One of the few questions overhanging gaming equipment provider AGS is the status of the company’s long-standing – but soon-to-expire – contract with the Chickasaw Nation in Oklahoma.
The tribe operates the massive WinStar World Casino, by far the largest in the country, which has more than 8,200 slot machines and roughly 600,000 square feet of gaming space. AGS has 16 percent of Chickasaw’s slot floor, and the contract’s future often comes up on AGS quarterly earnings calls.
SunTrust gaming analyst Barry Jonas, who visited the southern Oklahoma market this month, had some good news for AGS.
“We left our meeting with the Chickasaw tribe more confident that AGS will renew their Chickasaw contract that expires this year with the same terms,” Jonas wrote in a Jan. 17 research note.
The tribe operates roughly 20,000 slot machines at its multiple casinos across the state. Oklahoma is the second largest Indian gaming state in the nation, according to California economist Alan Meister.
Jonas told investors 11 percent of AGS revenues come from WinStar World, which sits just 71 miles north of the populous Dallas-Fort Worth area, with its 7 million residents. The DFW metroplex boasts the fourth highest gross domestic product among U.S. metropolitan markets.
Last summer, WinStar World signed a marketing and sponsorship agreement with the Dallas Cowboys, becoming the first U.S. casino to sign a deal with a National Football League team.
Jonas said WinStar World and the neighboring Choctaw Casino, operated by the Choctaw tribe, are important partners with the gaming equipment sector because they favor games in which the casinos share revenues with the gaming equipment providers.
“WinStar and Choctaw both operate on a 100 percent slot machine participation model with the manufacturers, which we see as a higher margin and higher multiple business for our coverage,” Jonas wrote. “Both casinos are meaningfully growing and have expansion plans over the next few years which should bode well for our entire coverage.”
In November’s quarterly earnings conference call, AGS CEO David Lopez expressed confidence that the company would remain partners with the Chickasaw Nation. He said the question often comes up when he meets with investors.
“I have no concerns about getting that deal renewed, no concerns about the terms on that deal or anything of the kind,” Lopez said in response to an analyst’s question. “It’s a great relationship for us, not just obviously with the Chickasaw Nation but with all (the) tribes in Oklahoma and our tribal relationships across the country.
“But, especially, obviously with them.”
Jonas said the Chickasaw tribe plans to add another 4,000 slot machines over the next three years through expansion at WinStar World and the development of new satellite casinos in a bid to attract customers from Dallas-Fort Worth.
He said the Choctaw plan to add another 3,400 games to its existing casino that currently holds 4,300 slot machines. The Choctaw operate 9,700 slot machines at all their properties.
“While Texas (gaming) legalization remains a long-term threat, Oklahoma tribal expansion suggests it’s not a near-term risk,” Jonas said.
In Meister’s most recently published Indian Gaming Industry Report, which he produces for Casino City, Oklahoma’s 32 tribal casinos produced $4.36 billion in gaming revenue in 2016, second in the U.S. only to California’s $8.4 billion.
Jonas estimated Chickasaw’s slot machines floors in the state receive 24 percent of their games from Aristocrat Technologies and its VGT subsidiary, followed by 22 percent from Everi Holdings, which owns the legacy MultiMedia Games’ products. Everi still operates the former MultiMedia studios in Austin, Texas.
AGS, for its part, is looking to grow its base in Oklahoma.
AGS Chief Marketing Officer Julia Boguslawski, when asked about the SunTrust note, said in an emailed statement the company doesn’t provide specifics on customer agreements.
“However, we greatly value and are proud of our long-term relationship with Chickasaw Nation and feel confident that we will renew our agreement with similar terms,” Boguslawski said. “We view our relationship with Chickasaw Nation as a true partnership and look forward to many more years working together.”
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
