Question of the Day - 21 December 2018

Both.

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.