The consolidation spree that has reshaped the gaming manufacturing landscape has left in its wake some heavy financial burdens that won’t be going away soon, according to a new report from debt analysts Fitch Ratings.
Compounding the leverage issues are weak industry fundamentals, intensifying competition from smaller participants, and the rise of social gaming, which the firm believes is cannibalizing land-based gaming. Taken altogether, the impact is working to dilute cash flows, the firm says.
Moreover, Fitch believes those fundamentals?principally in the form of replacement sales of new slot machines and operating revenue from participation games?will remain weak.
“Suppliers churn profits by selling slot machines to ever-more thrifty casino operators looking to replace older ones while also selling to new casinos, which are becoming increasingly rare,” the firm says.
As for the participation segment, where manufacturers lease licensed games to casinos for a share of the revenue they generate, the firm describes it as “under pressure” because “operators loathe sharing revenues, which hurt margins”.
“We do not see anything on the horizon that would likely reverse these trends,” Fitch says.
At the same time, relatively smaller suppliers, from a U.S. standpoint, are taking share from the so-called “legacy suppliers” that historically have dominated sales.
Which is not to say consolidation hasn’t come with benefits, diversification being one of the major ones, the firm adds, noting that it has given International Game Technology access to the stable lottery systems business and a dominant position in the Italian gaming market, while allowing Scientific Games to reap the rewards of growth markets in instant lottery and table games sales.
But it has stuck some suppliers, notably SciGames, with “strenuous credit profiles, despite lauded diversification and synergy benefits”.
