IGT’s overreliance on “Wheel” games presents a big risk in the face of a now wide open playing field. Indeed, BYI is positioning itself to flood the market with its own Wheel products.
“The internet, that thing still around?” – Homer Simpson
While not quite having the global impact of the internet, “Wheel of Fortune” is by far the most successful casino gaming machine ever produced. It’s been around for so long and production has been so stable that it’s almost an afterthought; its dominance has been unchallenged. That is, until now. We think IGT’s reliance, or should we say overreliance, on the Wheel is disconcerting and underappreciated in the investment community.
Wheel games comprise approximately 35% of IGT’s total participation installed base, or around 21,500 of 61,400 games. Moreover, Wheels perform above the average IGT participation game. We estimate Wheel games alone will contribute 30% and 50% of company-wide revenues and operating income, respectively, in F2009. Let me say that again: one line of products provides 50% of IGT’s operating income. Astonishing.
On October 22 of this year, a court ruling essentially invalidated the “wheel patents” that had protected IGT’s Wheel of Fortune from competition. Competitors are now free to introduce their own wheel games. BYI will no doubt take the lead here. Indeed, the company introduced a bevy of new wheel games at G2E and plans to “flood the market” with wheel products. Hey, we are focused on reaccelerating replacement demand and new markets too, but this issue is too important to ignore.