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IL January approvals are solid albeit a deceleration from December

On January 28, the Illinois Gaming Board (“IGB”) released a list of all licensees, which included 1,143 licensed establishments, implying the approval of 188 incremental establishments, a deceleration from December, but still a solid month.  January compares to 350 grants in December and 105 in November.  To date, there have been no establishment licenses revoked and 35 establishments have been denied licensure. One terminal operator had its license revoked along with 22 terminal operators and 1 manufacturer that have been denied licensure.  Currently, 2,500 establishments are pending approval, a 1% decline from December and a 6% decline from peak in November.  IGB appears to be cutting into the backlog.

Each location is allowed a maximum of 5 machines so the 1,143 approved locations imply a current maximum market size of 5,715.  On October 10th after 3 weeks of testing, the IGB allowed 65 establishments to go live with VLT gaming.  In the September quarter, BYI and WMS recognized several hundred game sales into IL.  In the December quarter, most suppliers will recognize revenues associated with placements in this market.  The only company to report, IGT recognized revenue on 1,100 VLTs sold to IL in the December quarter, 200 of which were shipped in the September quarter.

Our sources tell us that as of December 31st there were 2,855 VLTs installed in IL which is-in line with our running estimate of 3,000 VLTs shipments into IL in 2H2012.  We also stand by our prior estimate of a 10,000 unit market by the end of 2013.  We expect that most of the VLT sales (upwards of 75%) will come with some sort of financing, but most will be accounted for as for-sale machines.

Our understanding is that ASPs should be around $12k range.  The consensus is that VLTs will win about $100 on average per day, with a large range depending on the location.  We believe that distributors receive a 10-15% cut of the purchase price as their commission, with the big suppliers paying on the low end of that range and some of the smaller guys paying at the higher end of that range.  Typically, distributors take the machines on a consignment basis, meaning that suppliers cannot recognize revenues until the machines are placed in the establishments.

DETAILS ON PENDING APPLICATIONS:

Distributor:  3

Manufacturer:  3 (including Speilo and Konami)

Supplier:  5

Technicians:  29

Terminal handlers:  143

Terminal operators:  14

Establishments:  2,500 pending