IAG September 2014 - page 4

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Paradiseand IGT: Taking It on theRoad
reatentrepreneurshavea knack for spottingopportunity in crisis, andMacau’s ever-
inventive JayChunbelieves he’s spottedone in theUS.
The co-distributiondeal he struckwith IGT lastmonthhas presentedhisHongKong-
listed Paradise Entertainment with its first real crack at the largest of the world’s
gaming markets—a market with troubling systemic issues, an overwhelmingly slots-centric
market saddled in the aftermath of the recession with toomany casinos chasing an aging and
dwindlingpatronbaseand inneedof somethingnewanddynamic toattractnew, youngerplayers.
Whether this can be addressed by turning very big slot manufacturers into even bigger
manufacturers remains to be seen, but certainly that’s what’s driving theM&A that’s reshaping
the competitive landscape, some$16billionworthover the last 18months, and thisParadise-IGT
dealmay turnout tobeoneof itsmore interesting subplots.
Mr Chun is the brains behind LT Game, the Paradise subsidiary whose electronic baccarat
has takenMacau’s boomingmassmarket by storm, answering shortages government policy has
engendered in table games and dealerswith a system that allows a single croupier to turn cards
for scoresof players simultaneously via individually linkedbetting stations.Macau’s casinoshave
installed3,239of thesestations todate, and it’sexpected that thousandsmorewill bedeployedas
more resorts openonCotai and those table and labor shortages becomemore acute.
There hasn’t beenmuch interest in this technology in theUS. But therewill be. Because the
industry there ishaving toconfront agiant paradox: that of the largest slotsmarket in theworld—
some 900,000 devices, a $45 billion industry—where slots, as we know them, aren’t cutting it
No one ismore aware of this than IGT, which dominated that market for 20 years and now
cannot generate shareholder value sufficient to justify its existence as an independent company.
US commercial and tribal casinos combined produced $66.3 billion in gaming revenue last
year, which was a record, but it was only 1.6% better than 2012, despite the fact that six states
openednew casinos or expanded their offerings. Of the states that sawno significant expansion,
only Nevada—i.e. the Las Vegas Strip—and New York saw year-on-year revenue growth. Same-
store results last year were down 3.1% nationwide. Since the worst of the recession in 2008-09,
five new states have added casinos, five have added racetrack slots andmore than 20 new tribal
venues have opened, and over this time, gaming revenue has grown an average of 1.46% a year.
And it’s going toget worse.Moody’s Investors Service forecasts revenuewill actually decline and
by 3 to 5%over thenext coupleof years.
The fact that Americans aren’t gambling in the numbers needed to support the growth
in supply has a lot to do with the downsized and uncertain future that is the new reality post-
recession for many in the consumer class. So it’s not helping that casinos also find themselves
slidingdown thewrongsideof thedemographicscurve. “Wehaveseenflat-to-down trends inslot
win across both the Las Vegas Strip and throughout theU.S.,” notedUnionGamingResearch in
a July report onGTECH’s $6.4 billion acquisition of IGT. “With a youngermix of players coming
into casinos, a key concern for the equipment industry is that slots generally appeal to an older,
more risk-averse gaming customer.”
This is less of a concern in Las Vegas, which is a huge non-gaming draw and has been
successful in recent years inattractinghigh-stakes international tableplay,mostlyout of China, to
float thegamingside.But theStrip is less than20%of theUSmarket. In theother80-pluspercent
slots are the lifeblood, the source of 85% of gaming revenue, and these guys are hawking a 20th
century entertainment proposition to a lot of 20th century customers who are going the way of
all flesh. SouthernCalifornia-basedEilersResearch expectsNorthAmerica’s installedbaseof slot
machines to increaseonly about 1.2%over thenext eight years.
Tablegames, on theotherhand,while lessprofitableoverall, havebeenholding theirownwith
revenue increases in themid-singledigits that look positively robust by comparison. And they do
attract those elusive younger players. Thismakes LTGame’s technology potentially a compelling
sell anddovetailsnicely bothwithMr Chun’sdesire to expandhis global reach andGTECH-IGT’s
need to counter competing platforms from the likes of SHFL Entertainment, now part of the
ScientificGames-Bally Technologies conglomerate, and you canbet therewill beothers.
InMacau,MrChunhasbeenable toclaimanexclusivepatent andhasn’t had tocompete.He
won’t have that protection in theUnited States. It’ll be an interesting experience for him and for
IGT, whichhas LT’sUSdistribution rights.
For the rest of us it’s going tobe interesting towatch.
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