IL LICENSING ACCELERATES

Takeaway: New markets should be a big boost to the slot suppliers in the coming years and Illinois VLTs is providing a near term lift

At least something is going right in Illinois

Yesterday, the Illinois Gaming Board released a list of all licensees as of September 20th.  The list included 333 licensed establishments, implying approval of an incremental 153 establishments in September.  This is an acceleration over the 92 licenses granted in August.  To date there have been no establishment licenses revoked and only 10 establishments have been denied licensure.  There has been one terminal operator who had their license revoked along with one manufacturer and 22 terminal operators that have been denied licensure.  Currently there are 2,381 establishments pending approval, up 35% from August.

Starting in September, authorities began actively pursuing enforcement against locations operating “grey” machines.  Those found in violation of the law will be charged with Felony action.  The crackdown on "grey" machines should continue to boost the demand for legal VLTs.

Each location is allowed to operate a maximum of 5 machines so 333 approved locations implies a current maximum market size of 1,665.  We expect that about 1,000 VLT's will get shipped to IL in the September quarter with IGT machines comprising the majority of those machines.  Our best guess is that 3,000 VLTs will be shipped to IL in 2H2012 and by the end of 2013, the market should consist of about 10,000 units.  We expect that the majority of VLTs will be for sale with manufacturers providing financing to the route operators.  We are hearing that ASPs should be in the mid-to-high $12k range.

DETAILS ON PENDING APPLICATIONS:

Distributor:  4 (Cadillac Jack IL, Gametech International, Golden Route, PDS Gaming-IL)

Manufacturer:  3 (Cadillac Jack, Gametech, Golden Route)

Supplier:  6

Technicians:  39

Terminal handlers:  166

Terminal operators:  13

Establishments:  2,381 pending