Armed with the right information on how to handle your next purchase of electronic gaming devices, you could save your company hundreds of thousands of dollars. As such, below you will find a disclosure of the elements of a purchase transaction related to the acquisition of electronic gaming devices or slot machines.
Each manufacturer provides purchasing incentives to promote the sale of its equipment. The average price of a slot machine is in the range of $13,000 to $15,000, which does not include game themes or added value components such as spinning wheels for bonus payouts. The average price for game themes necessary to operate the electronic gaming device follows in the range of $2,500 to $5,000, depending on the manufacturer and theme. The average price per gaming device with game theme is in the range of $15,000 to $17,500.
Purchasing Incentives (Discounts)
Incentives are classed as follows:
• Corporate Discounts – A corporate discount is established for those operators that have more than a single property. Manufacturers base future sales on the buying power of multiple properties into a single agreement, allowing discounts in the range of 8 percent to 12 percent or higher depending on the number of units operated.
• Volume Discounts – Manufacturers periodically provide additional incentives in the volume of the purchase, extending discounts of 2 percent or greater. Usually manufacturers use this type of discount to boost their market share on the casino floor.
• Cash Net 30 Discounts – When a sales agreement is paid in full within 30 days, an additional discount of 3 percent or greater is applied to the sales agreement.
• No Trade-in Discounts – Some manufacturers provide a 1 percent or greater discount in the event that the operator does not require a trade-in of used equipment.
• WAP Discounts – Some manufacturers will include a WAP (wide area progressive) discount of 1 percent or greater based on the percentage of their units compared to those of competing manufacturers.
Reduction of incentives include:
• Participation Options – This is when an operator elects to place a gaming device on 60- to 90-day or longer participation for the purpose of evaluation. Under this type of arrangement, the operator may not be eligible for a Net 30 discount.
• Lease Options – This is a long-term lease with no intent to purchase the gaming device. It is funded by a revenue split, which is traditionally 80 percent paid to the operator and 20 percent paid to the supplier of the gaming device, scheduled either bi-monthly or monthly.
• Bucket Sales – When the operator elects to finance the purchase of a gaming device through a revenue split on a monthly plan, the operator would not be eligible for the Net 30 discount and, depending on the length of the agreement, may lose the volume discount. Many volume discount agreements cover annual sales versus total sales.
• Free Trials – Many manufacturers resist free trialing their equipment unless they lack market share and are attempting to move their product onto the casino floor. A requirement for an operator to operate free trial “EGD” is to agree to the purchase of the product in the event that the EGD exceeds an acceptable win per day approved by both operator and vendor.
Purchase Price with Discounts
Vendor agreements must detail what is covered under negotiated discounts, which includes the electronic gaming device, game themes and any other ancillary components requested by the operator. Following is an example of a sales order for one machine (game theme included) and what impact the discounts have on the final purchase price.
Machine XYZ has a list price of $17,000, but the manufacturer applied a 12 percent corporate discount, a 2 percent volume discount, a 3 percent Net 30 discount, and a 1 percent no trade-in discount. In total, an 18 percent discount was applied to the $17,000 list price, resulting in savings of $3,060. The purchase price after discount was $13,940.
In many cases, manufacturers won’t apply discounts to game themes but will offer one- or two-game theme conversions on a percentage of purchased machines with within a three- to six-month period. This practice allows operators to receive the Net 30 discount for direct sales and to convert game themes that fail to provide expected revenue.
Added Value After the Sale
Manufacturers typically offer parts coupons for each group of machines sold to a casino to be used for game theme orders, machine parts orders or other upgrades the casino elects to use them on. The dollar value varies with each manufacturer but can be negotiated to provide additional savings in stocking the technician shop with necessary repair supplies.
Price with 90-Day Lease Option
In this example, we will examine the price of one machine with an average win per machine per day estimated at $160.
At 90 days of operating, Machine XYZ generates $14,400, of which $2,880 (20 percent of $14,400) is paid to the vendor in an 80/20 split agreement. In the event that Machine XYZ’s lease is converted to a sale, its original list price of $17,000 is reduced to $14,120 by subtracting the $2,880 90-day look-back revenue.
If the manufacturer also offers a 12 percent corporate discount in the conversion to sale, it is applied to the original list price, resulting in a price of $14,960. The $2,880 in fees already paid in the 90-day lease agreement would then be deducted, reducing the finance amount of the machine to about $12,080.
Purchase vs. 90-Day Lease
The purchase price of Machine XYZ with no trial period is about $13,940, while purchasing it after a 90-day look-back lease option is $12,080. The difference is $1,860, but the property paid down $2,880 on the leased option during the 90 days of operation. The cost to the operator in losing the Net 30 discount is $1,000 per gaming device leased for 90 days.
Lease with No Purchase Option
In this example we will examine the price of one machine with an average win per machine per day estimated at $160. Be aware: No discounts apply to this form of a lease.
At 90 days of operation, the machine has generated $14,400. Under an 80/20 split agreement the operator has paid the vendor $2,880, or 17 percent of the purchase price. At 180 days of operation, the machine has generated $28,800 and the operator has paid the vendor $5,760, or 34 percent of the purchase price. At 270 days of operation, the machine has generated $43,200 and the operator has paid the vendor $8,640, or 51 percent of the purchase price. At the one-year mark of operation, the machine has generated $58,400 and the operator has paid the vendor $11,680 or 69 percent of the full purchase price.
At a rate of $32 per day, which is 20 percent of $160, the operator will pay the full purchase price with no discount to the vendor in less than one and a half years.
This option is the least attractive because the property never owns the gaming device.
Terms
All agreements should be required to have in place terms that allow a 30-day notification of termination by either party with no provisions for additional payments.
This information is intended for use as a guide when negotiating the terms of your next purchasing agreement. When preparing your next order of gaming devices, look for every advantage in swinging the best deal possible.
Rich Lehman is VP of 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.
Comments
Post new comment