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She should be a decent new market for the slot manufacturers.  VLT shipments to Italy could commence as early as 2H2010 and could be a nice boost for BYI, IGT, and WMS.

In an effort to raise earthquake relief funds, the Italian government recently passed legislation allowing for the conversion of 14% of the existing AWP machines in the country to be converted to Comma 6B machines, otherwise known as Video Lottery Terminals (VLTs).  Like the AWP games, VLTs will also be operated through a central server.  This presents a market opportunity of roughly 57,000 new machines if all the licenses are purchased.  The cost of each VLT license is 15,000 Euros, equivalent to an aggregate of 850MM Euros of tax proceeds to the Italian government. 

There are ten concessionaires that have the right to bid on the Comma 6B licenses and each concessionaire can only bid 14% of their existing AWP install base.  In their initial indication, all the licenses were spoken for and all 10 concessionaires made the initial 50% deposit in Oct 2009.  They have until March 2010 to confirm the final number of licenses that they want, with the remaining 50% payment due by June 14, 2010.  It’s likely that the final amount of the licenses purchased will end up between the 28,500 that has already been paid for and the full 57,000 amount that is approved. 

The two main issues that will determine the final scope of the market are:

  • Quality of the locations that each concessionaire has
  • Regulation of the secondary market; meaning what happens to the licenses that aren’t bid for, which won’t be decided until March 2010

Once the suppliers are compliant with Italian regulations for VLT operations and the final payment is made, then the concessionaires can start operating the machines.  We see the time line as follows:  1) the testing and approval process with be completed in March, 2) shipping will likely start in 2H2010 and 3) most of the units will be operational by 1Q2011. 

Lottomatica will use its own Speilo machines for its licenses and has an agreement to sell up to 2,000 machines to Gamenet.  Other market players will include:  IGT, WMS, BYI, and Novamatica. 

IGT has a relationship with Atlantis; they will likely announce some sort of agreement over the next few weeks but we suspect IGT will form other distribution partnerships.  BYI has a relationship with many of the players and has provided machines to Cogetch, HBG, and Atlantic, to name only few.  WMS is in discussion with half of the concession holders. VLTs will likely be priced in the $12-13,000 range.

Listed below are the details on the 10 Concessionaires:

  • Atlantis World is the largest with rights to 12,000 VLTs
  • Lottomatica has rights to 10,800 licenses (Spielo)
  • Gamenet has rights to 8,000 licenses
  • Cogetech 
  • SNAI
  • Cisal
  • HBG
  • Cirsa
  • Codere
  • Gmatica

So what are the economics to the equipment suppliers?  Assuming that 75% of the potential 57,000 licenses get purchased in the primary market (meaning that not all the licenses get bought in round one) leaves a market of 43k units.  Taking out Lottomatica’s share, since they will use Spielo, that leaves 33k for the four likely players:  IGT, BYI, WMS and Novamatica.  Assuming equal share – not likely but is the best guess – then that’s 8,250 units per supplier, likely recognized in 4Q2010 or 1Q2011.  Assuming $12.5k pricing and a 40% margin (since the games are Italy-specific and lower priced) = $5k of gross profit per unit or $5MM per 1,000 units.  Here is the impact by company:

  • BYI:  $0.06 in EPS for every 1,000 units sold; 8,250 units = $0.46
  • WMS:  $0.05 for every 1,000; 8,250 units = $0.43
  • IGT:  $0.01 for every 1,000; 8,250 units = $0.08

THE ITALIAN BIRD - suppliers italy 1