Domestic slots: less than awful?

Price discounting on slots has been a big issue for investors recently. Discounting, concerns about casino slot capex, and lower play levels of participation games have contributed to drive IGT, BYI, and WMS down 52%, 50%, and 33%, respectively, off their highs. My man in Las Vegas has been gathering intelligence recently and had less than awful commentary to report. Contrary to the views of many in the investment community, discounting has not yet taken the form of price cuts. Rather, slot suppliers appear to be offering better financing terms to their customers. On the margin this is a positive vis-a-vis price discounting but will negatively impact the timing of cash flows. The industry has also yet to see price discounting on the revenue sharing side although it is unclear whether other terms have been extended. Finally, while replacement demand is way down, it appears to be more of a slot cycle factor rather than from cuts in the operators' slot capex budgets. Asian slot sales remain a disappointment as I wrote about in my asian slot post on 7/8/08.

Unfortunately, the positive commentary is of the "on the margin" variety so I'm not quite ready to call an inflection point. However, it should be considered as we approach IGT's earnings release on Thursday.

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