When the caps were implemented it was perceived that IGT's market share would remain in the 60 % to 70 % range, especially in the mid-Atlantic (market)," Union Gaming Group principal Bill Lerner told investors last week. "This was during a time when competitors were either struggling with some product category or introducing new silos of product."
However, Lerner said games offered by Bally Technologies, WMS Industries and other companies have cut into IGT's share of the Pennsylvania slot machine market. IGT officials sought to kill the market cap when lawmakers implemented the provision in 2006.
Surprisingly, language to eliminate the 50 % cap was tucked within the 160-page bill legalizing table games that will end the slot machine companies' monopoly on gambling in Pennsylvania. Governor Ed Rendell signed the bill on January 7, allowing casinos to offer craps, blackjack, roulette and other table games in exchange for licensing fees and a 16 % tax on gaming revenues.
When the final version of Senate Bill 711 was approved, a change to Section 1210 of the Pennsylvania Gaming Act was also implemented. Deleted from the act was a subsection authorizing the 50 % limit.
It was done so quietly that Richard McGarvey, a spokesman for the Pennsylvania Gaming Control Board, had to go back and check with other officials Friday to ensure the limitation law had actually been lifted from the act.
Pennsylvania had been one of only three states that capped the number of slot machines one manufacturer could have on a casino floor. Now, all three of those states - New Jersey, Delaware and Pennsylvania - have rescinded those limits. Chuck Brooke, senior vice president of government relations for International Game Technology, said he was pleased the limit was eliminated.
"By imposing the cap the casinos were arbitrarily constrained in their initial slot game selections which in the long run has cost them and the state financially," Brooke said. "Let's just say good things happen to those who wait. When it comes to politics, timing is everything."
Pennsylvania lawmakers implemented the cap when changes were made to the state's gaming laws. The move was seen as a shot at IGT, which at the time had command over the nation's slot machine market. The company has since seen its market share reduced. In 2006, Bally and WMS representatives supported the provision.
"Subsequently it has become clear that both Bally and WMS, with full suites of sought-after products, could sustain mid-40 %-plus share combined, before considering suppliers such as Aristocrat and Konami, etc.," Lerner said. He said the change in Pennsylvania was a "marginal positive at best for IGT" because of the company's diminished market share.
"That said we don't believe IGT will garner more than a 50 percent share in Pennsylvania across the state's casinos such that the removal of the cap results in upside to consensus expectations," Lerner said.
Slot machines have been allowed in Pennsylvania since 2004. Five standalone casinos and seven racetrack casinos are allowed up to 5,000 slot machines each and pay a 53 % tax on the revenues generated by the games. With the slot machine caps eliminated, Pennsylvania becomes a wider open market for the slot machine industry, especially with potentially lucrative casinos in the population-rich Philadelphia area on the horizon