| Slot Machine Manufacturers |
In 1894, from a small, cramped workshop in San Francisco, Charles Fey designed a simple and seemingly unremarkable mechanical device, dubbing his invention the "Liberty Bell." Fey sold the first of his machines to a small bar and restaurant in Reno, Nevada for the princely sum of $2. These were humble beginnings indeed for what would soon become one of the world's most profitable and popular products.
Within a few years of creating and selling that first machine, Fey's invention had proved so popular, in fact, that he was unable to make enough machines to satisfy demand. By the early 20th century, manufacturers the world over were beating a path to his door, trying to buy licensing rights for Liberty Bell.
The Liberty Bell was, of course, the world's first slot machine. Fey designed a simple coin-operated machine with three spinning reels. Each reel contained pictures of hearts, diamonds, spades and a cracked Liberty Bell modeled after Pennsylvania's most famous landmark. The machine accepted only nickels and paid out a pre-set amount when different symbols lined up on the reels. The jackpot: 50 cents for three Liberty Bells.
Slots proved a popular addition for bars, restaurants and clubs but didn't hit the casino scene in a big way until roughly four decades years later. It was then, in the late 1940s, that famed casino tycoon Bugsy Siegel was looking for a way to occupy women accompanying primarily male gamblers in his Flamingo casino in Las Vegas. Enter the slot machine: The Flamingo's first machines were similar to the old Liberty Bell -- simple mechanical devices with three spinning reels.
But slot machines are no longer just a simple sideshow to Craps, Blackjack and Poker or a barroom diversion. Rather, slots have become the main attraction in most casinos. In fact, by the late 1990s slot machines already accounted for roughly 70% of the average casino's total winnings. Even better, slots are largely unmanned and don't require additional expenditures for dealers or croupiers.
And modern technology is making slots ever more popular for the casino operators. Microchips, electric reels, and even video displays gradually supplanted Fey's mechanical reels by the 1990s.
All this modern innovation has served to dramatically increase the variety of slot machine games available to bettors. Some of the most popular machines these days are multi-jackpot systems that combine the contributions of thousands of slots located at different casinos into a single, huge jackpot. These jackpots often run easily into the millions. Also popular are machines based on various movie themes or popular card games such as Poker and Blackjack. Newer, even more entertaining games continue to attract more gamers to the machines.
But casinos aren't the only companies that are making a fortune from the popularity of slots. The slot machine manufacturing industry is also well positioned to benefit from growing slot machine revenues. This industry is an attractive one for investors for a variety of reasons, including:
- High barriers to entry --
Slot machines must be tested thoroughly and must comply with local and state
government-imposed licensing regulations. Smaller players would have trouble
competing with incumbents due to the high costs of complying with such
strict regulations.
- Non-Price-Sensitive Customers
-- The amount casinos pay for a machine pales in comparison to the winnings
a casino can bring in from a machine in just a few short weeks. As such,
casinos don't mind paying a premium price for more popular, well-known
machines.
- "Leased-Machine"
Business -- Traditionally, slot manufacturers have made money by simply
selling machines. Increasingly, however, they're sharing in the
profitability of the machine itself by leasing the machines directly to
casinos in exchange for a percentage of the wagers (or casino winnings) from
those machines. This provides slot machine makers with a more consistent,
stable revenue stream -- one that's less dependant on casinos constantly
replacing machines and ordering new machines.
- New Jurisdictions -- More and more locales are being opened up to casino gaming. In addition, slots are now finding their way into racetracks and off-track betting facilities -- areas where they've been traditionally banned. This should continue to fuel solid growth for slot machine makers in the coming years.
The slot machine industry is relatively concentrated in the hands of a few well-established players. In the table below, we offer a list of the key players in the industry. As casinos look to equip their floors with the newest and hottest machines and gaming technology continues to evolve, these manufacturers should reap the rewards. Add in the growing popularity of casino gambling, and the slot machine makers should be on a roll.
| Major Players in the Industry |
| Alliance Gaming (AGI) |
| GTECH Holdings (GTK) |
| International Game Technology (IGT) |
| WMS Industries (WMS) |
