Slot Machine Co. Could Hit Jackpot
October 25, 1999
With the casinos still fighting doggedly for market share, the company that sells most of them slot machines created quite a stir in the gaming sector last week.
In short, high yield investors are increasingly viewing International Game Technology, the largest manufacturer of slot machines in the world, as a potential winner in the coming months. According to sources in the market and published reports, IGT supplies about 80% of the market.
Although there hasn't been a significant upswing yet in IGT's outstanding bonds, one portfolio manager at a major investor said junk players were buzzing over the possibilities.
Each new casino typically requires about 1,000 to 1,500 slot machines, analysts said. And at about $10,000 per machine, that parlays into higher cash flows and better performing securities.
The initial cause of the excitement was the announcement by Station Casino that it plans to team up with a Native American tribe to develop a $100 million gaming project in California.
As new laws went into effect recently in California that allow tribal gaming, it's expected that existing casinos will team up with Native American tribes to take advantage of the burgeoning market (HYR 9/27/99). That should bode well for casinos as well as casino-linked companies like IGT.
Station Casino will provide expertise and help the tribe line up financing - although the company will not take on additional debt itself - and in return will receive 22.5% of the revenues generated from the project plus a fee for the name Station.
Other casinos are expected to follow suit. In fact, Harrah's Entertainment was one name that was said to be looking at a similar venture. Harrah's, another junk bond name, already operates other Indian casinos, analysts noted.
IGT did not return phone calls seeking comment.