montana. A licensed slot manufacturer in Nevada, Century produces Power Vision, a multi-game machine featuring video slots and keno, plus all traditional varieties of video poker.
Century, in fact, has been the only manufacturer other than IGT to produce bartop multi-game slots (although other manufacturers are now producing bartop units for introduction in Nevada in the coming months).
These extra roles for two of the largest route operators in the U.S. only augment their inherent assets—prominently, their experience in building relationships with operators of customer locations.
“No matter where this industry goes, whether it’s Nevada, Montana, Illinois, Pennsylvania or elsewhere, it’s a very blue-collar, relationship-based business,” says Golden’s Sartini. “It’s very important for us to continue to tie ourselves into other industries that have relationships with the bar and tavern industries within a given state.
“Through our operating 65 taverns here in town, we have relationships with liquor and beer distributors, with coin-operator distributors… These partners get us in contact with people in these other jurisdictions—who help us introduce ourselves to those customers within those states, by somebody they trust.”
Once those relationships are established, he adds, customer service is everything. “We have been able to operate the service aspect of our business at the highest level,” says Sartini. “When you speak of distributed gaming, I think the draw from the customer perspective is the convenience aspect of the distributed business. Being able to hold up the route operator’s end of convenience is clearly investing as a service type of business, which will continue to be a focus for us in any market we move into.”
For Century, service also means supplying technology—not only as a slot manufacturer, but in the operator’s proprietary slot management system that links the machines in its routes. “In Nevada, almost half of our business is just our technology,” says Cogswell. “It includes full player tracking.” Century’s player’s club, called Gambler’s Bonus, connects machines at locations throughout each entire state.
“We’re able to track players, their performance, their play, and then as well, into the games and machines themselves, and how they’re performing,” he says. “And we’re doing that all remotely.”
In Montana, where player tracking is illegal, Cogswell says Century concentrates on tracking certain types of play from the machines. “We distribute free play to the players based on an algorithm we were able to create,” he says.
“Even though the route operation is a smaller, mom-and-pop shop type of operation—you don’t need the big, casino-type systems to operate—we’ve gone in-house and developed a type of system that helps all of our operators or customers run their business more efficiently. They can track their cash better, their players better, promotional systems better. And then on the same platform, as the operator or vendor, we’re able to operate more efficiently, work with our partners on how they can grow their business, and have a bigger dig and dive into the gaming platforms.”
All of the route operators, in fact, have active slot clubs—the patrons are loyal, repeat customers who expect the same perks for extended play as they would get in a locals casino, says Cogswell.
Of course, the choice of games is generally more narrow on the routes, particularly in Nevada, where IGT Game King video poker machines continue to dominate the game mix. “We won’t have a lot of selection we work with here in the state of Nevada,” says Sartini. “However, in the state of Montana, we’re able to have 20 games per license, and there are a variety of different suppliers we’ll work with.”
Future Growth
Both Sartini and Cogswell note that the distributed gaming sector of the industry will continue to thrive, regardless of the direction of the traditional casino-hotel sector—mainly because players in route locations are unique. “We feel those customers are drastically different than our casino customer,” says Sartini.
“The distributed part of our business grows somewhat in line with the locals casino demographic, but I think our customer is a lot more social. The demographic is a little bit different than your normal locals casino customer, where you may see a middle-aged female who’s a little more introverted. Our demographic is a little more male-oriented, a player who wants a little more social interaction.”
The experience serving this type of customer will soon come into play in new jurisdictions, which Sartini says provide the biggest near-term growth potential for the distributed gaming sector.
“Greenfield opportunities in new jurisdictions are clearly where we see most of the growth coming from in the next couple of years,” Sartini says. “Obviously, we can continue on our normal growth rate here in Nevada, but if you look at the route-specific business, I think it’s going to come from new jurisdictions, whether it be the full opening up of distributed gaming in Pennsylvania, any opportunity in Missouri, or Indiana, which had a bill in session this year that didn’t get a lot of traction, but has started the education process.
“As these states continue to look for any sort of revenue that will help them close a tax gap, I think a lot of them are looking to Illinois as a kind of platform they can replicate at some point within their states.”
“We have kept our finger on the pulse of every single one of those (states),” says Cogswell, noting that although Century does not actively lobby, “we do some other kinds of business in those jurisdictions with our game manufacturer’s license, and some connections and contacts we have, especially in the Illinois market.
“With United Coin/Century Gaming in business for more than 60 years, Century in Montana over 30 years, we’ve got a lot of knowledge and experience in those types of jurisdictions. We’re watching the expansion, but we’ve also been guiding and helping some companies in other jurisdictions looking to do so, guiding them down the path on how operations work.”
It’s a specialized knowledge that the big route operators are sure to get a chance to spread soon.
