• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

This October will bring a very interesting dynamic to the slot machine industry. IGT will cease to install conversion kits on all of its platforms with the exception of the newest, AVP. This looks to me to be a pretty big bet on Server Based Gaming (SBG).

  • Sluggish replacement sales have masked a solid conversion environment over the past 2 years. As can be seen in the first chart, conversion activity has not followed the downward plunge in slot demand. For the casinos, conversions are a big time money saver. Slot boxes last for a long time, game appeal does not. Game conversions run in the $4-5k range versus $12k+ for a whole new slot machine. Obviously for the supplier, a full slot sale is preferable. I attribute the relative strength of conversion sales to the following:

    • Better technology
    • Operators converting ahead of IGT’s dictum (customers were notified over a year prior)
    • Casinos with cash-strapped balance sheets pursuing the lower cost conversion alternative
    • Shorter “game appeal” duration


  • The 2nd chart shows that IGT has a little over 500,000 of the 900,000 slots installed in North America. Only 30,000 of these machines are on the AVP platform, leaving a significant number of machines unconvertible. An IGT bull might say that due to competitive conditions between the operators, casinos will be forced to replace existing games with brand new machines. Alternatively, SBG provides an easy solution whereby new games can be purchased and downloaded automatically on the AVP platform. On the other hand, IGT’s conversion decision now puts almost 500k machines up for grabs. Casinos do not have to replace an IGT machine with an IGT machine. Where there’s a bull, there’s a bear.

  • That’s the IGT story. The BYI and WMS stories are altogether different. At the very least, I think IGT’s decision could spur more conversions for BYI and WMS. More likely, the move opens the door for more market share gains, at full pricing. Again, that’s almost a half of a million slot machines that will ultimately be replaced and not converted.

Slot conversion growth outpaced replacements. A lot of market share up for grabs.
IGT Bull vs Bear