Slot play has yet to slow down, according to ReelMetrics CEO Nick Hogan, and the industry still has growth opportunities. But talk of tariffs “present challenges” for the sector, according to an April 11 investor note by Truist Securities analyst Barry Jonas.
According to Jonas, ReelMetrics “helps operators optimize their floors, with newer, better product driving incremental revenue.” He hosted an analyst call with Hogan earlier this week.
Hogan said that tariffs were creating uncertainty within the slot sector. “Many operators made considerable efforts to diversify their supply chains post-COVID,” Jonas related. “Still, if blanket tariffs are kept in place, Mr. Hogan predicts a material rise in the cost of slot machines that are near-certain to be passed on to gaming operators.”
This inflation would have a trickle-down effect on casinos, which would likely curb their slot-acquisition budgets. Jonas added, “There remains some uncertainty around the underlying demand by customers for gaming in general.”
Should slot prices rise, Hogan predicted compensation in the form of stable leasing fees. “This could potentially drive some expansion of premium lease mix as an alternative to upfront product sales.” But he cautioned, “The macro environment remains very noisy and fears of a recession have seemingly increased.” Even so, players’ wagering has yet to decelerate nor has their behavior changed.
Although Light & Wonder and Aristocrat remain beset by litigation, Hogan found both to be solid performers. Likewise, he didn’t feel that the performance of IGT was hampered by an ongoing spinoff of assets to Apollo Management. Jonas anticipated the IGT transaction would close in the third quarter of this year.
ReelMetrics’s salient finding was that growing the number of a company’s best games drives revenue. By this, Hogan meant that the top 3.6 percent of slot players account for almost 25 percent of machine revenues. By contrast, the middle, 26.3 percent tier of players represented 56.3 percent of winnings. The lowest tranche, some 70.1 percent of customers, made up only 18.8 percent of slot revenue.
Furthermore, half of all slot winnings were garnered by just 10 percent of game titles. Conversely, 55 percent of slot positions were generating only two minutes of play per hour.
“Ultimately, Reel Metrics research points to supply imbalances around premium games, which limit revenue potential,” Jonas chronicled. He said that premium games had increased from 3.25 percent of slot floors 10 years ago to 16.1 percent now. Hogan estimated the optimal floor share for premium games to be between 15 percent and 30 percent.
“In terms of relative manufacturer scale, size still matters,” Jonas added. Hogan didn’t think that it would be easy for the market to shift from a pronounced tilt toward Aristocrat, Light & Wonder, and IGT.
Should smaller players take share, Hogan thought IGT the most at-risk of the big three, “though that could change depending on its post take-private strategy and execution. At the same time, the slot business is still hit-driven, and slam-dunk games could lead to shifting share,” Jonas reported.
Light & Wonder titles were said by Hogan to be top performers, with Huff ‘N Even More Puff leading the Reel Metrics Core Video Reelhot Index. “Average bets and game speeds have remained healthy, though it has begun to show some location sensitivity (where game performance drops, though picks up when machine physically moved to more favorable location,” Jonas added.
The same company’s Jewel of the Dragon was the victim of bad timing, showing itself to be a “strong performer” right at the point when Light & Wonder pulled it from casino floors, due to amended litigation with Aristocrat. Other games deemed worthy of attention from investors were Kong Skull and Monopoly Express, “given solid performance and expansion.”
The top performer for Aristocrat was Mo Mummy, reported to have a 99 percent conversion rate and outperforming the house average by 176 percent, even though it’s two years old. Aristocrat’s Phoenix Link was deemed “one of the best slot titles ever produced with rapid adoption and very solid performance.” It was seeing 63 percent higher-than-average bets. Hogan added that ReelMetrics saw no evidence of Phoenix Link gobbling up market share from Dragon Link.
As for the merger of the IGT and Everi Holdings game portfolios, Hogan said they “complement each other well, thinks both transactions make financial sense, and believes industry consolidation is rational.” He also saw no impact from the transaction on slot floors.
