G2E: Slot companies, investment community awaiting fallout or benefits from Eldorado-Caesars merger Howard Stutz, CDC Gaming Reports · October 14, 2019 at 7:30 am As if the pressure to unveil industry changing products at the annual Global Gaming Expo wasn’t enough, the equipment sector is waiting to understand how the current casino consolidation and acquisition market will affect their business models in 2020. Slot machine and systems manufacturers, as well as vendors of ancillary casino products, use G2E to unveil new game titles, new technology advancements and other goods. The three-day tradeshow begins Tuesday at the Sands Expo and Convention Center in Las Vegas. New casino ownership often leads to gaming equipment sales opportunities as buyers want to enhance the game floor with the newest products. However, the pending $17.3 billion merger between Eldorado Resorts and Caesars Entertainment has equipment suppliers on edge. The combined companies will cover 60 properties in 18 states. Eldorado, which is acquiring Caesars, says it will sell casinos in markets where federal antitrust issues could be an issue. Some manufacturers see that as a positive. Hector Fernandez, Aristocrat Technologies President of the Americas, said the Eldorado-Caesars merger could “create opportunity for our business.” He said consolidation of casino companies is “not necessarily a bad thing” because it could bring new casino operators to the market. “We are well positioned from a product standpoint and we have a great relationship with Eldorado,” Fernandez said. “They see the value of our portfolio and we see that as more opportunity.” Everi Holdings CEO Mike Rumbolz said the slot machine industry has questions about the merger, but “everybody is just guessing” until Eldorado says, “here is exactly what we’re going to do.” That may not take place until the deal closes early next year. Rumbolz said the investment community is using “imperfect models” in trying to evaluate what will happen to the slot floors. “The first place everyone goes to is how many wide-area-progressive games will they have? How much of the floor will be devoted to leased games as opposed to purchased or owned games? And I think that’s a very difficult thing for anybody to predict,” he said. Rumbolz agreed with Fernandez that new casino operators will be good for the slot industry. “New slot departments coming in and taking over will want to put their own imprimatur on the casinos,” he said. “A lot of operators have been dealing with us for a while and have seen our growth and game performance.” The regional casino market has experienced its share of consolidation in the last 18 months, starting with Penn National’s $2.8 billion acquisition of Pinnacle Entertainment and Eldorado’s $1.8 billion purchase of Tropicana Entertainment. Both transactions involved real estate investment trusts and other operators stepping in to acquire the management contracts, such as Boyd Gaming. Several companies, including, Penn, Eldorado and Boyd have completed “tuck-in” acquisitions of stand-alone properties that have also involved REITs. Macquarie Securities gaming analyst Chad Beynon said last week the industry has seen “more regional mergers and acquisitions in history, which is reshaping the landscape, resulting in margin improvement stories, but potentially applying pressure on suppliers.” Eldorado said when the Caesars merger was announced in June it expects to achieve synergies – cost savings – of $500 million through the transaction. That particular aspect could put a damper on gaming equipment sales. “When contemplating the buckets of synergies in Eldorado’s $500 million synergy target, one bucket that is likely to have derivative implications for our coverage universe is the slot floor,” Deutsche Bank gaming analyst Carlo Santarelli told investors in an Oct. 9 research note. “The driver of cost saves associated with the slot floor stems from the differing mentalities regarding participation/leased product.” #exclusive – G2E: Slot companies, investment community awaiting fallout or benefits from Eldorado-Caesars merger. –@howardstutz, CDC Gaming Reports. https://t.co/51ZYPG0GGC @G2Eshows @ElDoradoResorts @CaesarsEnt @aristocratslots #CDCgaming — CDC Gaming Reports (@CDCNewswire) October 14, 2019 Many casino operators prefer leasing slot machines from manufacturers in which the property and the provider share in the game’s revenues. Santarelli said roughly 5% of the slot machines of the floors of casinos owned by Eldorado are participation/leased games. Casinos currently owned by Caesars devote roughly 10% of their floors to participation/leased games. Santarelli calculated that once the deal closes, Eldorado could be looking at removing some 1,900 slot machines at U.S. casinos currently owned by Caesars. “Over the last several weeks, we believe investors have become more cautious as it pertains to the pressure (and) influence of the Eldorado-Caesars merger on equipment suppliers,” Santarelli said. Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at firstname.lastname@example.org. Follow @howardstutz on Twitter.