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Penny slots paying out big in Nevada

8 September 2009

LAS VEGAS, Nevada -- At the end of fiscal year 2000, there were 540 penny slot machines in Nevada casinos.

As of last week, M Resort had nearly double that number of penny games on its casino floor.

And that's just one property.

Penny slot machines are no longer an oddity. The games have become the norm for the casino industry and a large chunk of the slot floor's revenue stream.

In the fiscal year that ended June 30, Nevada's 37,943 penny slot machines attracted wagers of $17.8 billion, 15 percent of all the money gambled statewide on slot machines during those 12 months.

The revenues produced by the games were even more impressive. Penny slots accounted for more than $1.8 billion in gaming win, 25 percent of $7.2 billion earned by Nevada's 171,225 slot machines in the fiscal year.

"That's been the trend running for the past few years," Macquarie Securities gaming analyst Joel Simkins said. "That percentage is going to grow even larger."

The number of penny slot machines jumped sixfold in Nevada between 2002 and 2005, largely due to technological advances.

Cashless gaming, through the ticket in-ticket out voucher system developed by International Game Technology, eliminated coin hoppers and refills. Video game development increased a game's payout lines from nine with some machines offering up to 100 different ways to win.

Also during that three-year period, Australian slot maker Aristocrat Technologies entered the American market with its line of penny games.

Experts said the average wager on a penny machine ranges from 60 cents to $2 a spin.

"We've seen a lot of dollar and quarter slot machine players shift over to penny games," said Dan Savage, vice president of marketing for slot machine maker Bally Technologies, which has increased its penny slot product over the years.

Players using penny machines can stretch their gambling dollars, spend more time on a particular game and experience a much higher hit frequency.

Simkins and other Wall Street researchers who follow the slot machine industry believe the use of penny slot machines will continue to grow. Casino slot machine floors in Australia, for example, are 100 percent penny games. Simkins expects new penny slot products will be well represented inside the equipment company's tradeshow booths at November's Global Gaming Expo in Las Vegas.

"All the slot makers have IGT to thank for coming up with ticket in-ticket out and rolling up their market share," Simkins said.

WMS Industries has been one slot maker to benefit from the penny machine wave. Up to two-thirds of the company's product lines are devoted to penny slots. Casino operators credited WMS with creating several lines of slot machines with a catalog of titles that address gamblers' interest penny-based games.

Rob Bone, WMS' vice president of marketing, said casino operators asked the equipment makers to increase their penny game offerings as customer habits changed.

"It used to be a novelty, but now the penny math models mimic the math models of the high denomination slot machines," Bone said. "You're going to continue to see the penny games become a higher percentage of the slot floor, especially in locals markets."

M Resort operates 1,860 slot machines, 920 of which are penny games. Rich Strafella, M Resort's vice president of casino operations, wouldn't be surprised to see the number increase.

He said the property's non-locals customers want to play the same games they play in their hometown casinos, where penny slots are the primary gambling machines offered.

"Penny games have a 70 percent hit frequency, which keeps customers on the games longer," Strafella said. "The experience is even better for the customer when they reach the bonus rounds."

Station Casinos has experienced similar customer trends. More than 10,500 slot machines of the company's 23,000 games in Las Vegas -- 46 percent -- are penny slots.

"Our guests like our penny slots for the time on the device it gives them because the hit frequency is much higher due to the number of lines penny games allow you to have," said Dan Roy, Station Casinos' senior vice president of casino operations.

Even Strip casino giant MGM Mirage is experiencing the penny slot machine push. Of the 16,467 slot machines operated at the company's nine Strip casinos, 5,424, or 33 percent, are penny games.

The sour economy, which has curtailed customer spending over the past 18 months, has also contributed to more play on penny machines.

"When you're playing dollar machines and you want to cover all the lines, that becomes a significant investment," Savage said.