They go by many names: VLTs, VGTs, distributed gaming, street machines—but they all perform the same function. They are games for the ultimate locals casino operations, in handfuls of placements in bars, restaurants, truck stops, convenience stores and other locations with one thing in common—that being that they are not casinos.
The two most common acronyms for this type of gaming machine are VLTs, for video lottery terminals, and VGTs, for video gaming terminals—the latter popularized in those few jurisdictions where these types of games are not operated by a state or provincial lottery.
There’s nothing new about this genre of gaming. The term “video lottery terminal” was coined in South Dakota in 1986, and evolved to mean gaming machines distributed in limited numbers to a large number of locations. The first VLTs in Canada appeared in 1990 in New Brunswick, followed by other Canadian Atlantic provinces the following year. Locations were limited to five machines each, and beginning in 1991, were limited to establishments holding liquor licenses.
Eventually, eight Canadian provinces would offer VLTs through their lotteries, and U.S. states would continue to expand the genre. States like Oregon, Montana and South Dakota offer up the machines in limited doses in liquor-licensed establishments, where in states like Delaware, Maryland and West Virginia, the lotteries place the machines in full-blown casino environments. For the most part, VLTs are identical to slot machines, but are hooked to a central system monitored by the state, which collects its share of the revenues.
In Washington and New York, central determinant systems are used—instead of RNG-based results, a finite pool of results is tapped with each play of each game. It’s the equivalent of a scratch-ticket lottery conducted electronically, with each reel result effectively a “ticket” with a winning or losing result.
For years, the biggest growth story in the worldwide VLT market was found in Europe, where there is a robust market of non-casino gaming parlors in Italy, Greece, Bulgaria and elsewhere. But the growth trend has definitely spread to the U.S. in recent years, with new VGT laws in Illinois and Pennsylvania multiplying the VLT footprint and bringing new operators into the market.
The growth has been most dramatic in Illinois, one of the few markets not tied to a state lottery. Illinois first legalized VGTs in 2009, and placed the first machines in liquor-licensed locations in September 2012. At the end of that month, 61 VGTs were in operation. According to the 2019 “Wagering in Illinois” report of the state’s Commission on Government Forecasting and Accountability, there were 32,033 terminals operating throughout the state at the end of the most recent fiscal year last June.
The Illinois VGT law has brought new players into the state as route operators, including prominent land-based operators like Boyd Gaming, Penn National and Delaware North, which have joined leading operator Accel Entertainment in providing machines to the young market.
The Illinois VGT market is about to get even larger, thanks to a gaming expansion bill signed into law as the fiscal year ended in June. In addition to authorizing new land-based casinos, the law raises the maximum allowable machines for each of more than 7,300 licensed VGT locations from five to six.
At the same time, VGTs at truck stops got a boost. Licensed truck stops were authorized to go from five to six terminals each, and the law created a new truck-stop category. “Large truck stops,” defined as those selling at least 50,000 gallons of diesel fuel per month, are each permitted up to 10 VGTs under the new law.
The state forecasting commission estimates the changes in the law will bring the total number of VGTs in the state past 35,000 by the end of FY 2020 in June.
According to Illinois Gaming Board Administrator Marcus Fruchter, the board is currently processing applications from truck stops to verify they qualify for the extra contingent of VGTs, but preparations were complete by the end of December for current licensees to add a sixth machine.
“We had to engage in rulemaking to accommodate six machines,” Fruchter explains. “That took some time, given the vagaries of Illinois law, but the rulemaking phase came to end in December. We now have 141 locations that have a live sixth machine, and there are about 1,700 requests that are being processed.”
He adds that the board is now beginning to process new truck stop applications.
The new Illinois law made other changes likely to further the expansion of VGTs—the maximum per-machine wager was increased from $2 to $4, and the maximum cash award was raised from $500 to $1,199—$1 under the federal trigger for issuance of a W-2G tax form.
Pennsylvania is another state now adding VGTs to its gaming offerings, as the first terminals were added to truck stops last year under a 2017 gaming expansion law.
That law permits up to five VGTs at qualifying truck stops around the state. While it was partly tailored on the Illinois VGT law, the qualification requirements in Pennsylvania are tougher—to qualify for five VGTs, a truck stop must sell at least 50,000 gallons of diesel fuel per month, as opposed to 10,000 gallons in Illinois, which now qualifies a location for six terminals. More significantly, the Pennsylvania legislature left bars and taverns out of the VGT law, to discourage competition to the 12 land-based casinos.
According to Doug Harbach, communications director for the Pennsylvania Gaming Control Board, as of this writing, there have been 30 qualified truck stop establishments given final approval to operate up to five VGTs. Of those, 20 establishments are now operational, bumping the number of operational VGTs in Pennsylvania to 100. The board has 44 truck-stop applications pending.
“These truck stop establishments have an associated operator that is responsible for the machines,” Harbach explains. “Of the 20 that are operational, there are two individual operators—Marquee by Penn National Gaming, which has 15 of the establishments; and Commonwealth Gaming, which has five.”
The VGT and truck stop expansion measures in Illinois and Pennsylvania, while not massive in themselves, have energized the market, according to many of the suppliers that provide the machines to VGT and VLT markets.
“We believe the legalization of truck stop gaming in these markets has provided a tremendous opportunity for SG, along with the truck stop owners and operators, as well as for the states,” comments Damien Greig, senior director of product management for Scientific Games. “As one of the first manufacturers to enter the Pennsylvania truck stop market, we have so far placed games into 11 of the truck stops that are currently eligible, giving us an estimated 85 percent market share.
“In Illinois, the expansion from five to 10 games in their truck stop market has also been a great opportunity for us, and we have seen these locations generally perform better than other locations. This great performance, along with the continued demand for additional terminals, helps us to build a strong player base in both markets as those gaming markets continue to expand.”
“In Illinois, this type of legislation has added approximately 30,000 machines to the market,” adds Jon Hanlin, senior vice president of commercial strategy for Aristocrat Technologies, “and that has created a large and vibrant VLT market, which has had a positive impact on the state. Reports have clearly shown that the VLT expansion did not diminish traditional-style gaming in casinos, so as other markets look at Illinois’ success with expanding VLT, we hope those types of reports help to alleviate concerns.”
“New market openings and expansions are critically important to the VLT segment, for two reasons,” says Victor Duarte, chief product and strategy officer for Konami Gaming, which is just now adding the VLT sector to its product marketing plan. “First, they create incremental sales opportunities for suppliers that justify incremental investments in the VLT segment. Second, it further validates the distributed gaming market model. Illinois, for example, has been a tremendous success since its inception and now represents the single biggest distributed gaming jurisdiction in North America.”
Business is Booming
Expansion of the VGT markets in Illinois and Pennsylvania is only the latest growth in what has been a robust VGT/VLT market in the U.S. South Dakota has made a comeback in the past year, with more than 9,109 terminals in 1,336 locations that have brought revenues back near their 2010 peak, finally recovering from the effects of a statewide smoking ban in VLT locations. In Oregon, where bars and taverns host up to six VLTs per location, the lottery is second only to personal income tax as a source of revenue for the state.
In Montana, more than 1,400 licensed operators offer a total of more than 16,000 VLTs. Century Gaming Technologies, by far the largest route operator in the state, operates more than 6,000 terminals in Montana.
Century’s Montana business is nearing the scope of its business in Nevada, where it operates 7,000 games in routes of the former United Coin Machine Company, which it acquired in 2004. “The environment in Montana plays directly into our strengths,” says Tim Cogswell, vice president and general manager of Century. “We have been in the route business in Montana since the inception of statewide gaming over 30 years ago. We continuously work to be sure all of our route business partners have the most competitive equipment and highest level of service in every corner of the state.”
Whether in mature markets like Montana or in growing markets like Illinois and Pennsylvania, VLT/VGT gaming remains one of the most healthy segments of the gaming industry, and suppliers and operators alike agree that business plans will always include the distributed gaming sector in addition to casinos, and all are keeping an eye on where the next growth is likely to come.
“Illinois, Oregon and Pennsylvania are all interesting markets to watch, both for suppliers like Aristocrat, and for other states,” says Aristocrat’s Hanlin. “Other states are paying careful attention to Illinois, Oregon and Pennsylvania as they consider expanding into this type of gaming, and that makes us think that VLT is a potential growth engine for the gaming industry broadly.”
“We believe we will see growth internationally in Canada, Greece and South America,” says Scientific Games’ Greig, “as well as domestically in Illinois, Pennsylvania and Oregon. The new gaming expansion laws in Illinois open up the number of machines each licensed location can have, and with SG’s already-strong performance in this market, we are confident we will see more opportunity as part of this expansion.”
“IGT is firmly committed to the global VLT market, and it represents an important growth driver for many of our customers,” says Ryan Reddy, IGT’s vice president, product. “In North America, the Canadian and Oregon replacement cycles present growth opportunities for IGT, as does Illinois with its new ‘sixth machine’ and truck stop regulations. Pennsylvania is another market in North America that we closely monitor and identify as a potential VLT growth area.”
“Many states have been watching the recent successes of Illinois,” says Century’s Cogswell, “and the long-term success in jurisdictions like Montana, South Dakota and West Virginia, and contemplating how to best take advantage of this revenue opportunity for themselves. Whether it be Missouri, Georgia, Indiana, Wyoming, or any of the dozens of states that are evaluating this business model, the strongest growth potential will definitely lie in one or more of these potential new VLT jurisdictions.”
Q&A: Supplying the VLT Market
Suppliers of slot machines to the traditional casino gaming market are increasingly turning to VLTs as a growth strategy. Here are some of the basics of the successes and strategies of some of the largest slot suppliers in this growing segment.
GGB: What is your strongest VLT market, and why do you feel it is the strongest?
Damien Greig, Senior Director of Product Management, Scientific Games: The Illinois VGT market is currently our strongest market. Scientific Games has over 17,000 units live in the field, which equals a 52 percent market share. SG was one of the first manufacturers to enter this market when it opened up in 2013, and we have maintained the market leader position ever since. Because the majority of these games are developed out of our Chicago office, our game designers are able to take advantage of their close proximity to players and gain great insight into what these players like. As such, they have been able to design math models specifically for these regulations that resonate perfectly with players.
Ryan Reddy, Vice President, Product, IGT: IGT’s strongest VLT market is Canada, and it has been for many years. Canada is a gaming and lottery market, which plays well to IGT’s pedigree and strengths. We have longstanding relationships with our customers in the region that enable us to collaborate and identify new ways to modernize and propel the player experience.
Mike Smith, Director of Product Management, Aristocrat Technologies: While we have a robust VLT market in Canada, in the domestic U.S., we are entering the VLT markets in both Oregon and Illinois. Interestingly, players in both Oregon and Illinois have experienced our Class III games, so they are familiar with the type of game play and innovation we bring to games. Speaking first about Oregon, that is a VLT market that has matured, and players have established distinct preferences for the types of games and game play they enjoy, and as we enter that space, we are bringing the best that Aristocrat has to offer. We recently completed a 100-machine field trial, and we are looking at expanding in the near future.
Turning to Illinois, that is a bit younger of a market than Oregon, and although it is still relatively new and relatively new to Aristocrat, we expect it to be one of our strongest markets in our VLT business. Illinois is the largest VLT market, and the players there like casino games; they like newer styles of games. Given that, and given our commitment to innovation, we believe we are very well positioned to enter Illinois.
Victor Duarte, Chief Product and Strategy Officer, Konami Gaming: Konami views VLT as a strategic growth opportunity. Our initial focus has been on the government-operated distributed gaming markets, primarily in Canada. We believe these represent a logical strategic entry point, given the stability of the markets, our already existing relationships with the operators, and the near- to medium-term opportunity for machine purchases.
Is there anything you do differently in game development or marketing with the VLT market as opposed to the casino market?
Greig, SG: While one of our main strategies is to leverage our best brands in the creation of new titles, we do have to comply with each market’s regulations. Our development teams do a lot of specialized work to optimize the math models to work in the VLT markets, while also catering to these types of players, who are typically “local” players and may be different than a standard casino player. We also leverage player testing and market research to ensure that we are selecting and making the best games for the VLT player, as well as working closely with our distributors and lottery partners to best market our products to these repeat players.
Reddy, IGT: IGT has a VLT-focused center of excellence in Moncton, Canada that epitomizes our commitment to and leadership in the VLT space. This multi-disciplinary studio includes content managers, game producers, software developers, quality testers and project managers, all with the shared goal of creating the world’s best, growth-driving VLT products for our customers. We also strategically leverage player insights through multiple stages of the development process. In addition to drawing upon decades of experience in the space, IGT facilitates extensive focus group testing in North America and Europe to ensure high player appeal.
John Hanlin, Senior Vice President of Commercial Strategy, Aristocrat: At Aristocrat, we are passionate about our core values of collective brilliance and innovation, which are designed to put a sharp focus on our customers and what we can do to help our customers grow. So as we look at our games and prepare them for different markets, we do extensive market research to ensure we are on point with the right types of games that players are interested in. This ensures we offer a right mix of product to meet player demand. That’s important because every market is very different. Most are multi-game; however, most have distinct player preferences, so we ingrain ourselves in each market, seek to truly understand the players, the customers, and then creating best product for those customers that fits within regulations.
Duarte, Konami: Game development needs to be targeted towards the jurisdictional requirements and player preferences of each market. Each jurisdiction needs to be analyzed for key requirements such as return to player, max bet and max award, as well as player preferences in terms of themes, denominations and game features. Not only do these requirements and preferences differ from casino markets, but they differ from one VLT jurisdiction to another. The casino market is more homogenized across jurisdictions in comparison to the VLT market.
Is there any one VGT game that tends to dominate in your markets?
Greig, SG: Different VLT markets have different games that perform well. In Illinois, the original Bier Haus is by far our best performing VLT title, and now we have released Heidi’s Bier Haus on the J43 cabinet. Bonus 7’s Wild is a standout in Canada, and our brand, American Original, is a top performer in the Oregon VLT market. In West Virginia VLT, one of the longstanding best video slot brands is our Life of Luxury theme.
SG is currently the only manufacturer to leverage third-party brands, such as The Wizard of Oz, Betty Boop, Wonder Woman, Elvis and Monopoly. This year we will be launching new game sets featuring Willy Wonka and Rocky, to name a few.
Reddy, IGT: IGT offers a multitude of standout VLT titles across our vast library. Our VLT content encompasses a range of slot-style, keno and video poker games. The Big Easy and Brilliant Wilds are among our top performers in European markets, while Sevens Wild and Wild Life are hits in Canada. In the U.S. we continue to see positive results from titles such as Big City 5’s, Wild Life Extreme, Bullfroggin’ Keno and Michelangelo Poker.
Smith, Aristocrat: In the Canadian market, we have both casino and non-casino games that have been developed for markets to adapt to player preferences. Popular casino-type games include Wild Lepre’coins and Mighty Cash-style games, which have all been well received and well played. In non-casino style games, Fast Frankies and Sunset Tusk, which are more core VLT-style games, have done very well.
Duarte, Konami: Traditional themes and reel symbols tend to work well in VLT markets, but there is not a specific game or style that dominates across jurisdictions.