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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Nevada's slot machine industry preparing for Internet gaming

23 April 2012

International Game Technology is poised to premiere "American Idol" on Facebook, and wants players to one day wager on the interactive version of its slot machine on the Internet.

While state and federal lawmakers inch along toward legalization of online gaming, IGT and the casino industry's other large slot machine makers are already lining up for a piece of the potential action.

And when it comes to the future of those who provide the technological bones of the gaming industry is debated, the only question is how much of the future online prize they'll want.

Analysts and investors have speculated openly whether slot machine companies and other gaming product vendors will be satisfied just to provide content for casino operators to use on their Internet gaming websites. They wonder whether equipment makers are prepared to manage their own Internet gaming portals and potentially compete online with the same casino companies that buy their slot machines.

WMS Industries officials said the company is following a business-to-business model to provide online casinos with slot machine themes and titles.

"We have made significant progress in our development of a technology and entertainment content base that will help our customers unlock the emerging opportunities provided through online capabilities," WMS President Orrin Edidin said when the Waukegan, Ill.-based slot machine maker applied for a Nevada Interactive gaming license last month.

The issue surfaced in January when industry leader IGT said it would spend $500 million to acquire social gaming provider Double Down Interactive, which developed Facebook's Double Down Casino.

IGT officials quelled speculation, saying the company "had no plans" to operate an online casino but would use Double Down to introduce its content to a new audience. A few weeks ago, IGT said it was debuting a free-play version of its popular slot machine themed on the reality television series "American Idol" to a social gaming audience on Facebook.

"The Double Down purchase is still being digested by investors who have questions about the benefits of the purchase and IGT's relationship with its brick-and-mortar customers," Janney Montgomery Scott gaming analyst Brian McGill wrote in a research report. "We do expect the interactive business to become more transparent over time as the results begin to be broken out separately."

Credit Suisse gaming analyst Joel Simkins, following a series of investor meetings with IGT management last month, said some of the company's major casino customers had complained about the slot maker as a potential competitor.

IGT already has a presence in Europe. Last year it paid $115 million for Entraction Holdings, a Swedish online poker network operator,

IGT Chief Executive Officer Patti Hart told Credit Suisse investors that most of the company's casino operator relationships remain strong, and that any loss in games purchased by IGT's unhappy customers won't break the balance sheet.

"(IGT) has a diversified customer base, with strong relationships in the regional markets and in Native American gaming," Simkins wrote in the report. "We tend to agree with this view and believe hemming and hawing by certain customers is more smoke then fire."

SOCIAL GAMING SURGE

IGT has company in the social gaming space. Slot machine rivals WMS, Aristocrat Technologies and Bally Technologies are putting games on the Internet to give potential customers or regular slot players a chance to try them.

Simkins said IGT's ownership of Double Down provides a platform for its large library of games and is a competitive advantage over other companies.

"Long-term, IGT believes it can deliver content for new virtual slot machines at 25 percent of the cost of its competitors," Simkins said.

Traditional social gaming providers also are exploring Internet gaming. San Francisco-based Zynga, which produces FarmVille, CityVille, Mafia Wars, and other games for Facebook, is reportedly in talks with Wynn Resorts Ltd. about a potential online gaming partnership, according to the New York Post.

Zynga CEO Mark Pincus said the company could parlay its popular virtual poker game into real-life betting, calling the possibilities "mind-blowing."

Most major slot machine manufacturers are poised to enter online gaming.

In February, Bally bought an Internet gaming platform from Chiligaming for an undisclosed price. Bally said it would use the system to help customers start casinos. Bally and rival Aristocrat then agreed to share an online poker network and online slot content in the U.S.

Also, table game and gambling equipment vendor Shuffle Master said it was spending almost $30 million to buy Ongame Network, a leading business-to-business online poker provider, from bwin.party Services of Austria.

NET POKER OFFERS GATEWAY

So how do these deals position the industry for pay-for-play online gaming?

The continuing emphasis, both state-by-state and federally, has been on legalizing Internet poker.

Other casino games, such as craps, blackjack, roulette or slot machines, are not on the table, which is the primary reason traditional slot machine makers are dealing themselves into poker.

"The best opportunity for legalization on the federal level is poker," said Reno businessman Paul Mathews Jr., a member of Gov. Brian Sandoval's Gaming Policy Committee. "Let's get poker done on a federal level, and let's prove we can do this right."

The casino industry, for the most part, wants Congress to legalize Internet poker, rather than leaving it up to individual states. The fear is that multiple states having Internet poker could lead to myriad regulations and rules for entry.

Nevada gaming regulators adopted Interactive poker regulations in January. Under the state's rules, only companies that are licensed for "brick-and-mortar casinos" can operate Internet poker websites catering to in-state gamblers.

That means companies such as MGM Resorts International, Boyd Gaming Corp., and the South Point are in, which would leave IGT and traditional slot makers as content providers only.

Federal legalization appears to be a long shot. Legislation has been hung up in Congress and is opposed by state lotteries and Indian gaming interests. And poker legislation may not surface at all in 2012 as political leaders focus on November's presidential election.

Meanwhile, Nevada's position as the only state with online poker laws may not last long. At least a half-dozen states, including California, New Jersey, Iowa and Mississippi, have draft online poker legislation or are exploring the prospects.

During the March i-Gaming North America 2012 Conference at Planet Hollywood Resort, panelists echoed the sentiment that Internet gaming would roll out state by state. States are taking the lead because the U.S. Department of Justice ruled in late December that the federal Wire Act of 1961 applies only to sports wagering, giving states the authority to determine whether they want to legalize intrastate online gambling.

"States have been more vocal about their rights," Deutsche Bank gaming analyst Andrew Zarnett told investors. "The debate on whether some form of Internet gaming will be legalized has now evolved to when will Internet gaming be legalized on a state basis. Federal standards may or may not be helpful."

Macquarie Securities gaming analyst Chad Beynon said it seems unlikely that online gaming legislation will be attached to a major federal bill this year.

"While almost all the experts are calling for federal bills, intrastate bills are the only ones moving forward," he said.

Despite the current uncertainty, some of the largest slot makers have stepped up their online gaming efforts. More than two dozen casino operators and gaming equipment manufacturers have applied for Interactive gaming licenses in Nevada. It's possible the first Nevada-only Internet poker website could be launched later this year.
Nevada's slot machine industry preparing for Internet gaming is republished from Online.CasinoCity.com.