Question of the Day - 21 December 2018

According to Global Gaming Business magazine, domestically, 85% of slot machines are owned by the casinos, while the other 15% are leased.

The lease idea goes back to the first Megabucks wide-area-progressive machines, in which the casinos and slot manufacturers shared in the profits earned from the networked machines, as well as the liability of paying out the big jackpots.

That evolved to encompass slots with lower jackpots, but expensive themes. As we saw in yesterday’s answer about celebrities and slots, licensing costs for hot intellectual-property machine themes continue to go higher and higher. The cost of the machines themselves, plus the amortized licensing fees, would catapult the price to buy them out of reach of most casinos. So those slots are now leased by the casinos.

We understand from our research that one arrangement is a 50-50 split of revenues between the manufacturer and the casino, minus whatever royalty percentage goes to the licensee (the brand owner). This also allows the manufacturer to offer smaller advances to licensees in exchange for a long-term payment schedule. And like the wide-area progressives, the manufacturer and casinos share the costs, risks, and paydays.

Some slot makers take a 20% cut of a casino's winnings on a leased machine; the percentage is higher on slots with higher licensing fees.

Some casinos, like the Mohegan Sun, pay a fixed fee for leased machines, up to $75 per day per machine. (The Mohegan has more than 6,000 slot machines on the casino floor and the figure we saw was $15 million a year for its leased slots.)

The other advantage of leasing is that if a new slot theme proves unpopular, the machines can be returned to the manufacturer to be replaced by better earners. After all, at a retail cost of $14,000 to $25,000 per, that’s a sizable investment if a purchased machine turns out to be a dud.

Still, 85% of slot machines are owned by the casinos. These are the workhouses that earn day in and day out, year in and year out, unlike the leased slots, which can earn up to twice as much as the casino average, but flame out and need to be replaced more often, especially since most leased slots have a higher hold percentage than casino-owned slots (again due to the high licensing fees).

“By all accounts,” according to an article in The New York Times about leased versus owned slots, “slot floor directors are never shy about giving the boot, even after just a few weeks, to games that fail to earn considerably more than their cheaper counterparts.”

Also, with server-based systems, casinos can own their machines outright and change games, hold percentages, etc. with the push of a button in the back office.

Slot Machines

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Starting a Slot Machine Business in Illinois

The Illinois Video Gaming Act became law on July 13, 2009,
regulating the use of video gaming terminals (VGTs or slot
machines) in licensed establishments in Illinois. The legislation
initially allowed for up to five VGTs per licensed establishment.
In June 2019, Illinois lawmakers passed sweeping legislation
significantly expanding the Illinois gaming market. Among
other changes, the law now permits up to six VGTs per licensed
establishment and up to ten VGTs at specially-licensed large truck

Not every municipality allows video gaming. On the IGB website,
you can find a breakdown of each municipality in the State and
if they allow video gaming. If your municipality doesn t allowing
gaming right now, we are here to help!

Throughout 2019, video gambling in Illinois generated
$1,676,612,394 in total revenue.

What is Your State-Determined Cut of the Profits?

Net Terminal Income (NTI) is defined as the money put into a VGT minus the credits paid to the player. The State receives 29% of the NTI generated from each licensed VGT (of that, 5% goes to the local municipality). Of the remaining 72% of NTI, a company called Scientific Games receives 0.8513% as compensation for maintaining the Central Communications System (CCS), which all VGTs connect to. Finally, the remainder is divided equally between the Terminal Operator (who owns/leases and places the VGTs in locations) and the Licensed Location.

Slot Machine Terms You Need to Know

It doesn t matter if you ve been in the slot machine industry for years or you have no experience, there are MANY terms to know and understand. For instance, one source of confusion is what to call the actual industry. Is it video gaming? Is it video gambling? Video slots? Slot machines? Truth is, it just depends on the person(s) talking about it. For instance, the IGB refers to it as video gaming (hence, the Video Gaming Act). But, if you are talking to a person that plays the VGTs, most likely they are referring to them as video slots.

Here are some of the terms and definitions you ll find in our terms guide:

  • Illinois Gaming Board (IGB) The IGB is the state agency that regulates both casino gaming and video gaming in Illinois. The Board itself is a five-member board, appointed by the Governor and confirmed by the Senate. They have a large staff consisting of investigators, enforcement agents, financial and licensing staff, as well as attorneys. The IGB investigates and issues licenses to persons and entities involved in gaming and regulates all day-to-day gaming activities.
  • Terminal Operator (TO) - The TO is the licensed entity that owns, services, and maintains VGTs for placement in Licensed Video Gaming Locations (licensed Retail Establishments, Truck Stops, Veteran and Fraternal Establishments). In the State of Illinois, to operate video slots, you need to have a signed contract with a Terminal Operator.
  • Central Communications System (CCS) The CCS is designed to provide real-time communication to and from every licensed VGT in Illinois.

How to Secure Your License to Run a Slot Machines Business

If you re new to gaming and wondering how to get started with VGTs, you ve come to the right place. We ve outlined some of the most important steps you ll need to take if you re looking to add video gaming to your location:

  1. Ensure your Illinois business is operating in a municipality that allows video gaming. The IGB s website provides a list of where video gaming is permitted.
  2. Make sure the type of business you own (or plan to open) is one of the types of locations allowed to apply for a Illinois video gaming license.
    1. By law, there are four categories of Illinois video gaming establishments that the IGB can license: retail, fraternal, veterans and truck stops. However, a wide variety of businesses make up the category of licensed retail establishments, including some that are known as non-traditional. Learn more about non-traditional gaming establishments here .
    2. Note: Unless you qualify as a truck stop, you must have (or obtain) an on-premises Illinois liquor license and serve alcohol at your location.

    Preparing Your Slot Machine Business

    Now that you ve applied for an Illinois video gaming license, it s time to start thinking about where your slot machines will go within your establishment. The placement of your video gaming machines can directly influence how successful you are. Once you re licensed and ready to go, the last thing you want is lost revenue due to distraction or a poorly planned gaming room.

    There are certain things you need to be aware of when designing space for your VGTs, and a few of them are required by law.

    Other considerations:

    • Purse hooks
    • Spacers between machines, if space allows for them. Even better if they provide a space for patrons to charge their phone!
    • Bin for cash out vouchers near the NRT or ATM
    • Terminal Operators can provide guidance when creating your gaming room

    From our experience of designing and redesigning gaming rooms, we know what layouts contribute to a successful gaming environment. For instance, privacy can make players much more comfortable, as well as nice chairs and a non-drafty space that s not too noisy.

    Want to see your game room re-imagined?

    Call us today and our game room design specialist will re-design the space with no obligation from you!

    Staffing Your Slot Machine Business

    There is an art to staffing your video gaming business, and it can be more intricate that you might think. First, hiring the appropriate staff is really important. Whether that means hiring responsible and friendly bartenders, or a dedicated gaming manager, you need to make sure that they are ready and able to perform the functions when it comes to a slot machine area.

    Your video gaming application requires that you name someone to be a video gaming manager. If a lot of your business will be focused on gaming, hiring a dedicated person to serve in this role is a great idea. This person would work with your Terminal Operator and manage license renewals. He/she might also manage social media and marketing efforts, customer engagement and promotions.

    Staff training will be key once you get slot machines and your Accel Relationship Manager is instrumental in providing you this information.

    Illinois video gaming is strictly limited to individuals 21 years of age and older. Your staff will need to card patrons in the gaming area (preferably before they enter) and at least one employee who is over 21 years of age must always have a clear line of sight to the entrance to the gaming area.

    Your staff should also be prepared if any issues occur, like who to call if anything happens to a video gaming terminal (VGT) or if patrons experience problems with cashout vouchers.

    Your staff should be familiar with those involved with the gaming industry (as it relates to the maintenance of machines and collections).

    Discretion should be a top priority among staff and patrons. Stressing the importance of keeping financial information confidential is huge!

    Opening a Slot Machines Business

    Starting a slot machines business is your ticket to owning a good, stable business but it's important to plan out the business in detail before you start. We offer tips and advice on successfully operating a small business.

    Thinking about opening a slot machines business? We tell you what you need to know to get started.

    Best Practices for Writing a Slot Machines Company Business Plan

    Many new slot machines business owners feel unprepared for the challenge of writing a business plan.

    Fortunately, you don't have to tackle your slot machines company's business plan by yourself. These days, there are tons of great resources and solutions available to support the business plan writing process.

    Our Business Plan Help section discusses some of the business plan resources other entrepreneurs have found useful.

    Review the Competition

    Prior to opening a slot machines business within your community, it's a smart move to determine what the competition looks like. Use the link below to find competitors near you. Complete the form by entering your city, state and zip code to get a list of slot machines businesses that are close by.

    Is the local market large enough to support another slot machines business? If not, you had better be sure that you are doing things much better than the competition.

    Talk to People Who Are Already in the Business

    As part of your due diligence on opening a slot machines business, be sure to speak with somebody who is already in the business. If you think owners of nearby slot machines businesses will give you advice, think again. Why would they want to educate a future competitor?

    However, a fellow entrepreneur who has started a slot machines business in a location that is not competitive to you may be more than happy to give you a few tips, after they realize you reside far away from them and won't be stealing their local customers. In fact, they are often very willing to share startup advice with you. If you are persistent, you can find a business mentor who is willing to help you out.

    What's the process for finding an owner of a slot machines business on the other side of the country to talk to?

    Easy. Find them using our link below and start calling until you are successful.

    Benefits & Drawbacks of a Slot Machines Business Acquisition

    Although there are significant benefits to buying a slot machines business (rather than launching a startup), it's important to weigh the pros and cons before you commit to a purchase scenario.

    PROs: Acquired slot machines businesses should be profitable right out of the gate; they should also be capable of demonstrating a loyal customer base, brand identity and operational efficiencies.

    DRAWBACKS: On the downside, slot machines business acquisitions can be difficult to

    adapt to your unique business philosophy so it's important to make sure the business is capable of achieving your ownership goals before you initiate the buying process.

    Don't Rule Out Franchising

    Franchising lets you tap into the franchisor's brand recognition and proven business formula.

    Before you get too far along in your plan to open a slot machines business, you should determine whether purchasing a franchise might help you on your entrepreneurial journey.

    The link below gives you access to our franchise directory so you can see if there's a franchise opportunity for you. You might even find something that points you in a completely different direction.

    Related Articles on Starting a Company

    These additional resources regarding getting started as an entrepreneur may be of interest to you.

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