Just when you think that old piece of equipment sitting on your casino floor is ready for retirement, its popularity suddenly returns, forcing a second review before you can make your final replacement cut selection. When dealing with the replacement cycle of gaming devices, analysis is one method of determining value; age is another. But why age? If a slot machine is generating house average and just happens to be 10 years old, should it automatically be considered obsolete and destined for removal from the mix of games?
The manufacturing industry has been in a constant state of change, evolving the entertainment experience in its devices through bonus sequences that offer the gaming public increased time-on-device, and through characteristics that might be interpreted as attractive eye candy for a gambling customer when determining which machine to play.
The addition of colorful symbols and animation with increased visual resolution required improvements to the internal electronic capabilities of the gaming device that would support this new wave of entertainment. We might refer to these added features as “bells and whistles,” since the primary function of the device is still to offer a gaming patron an opportunity to gamble and win a jackpot—just like the machines of 10 years ago.
As a slot manager some many, many years ago, I was asked annually to plan my replacement list for outdated games on the casino floor. When the analysis was complete and my list delivered to the executive committee for final spending approval, a volley of questions soon began, as some devices had spent less than a couple of years on the floor.
Without concern for the earning potential, age began to surface as a reason for removal!
The finance department’s questions leaned toward everything from poor decision-making in purchasing equipment that lost popularity so quickly to finger-pointing at the manufacturers for delivering game themes that lost popularity in three to six months and required exhaustive conversions in effort to satisfy the gaming public and improve overall revenue.
While aging equipment does increase maintenance costs, it is not the No. 1 reason for removing it from a customer base that frequents the facility to play the devices they are familiar with. So what is missing from this equation to support the replacement of older-but-performing equipment for newer equipment that may or may not generate equal or greater revenue? Monetary value!
The term depreciation somehow gets into the equation when determining the length of time a gaming device is operated on the casino floor. As you might note from this opening dialog, there may be external mitigating factors involving the financial valuation of the facility that supersede the logical evaluation process of an analytical review of game performance regardless of equipment age.
Should equipment age be added to the equation when determining a replacement cycle?
Absolutely!
It is in the best interest of the slot gaming department to maintain as many gaming devices with improved electronics as possible. But will the newer equipment generate increased revenue? Internal and external factors involved in the marketing and operations of the facility play important roles in improving gaming revenue regardless of the age of your equipment.
The key to a successful slot operation is the capability to meet the demands of your customers in a changing market that is filled with an abundance of choices that were not available 10–15 years ago. The evolving gaming devices of today and tomorrow offer increased game and electronic capabilities to support marketing and operations’ requirement to exceed their customer’s expectations while visiting the facility.
Games produced in the years 2002 and 2003 kicked off the bonus frenzy period with a flood of new game themes designed to entertain and extend time-on-device. The push at many corporate levels to replace non-TITO machines added fuel to the decision-making process in determining which devices were to be replaced.
The gaming device improvement analysis with TITO in the equation has been touted by manufacturers as a positive coin-in increase of 20 percent, citing elimination of the downtime of coin-operated devices that required periodic replenishment of coins to the hopper for payouts. Added to the equation were reductions in the amount of staff required to support the coin-operated devices and maintenance costs for coin acceptors and hoppers, along with a reduction of employee theft. Armed with these numbers—and without expectation of any other benefit—a new variable was added to the product replacement equation.
The evolving electronics in gaming devices continue to increase the equation variables involved in determining the replacement cycle of the revenue generators on the casino floor, otherwise known as slot machines… or electronic gaming devices.
The term “electronic gaming device” (EGD) has begun to evolve as the perfect description of the evolving devices known as slot machines. The term EGD has been around for many years and clearly represents the definition of devices offered today and expected in the future.
Going back to 2002 and 2003, the bonus games produced and introduced to casino floors during that period were an introductory offering to gaming customers, wooing them off of traditional coin-operated reel-spinner devices onto higher-hold TITO devices. Limitations in the bonus features and math of the games required improvements that began surfacing in the following years as operators and manufacturers analyzed the psychology of the players with regards to entertainment.
From a pure financial perspective, games purchased more than five years ago should have been fully depreciated in 2008 and tagged for replacement. From an operator’s perspective, the electronics installed in devices from 2002 and 2003 fail to support game themes that compete with the improved math and capabilities of games produced today, rendering them inefficient.
Beauty does have its place in the process of analyzing the casino floor for revenue improvements, expected through the replacement of gaming equipment on an annual basis. Bells and whistles offer improved time-on-device and should be given added value versus age since the evolution of electronics is occurring at a faster rate than the average five-year depreciation.
In closing, when analyzing your casino floor, supporting a replacement of gaming devices, resist the temptation to overlook devices that under-perform but have not passed the five-year depreciation test. As games continue to evolve, electronics installed today may become obsolete tomorrow, requiring early replacement even though they are not fully depreciated, although in the long run a complete financial review might return an investment much quicker. When completing your spreadsheet supporting new gaming machine acquisitions, be sure to factor in the ROI, as it will aid in supporting your request regardless of age or beauty.
Rich Lehman is VP of Business Development for the Las Vegas-based Navegante Group.
A 26-year gaming veteran, he has served as VP of Slots, VP of Casino Operations and General Manager.
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