Not long ago, slot machine companies were fairly easy to understand.
They made slot machines. Some of them also provided what they called systems: software that provided an ever-increasing array of functions from slot accounting to player tracking to marketing.
Most slot machines were sold to casinos and some leased in various ways, including the manufacturers receiving a share of machine revenues, the so-called participation lease, which became its own business segment called gaming operations.
Tracking the business of a company in order to project its future success was a fairly simple matter of counting new machine sales, the number of games on lease, average sales prices, revenue being generated by gaming operations, systems sold and the profit margins of each segment.
Add it all up, make some adjustments and you had a pretty accurate picture of what to expect from that company as a business and you were ready to start the next set of calculations on its value to investors.
Life has become a little more complicated in recent years with the emergence of Internet gaming, social gaming and globalization.
But perhaps the biggest change is that most large slot machine companies are no longer dedicated to the one business of games, or the second related business of systems software added to the games and network of games.
Indeed, of the largest slot companies, only Aristocrat stands out as a pure games and systems provider. That focus, along with the strategic decisions to emphasize game content and develop business in North America, are largely responsible for Aristocrat’s success over the past several years.
Most other gaming suppliers are now part of larger companies. That gives them the strength of a larger financial base, diversity of revenues and, in some cases, dependable recurring revenues.
Consider IGT, Scientific Games and Everi.
IGT is still the world’s biggest slots company, though its ship-share has come down to levels below Scientific Games, which is an amalgam of former slot and table companies.
But what sets IGT apart is that a majority of its business comes from lotteries—a relatively secure source of recurring revenue.
To a lesser extent, the same is true of Scientific Games. And if you want to wander from American stock exchanges, Athens-listed Intralot also combines the reliability of lottery revenues with other gaming enterprises.
Everi isn’t a lottery operator, but its market-leading casino payments business similarly generates steady cash.
The other structural difference are companies that are part of larger companies in similar or related businesses that offer deep pockets and different perspectives.
Konami Gaming is part of Konami Holdings, the Japanese entertainment giant.
Aruze is owned by Kazuo Okada, whose Universal Entertainment, like Konami, is a big company that trades publicly in Tokyo.
Ainsworth Technologies will soon be 53 percent owned by Novomatic, the privately held Austrian gaming conglomerate that itself might before long become a public company.
Thus, we have a more complicated world in gaming technology.
If an investor wants to understand the prospects of gaming suppliers today, it is necessary to understand different lines of businesses, and even different industries and countries.
