ollowing four years of rapid casino resort development, the economic decline will force operators to focus more on gambling floors and bringing in newer, popular machines to keep cash flowing, Richard M. Haddrill, CEO of the second-largest US maker of slot machines, said in an interview yesterday.
“The replacement cycle, which has been slow now for five years, will start to slightly improve about 12 months from now,’’ Haddrill said at Bally’s Las Vegas headquarters. “The casinos are going to turn more of their attention into operating their existing assets, and focus very much on getting entertainment dollars, of which there are only so many.’’
Las Vegas Sands Corp. and Boyd Gaming Corp. are among US- based companies shelving some casino-resort construction to focus on boosting cash flow at existing and near-finished properties as gamblers spend less.
Games bought when the industry shifted to ticketed payouts from cash are “getting older, they’re fully depreciated,’’ Haddrill said. Casino companies are “going to be valued by Wall Street and their investors by how well they operate their existing assets’’ through this downturn.
Current replacement rates of the 800,000 slots operating in North America will leave many established casinos with games that are about 16 years old, Haddrill said. “With all the casinos that have opened in the past two years, you’re going to have a casino nearby that has a fresh floor that’s going to be doing better than yours if you haven’t invested some," he said. “The return on investment on new gaming devices is very powerful."
Bally slots account for about 12 % of overall installed games in North America. It may follow WMS Industries in boosting its international sales to 30 % of revenue within three years, Haddrill said. Venues outside of North America now account for 15 % of its revenue, compared with 6 % four years ago.
“We believe that over the next three years, we can improve it meaningfully as a percent of where it is today," he said. “We’re steadily growing that business at a faster pace than the US, so it wouldn’t be unreasonable to see our international business as high as 30 percent in two to three years."
South and Latin America, Mexico, Europe, South Africa and Asia are Bally’s biggest overseas growth markets, Chief Operating Officer Gavin Isaacs said in the interview.
Haddrill reiterated Bally’s November 6 forecast for fiscal 2009 profit of us$ 2.15 to us$ 2.45 a share. Delayed casino openings are being offset by growth in areas including sales of technology systems used by casinos to reduce costs and better market to players, and gaming-operations revenue, from leasing fees and a share of slot-machine winnings, he said. The average estimate of 13 analysts surveyed by Bloomberg is for annual earnings of us$ 2.30 a share.