Gaming Industry Dynamics
Operators worldwide spend ῀$10Bn annually selling and leasing new slot machines and systems through direct sales efforts. These purchases help Operators to keep their product fresh and competitive with other Operators. For example, In North America, it is estimated that Operators manage 1M slot machines. Win per Unit (WPU), a metric Operator’s use to judge slot machine performance, impacts how much capital an operator can spend buying new slot machines; therefore, at a macro level, two conditions generally occur:
First Condition – High Performing Markets
In markets where slot machines earn more revenue, operators can afford to maintain them. They are more confident of higher and consistent cash flows; when an Operator buys new slot machines, they look to sell their older slot machines as they seek to recover as much of their capital investment as possible or eliminate the problem. Operators have three choices regarding disposing of their used slot machines:
Choices Disposing of a Used Slot Machine
- Trade-in the slot machines to a manufacture
- Sell them to a used slot machine broker or other intermediaries
- Destroy them
Choices 1 and 2 supply to varying degrees the secondary market in researching the attitudes towards these choices. Operators tend to dislike their options. Generally speaking, they feel that these approaches provide too little return for the value of the asset. A frustration that grows as the price of new slot machines continues to grow faster than gaming revenue. Destroying them reflects an easy path to appease regulators and reduce risk related to dealing with the Brokers who make up a significant part of the secondary market.
Second Condition – Low Performing Markets
Markets with low WPU cannot afford to buy the latest slot machines and generate a sufficient return for their investors; therefore, when it comes to purchasing the slot machines necessary to run their operations, they can choose one of the two following approaches:
Buying Options for Operators
- Buy a mix of new and used slots
- Buy used slots from the secondary market
Either choice drives the secondary market demand for used slot machines and parts to sustain their operation. Brokers and slot machine manufacturers make up a fragmented group servicing the market for used slot machines, software, parts, and equipment. SlotCycle research and analysis suggests that the market mechanisms connecting Sellers and Buyers of used equipment have created significant market inefficiencies.
For Sellers of used slot machines, the lack of information regarding the resell value or retail value of the used slot machines harms the Seller’s ability to act with conviction. The market for used slot machines is opaque to the original owners. This opaqueness benefits used Slot Machine Brokers, and Slot Manufactures but not the original owner of the slot. So, an Operator is left guessing using depreciation schedules, auction processes, leveraging their network, and gut instinct to value the slot machine. Signaling effects such as part costs and shortage of key parts for used slot machines still on the floor can provide incorrect signals to the complete slot’s value. The value of the used slot machine in parts is rarely more significant than the slot fully functioning, and usually, the deviations from this rule are found in one off-platform or in old slot machines that should have been sold in the past.
For Buyers, sourcing used slot machines, parts, and software requires a constant focus to find inventory and a fair market price. Diffused inventory worldwide with Operators, Brokers, and Slot Machine Manufactures makes it difficult for Buyers to see what they need at a reasonable price. While some eCommerce functionality exists, it is in the early stages of deployment and doesn’t address the Buyers’ underlying needs. Buyers want to have excellent product selection, fair prices, workflows that make transacting easy, and services that help them be confident that they can make the equipment work as intended.
Digital marketplaces have proven to resolve market inefficiencies like those described above, as it provides a more efficient mechanism for transacting in used slot machines by helping buyers and sellers transact directly. In our industry, connected buyers and sellers will reduce transportation and shipping costs as they enter act now while also reducing or eliminating the fees the middleman charge in terms of inventory handling, risk mitigation, and profits.
Additionally, Sellers will find an aggregated supply of products that will enable a rich and more efficient shopping experience. They also may experience lower prices as some of the Seller’s savings are passed on to the Buyer. The Buyer should also find parts and software to ensure that the used slot being purchased will function as intended.
SlotCycle is a community of Buyers and Sellers of gaming equipment worldwide looking to transact via a digital marketplace. Our Platform is a regulatory compliant and proprietary eCommerce marketplace. SlotCycle’s marketplace design supports transacting in gaming equipment. SlotCycle enables the following activities through software and services:
- Sellers of gaming equipment can list and sell their inventory leveraging Buy-it-Now or Auction Product listing mechanics (see blog on Product Listing Mechanics)
- Buyers can find the gaming equipment they seek to purchase or make requests of the community for the equipment they need
- SlotCycle reduces transactional fiction for buyers and sellers by having an efficient and easy to use workflow and providing access to 3rd party services, e.g., specialized shippers or financiers.
According to Jeff Berns, Vice President of Slots, Soboba Casino Resort, “SlotCycle’s business model offers my casino the opportunity to recover 2X to 3X more capital than the traditional Broker model.” SlotCycle believes that Operators can expect to generate 200 to 150% more cash selling used slots via SlotCycle than other options.
Please tell us what you think. We look forward to showing you how our services can help you!
 Win Per Unit = Σ(Slot Revenue over a period of time) / Σ(# of Days Slot Machine was on the Floor)