Slots: Buy or Lease?

Stocking the slot floor once was a relatively simple proposition for operators. Suppliers would demonstrate new games to slot directors, who would buy the slots and place them on the floor to sink or swim. The ones that returned decent daily win would stay, and the losers would either be warehoused or sold to secondary markets.

This was the model in the 1980s and much of the ’90s, when most slots were three-reel mechanical games or basic multi-line video. But the evolution of slot technology ultimately would change things.

As the 20th century yielded to the 21st, innovation among slot developers began to result in games that were more elaborate, more complex, and more expensive to develop. Over the past 20 years, slot-makers have raised the competitive bar with giant LED screens, ever-more-radical cabinet and seating styles—and lots of themes.

As in branded themes. Drawn from movies, TV, music and all other varieties of popular culture, these slot themes require the manufacturers to license intellectual property, one more item on the cost side of the ledger. Eventually, all these development and licensing costs led manufacturers to develop a new pricing model: the lease, or recurring-revenue model.

In a nutshell, manufacturers lease machines—loaded with software and plug-in ready—to casinos in return for a percentage of the profits, or a flat monthly fee

(depending on jurisdiction). The manufacturer typically handles maintenance of the machines.

Should the game flop, the manufacturer can simply swap it out with new game software within the same hardware.

At first, slot directors were horrified at the prospect of sharing revenue with slot vendors. However, as cabinet costs went up, the advantages of having an instant fix of an active gaming position grew, and manufacturers refined their creativity and technology to produce games that became wildly popular with players.

The R&D, equipment and licensing costs incurred to develop the newest premium games would make many of the games cost-prohibitive for operators to buy outright, but once on the floor, the hits were routinely outstripping house-average win many times over. Operators began to see the mutual benefit of lease partnerships with slot manufacturers.

Manufacturers, meanwhile, got hooked on the steady stream of revenue from leased games, and pumped a similarly steady stream of R&D dollars into the dual development of ever-more-innovative hardware with high-profile, premium game families to match.

As operators and suppliers both benefited from recurring-revenue agreements, it soon became clear that the lease model was here to stay.

Mixing the Models

These days, most operators offer a healthy mix of for-sale and for-lease games in stocking their floors. As many slot operations executives will confirm, there are benefits specific to each model.

“The ratio of for-sale versus leased games in the marketplace has remained relatively steady over time,” says Ken Bossingham, senior vice president of sales for IGT.

“The leased-game category has segmented to include sub-categories such as stand-alone progressives, WAPs, premium MLPs, video poker, etc., but overall, the ratios have generally stayed consistent. Both types of games play crucial roles in IGT’s business strategy, as well as our customers offering their players the best gaming experiences.”

“Over time, we’ve observed a marked shift toward leased premium games on the floor,” says Chris Nemlich, senior vice president, commercial strategy & data analytics for Light & Wonder. “This trend has largely been driven by operators’ efforts to optimize floor layouts—creating more inviting configurations that highlight high-performance games. Additionally, industry analytics have recommended replacing older, underutilized machines with newer, stronger-performing leased units, further accelerating this transition.

“Our customers appreciate having a dual approach. Purchasing games outright allows them to invest in long-term, stable hardware assets, offering predictability and durability. Leasing enables them to diversify their offerings quickly and adapt to market trends without a heavy up-front capital commitment.”

Many veteran operators still prefer to buy games outright, even while conceding the earning power of many leased games. “We always like to own what we can within reason,” says Cliff Paige, slot director at the South Point Hotel and Casino in Las Vegas. “The manufacturers have been putting out some good ‘for sale’ games for the last few years. This was not always the case in the past.”

Paige says slot manufacturers recently have increased the number of quality for-sale games they offer to the casinos, a development he says is the result of feedback from the operators. “Back some years ago, the manufacturers seemed to only have their best games and content for lease,” he says. “Now, you can own some pretty good product.

“I think they finally started to listen to the operators a bit, but also, they probably started to see some pullback from casinos taking leased or non-owned product from casino floors. With that, they finally started looking at what casinos could buy, and providing better (for-sale) games.”

Allen Schultz spent 25 years in slot operations for Yaamava’ Casino and its predecessor San Manuel Casino, and was slot performance director there for six years before moving to the supplier side last month as director of product research for Bluberi. Like Paige, Schultz has preferred to buy games, but high-performing leased games make budgetary sense.

“This is something I believe many operators struggle with from a budget perspective, and it’s a shame,” Schultz says. “If you have the cash to buy games, the preference is to do so. However, if those games aren’t performing while premium games are exceeding expectations, you must expand that footprint to meet guest demand.”

Schultz says the number of leased games has risen, and operators have profited from some of the lease deals. “Negotiating beneficial deals with manufacturer partners can ease the burden of the rise (in participation product),” he says.

Both operators acknowledge the inherent benefits of leased games—often called simply “gaming ops” by the manufacturers to reflect the partnership in operating the games in terms of profitability and convenience.

“The biggest benefit is the performance increase over most owned products,” says Schultz. “Performance drives everything, and I know I’ll sound like a broken record, but it’s a supply-and-demand game for your guests. If recurring-revenue products start to dry up in favor of owned titles, the paradigm will easily shift the other way.”

“The ability to change themes, signage and cabinets is huge,” adds Paige, noting that participation games simplify the replacement of the non-performers on the floor.

“Recurring-revenue slots offer significant advantages,” says L&W’s Nemlich. “They provide operators with the flexibility to dynamically manage and refresh their game portfolios, ensuring an ever-evolving and engaging gaming environment. This model often grants access to unique hardware configurations or newly licensed content that might not be available for purchase outright.

“Moreover, supplier-managed cabinet maintenance and features like wide-area progressive jackpots help reduce operational costs and liabilities, further enhancing their appeal.”

“Leased games offer operators a range of benefits, the most apparent being the absence of up-front capital investment,” says IGT’s Bossingham.

“With recurring-revenue games, both parties are highly invested in the success of the game. When a game performs exceedingly well, both parties win, creating a situation where there is a unified daily interest in performance. “Additionally, leased games help our customers keep their gaming floors competitive and fresh, enabling them to offer the ‘latest and greatest’ in terms of themes, hardware, merchandising and mechanics—all on physical assets that they are not required to maintain.”

Those benefits often allow continuation of big hits, with a parade of sequels to be added in the same game families. Many have become must-haves on casino floor.

“Paying attention to a fair-share ratio can help maintain balance, but at a minimum, the Aristocrat HRG Studio products (Lightning Link, Dragon Link, Phoenix Link) are essential,” says Schultz. “Additionally, Light & Wonder offers plenty of new, high-performing titles, such as Monopoly Express, Dancing Drums Link, and Kong Skull Island. While there are other mainstays, frequently swapping them out has proven beneficial, as players’ tastes have been changing more rapidly.”

Of course, the supplier most associated with the lease model over the years has been IGT, which practically invented the model with its wide-area progressive games, beginning with Wheel of Fortune and most recently with multi-level progressives including its latest wide-area progressive licensed game family, Whitney Houston.

“Licensed properties have been a crucial part of the IGT game portfolio for much of our history, most famously with Wheel of Fortune slots and recently with Whitney Houston Slots and Jumanji Slots,” says Domenico Pastia, IGT’s senior vice president of global product.

“Developing this genre of games comes with added complexity and requires a higher investment, but it’s all relative to game performance. If a game is performing at a high level, the investment is justified by the game’s returns.

“Leased games are absolutely a cornerstone to IGT’s slot portfolio, and have long been a strategic differentiator for the company. Our customers count on IGT, particularly in the WAP space, to deliver the industry’s most impressive jackpots through games such as Wheel of Fortune, Megabucks, Whitney Houston Slots and more.

“As an industry we have seen an overall reduction in the quantity of licensed properties that suppliers bring on each year, but not a reduction in the influence of and player demand for hallmark titles such as Wheel of Fortune. In fact, premium cabinets and merchandising continue to rise in sophistication, quality and size.”

Steady Trend

Operators and manufacturers agree that both for-sale and leased game models will continue to share slot floors for the foreseeable future, and ultimately, the pricing model has much less to do with success than player demand for each game—sale or lease, proprietary or licensed brands.

“In the premium space, licensed brands seem to be taking a step back in favor of original titles that offer a premium look and feel,” comments Schultz. “While some popular brands remain, they appear to have performed less favorably over the past few years. As a result, it may no longer be worth it for manufacturers to invest heavily in big brands when they could instead allocate that capital toward developing their own original IP.”

“Future slots trends and gaming floor composition will ultimately be defined by the players,” says IGT’s Pastia. “Our customers will address player preferences regardless of game category. Evolving player preferences and access to technologies continue to raise the bar in terms of what players expect from a gaming session. It’s up to us to continue innovating and delivering the ‘wow factor’ and experiences that drive growth and inspire loyalty.”

“The premium product segment is evolving in an increasingly competitive landscape,” says Light & Wonder’s Nemlich. “We expect the trend toward dynamic, high-performing leased games to continue as more suppliers introduce innovative technologies and enhanced game offerings. This increased competition will likely raise the overall standard of the industry, providing operators with an even broader selection of engaging products to attract and retain players.”

As far as a percentage of the floor between for-sale and leased games, it’s really a matter of popularity—what is a hit with the customer, says Paige. “If they like non-owned games more, then that’s what we’ll give them. No set number of percent of the floor.

“Just what the players want.”