AC has seen 33% of its slots exit the market over the last 5 yrs including 2k or 7% since the end of 2009; yet, overall slots in the Northeast have grown.
The number of slot machines in Atlantic City has fallen from 42k to 28k in only 5 years. That’s a 33% decline including a 7% decline just since December. Atlantic City is a market long under pressure from slots in Delaware, New York, and Pennsylvania, and expansion in CT. While this is probably a smart strategy to improve productivity in a declining market and save on taxes since New Jersey levies an annual $500 per slot license fee, fewer slots is not a positive trend for the equipment suppliers.
While everyone tries to figure out whether the “new” replacement cycle is 7, 10, or 12 years, what if the slot base starts declining? We guess that’s the potential partial offset to the new market thesis. However, as the following analysis of the Northeastern market shows, new markets are the more powerful theme. Despite the huge drop off in AC slots, non-AC slots in the northeast outnumbered AC beginning in Q4 2006. Since then, AC lost 8k more slots through Q2 2010 while the other states gained 25k.
Our point is that the US slot market is a growth market, as it is internationally. To be sure, mature markets tend to lose slots over time due to rationalization and more importantly, the opening of new and competing markets. However, the US is not slot saturated. New markets have always brought incremental slots. Replacements ebb and flow but they remain. Despite the Great Atlantic City Depression, per our conversations with the operators, casinos there are still replacing roughly 8% of their floors annually.
With the state budgets in serious decline, more and more states will legalize or expand gaming. This may not be good for existing operators, but as the Northeastern market shows, it should be a big net positive for the slot suppliers.