Slot makers gloomy before G2E

LAS VEGAS, Nevada -- Slot machine sales didn't turn into the revenue-boosting bonanza Nevada's gaming equipment manufacturers anticipated going into the year.

Some equipment makers are now worried 2011's prospects might not be much better.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski recently visited with slot machine company leaders. He told investors the economic mood has not brightened.

Casino operators, he said, have tightened their grip even harder on money that could be used to upgrade slot machine floors. Slot machine makers said the decision to hold off on capital expenditures might continue even if the economy shows some slight signs of recovery.

This can't be good news as the November kickoff for the 2010 Global Gaming Expo nears.

The event at the Las Vegas Convention Center is the casino industry's largest trade show. Slot machine companies unveil their newest game titles, themes and updated technology.

Manufacturers came away from last year's G2E with positive feelings toward slot machine sales.

Economic reality set in and the market never materialized.

The hope experienced a year ago might not return in two months.

"Given reduced capital budgets, operators appear less willing to try new products," Wieczynski said.

Some slot machine manufacturers have found other ways to boost profits.

Bally Technologies announced a multicasino contract to place its slot machine management system in three Penn National Gaming casinos in Maryland and Ohio now under development. Bally will also replace an existing system at Penn's Empress in Joliet, Ill.

The deal followed similar agreements with Isle of Capri Casinos and Galaxy Entertainment in Macau.

While not as profitable as slot machine sales, the systems business has helped Bally's bottom line.

"Most impressive is that Bally continues to displace competitor systems in the current challenging economic environment," Roth Capital Markets gaming analyst Todd Eilers said.

Other slot makers have placed their wagers on Canadian markets.

Quebec may be nearing a decision on which companies it will contract with to replace 12,000 slot machinelike video lottery terminals used in the province. That move could spur Alberta and Manitoba to make similar decisions, opening the potential for almost 26,000 new games to replace older machines.

"The decision represents a major potential catalyst for all of the equipment manufacturers," Janney Montgomery Scott gaming analyst Brian McGill said.