As an Operator, it can be quite challenging to figure out how to maximize the value of a used slot. Many times, Slots find themselves in the warehouse, as the Operator kicks the can down the street. We wait for the warehouse to fill up and then deal with it, or perhaps it will be someone else problem in the future. We thought that create a framework for you to think through your options the next time you deal with used slots.
In developing a framework, we start with perhaps the most challenging question that faces an Operator, which is defining the value of a used slot. Value is determined by looking at other uses for the slot machines within a larger enterprise, such as moving the slot machine to another property, which could better leverage the asset. Examining the value of the parts within the slot, which we call “Canabalizing,” is another method of determining value; this is particularly true for high value older models where parts are hard to come by.
Ultimately, the value is determined by what the market will pay for the asset, which typically requires asking Brokers. From an economics perspective, value is determined by how much less it earns than a new slot machine versus the new slot cost minus the value recovered from liquidating the older one. Alternatively, inventory reduction may result from too much capacity. This justification occurs because the expenses of supporting this excess capacity are higher than the marginal revenue gained for the additional supply of units.
Thus, if the justification of liquidation exists, then an operator has five options available to them today: 1) cannibalize the games, 2) Transfer them, 3) Trade them in 4) Put them in the warehouse, and 5) Sell them to a used Broker. Each choice has a different impact on the Operation. To derive a preferred path that maximizes value, the Operator must have a good idea of the cash generated by selling the functional unit in the best condition to an intermediary market. The Operator can then use this value to compare the options that don’t include selling the slot via Trade-in or sell to a broker.
For example, the slot’s value in parts should be greater than the cash value to justify the destruction of the game, or the parts in the slot help keep a slot machine(s) on the floor functioning and earning revenue exceeds the cash value. Alternatively, transferring them to another property would be preferred if the income produced exceeds the cash value and saves the Operator from investing additional capital into their inventory of slot machines.
Putting them into the warehouse is a decision of last resort. Putting them in the warehouse risks unforeseen damage due to inadequate storage or random cannibalization. Also, since these are controlled items with value, the asset could be stolen if storage is not secure. Managing these risks can help make storage an option, and that the Operator needs the supply of slots to help manage their total number of units deployed and the ever-changing product mix.
Liquidation of Used Slot Machine
Liquidating your slot for cash can take three forms: 1) Trade them in 2) Sell them to a Broker 3) Sell them on SlotCycle. SlotCycle is a marketplace that allows licensed 3rd parties to sell to Operators used equipment. Trading the used slot machine into an OEM helps Operators to increase the discount on a new purchase while simultaneously removing the used slot machine.
OEMs have a wide range of policies they implement in managing the trade-in; some simply look to destroy the used slot machine and others look to sell in the secondary market. OEMs taking a trade-in of slot machines they have sold are in a good position to resell the used slot; otherwise, if it is an off-brand slot machine then they will look to destroy or sell to Brokers.
Brokers on the other hand look to buy low and sell high, which puts them in conflict with the Operators they serve. The model also has challenges in obtaining Operators the highest return as they take on risks; product, inventory, and capital that requires Operators to take less when they sell the asset.
Cash Recover Analysis of Liquidation
In examining the sale of a slot machine in the open market, we looked at the cash generated to Operators from the various options. SlotCycle maintains that our service will generate the most cash for the liquidation of a used slot. Our analysis reveals that SlotCycle’s digital service will generate 2X to 3X more cash than a Broker or an OEM.
We do believe that SlotCycle and Brokers are a better option than a Trade-in. Most OEMs include the Trade-in as a part of their overall discounting plan and care very little about the used slot. Therefore, with careful negotiations, you can capture the discount and liquidate your used slot machine via SlotCycle or a Broker.
While there are some operating costs in earning the cash, the operating leverage is relatively high at an estimated 5X to 6X the incremental outlay in labor and parts. If an operator doesn’t want to take on those operating costs or feels that the work of selling on SlotCycle is a distraction. SlotCycle offers a White Glove Service that generates more cash for the Operator than Trade-ins and Brokers. We encourage you to engage us in a conversation regarding how we at SlotCycle can help you get more cash for your used slot machines and other used gaming equipment.