Gaming revenue drops with temps
By Cole Boehler
Montana Tavern Times
In the wake of the Oct. 1 full implementation of the Montana Clean Indoor Air Act which banned smoking inside taverns and casinos, gaming machine operators continue to tread water while they hope to soon be able to feel a bottom of the ongoing machine play dip.
Representatives of three major machine route vendors told the Tavern Times Dec. 15 and 16 that play volumes continue to slip 10 weeks after the ban took effect, with declines in the 20-30 percent range state-wide on a year-to-year comparison.
This was reported by Heidi Schmalz, chief financial officer at Century Gaming which owns and manages about 4,200 devices across the state; Tim Carson, head of Amusement Services which runs about 850 machines in the Billings area and many small markets to the east; and Bill Stedman, operations manager with American Music, which fields about 975 machines mostly in the Great Falls and Helena regions. The three routes represent about 35 percent of the state total.
They also confirmed earlier general patterns are continuing: businesses focused mostly on gaming are the hardest hit while those more diversified are faring better, the west end of the state is feeling more impact than the east, and urban centers are down more than rural areas.
They acknowledge there had been a slowing in gaming activity related to a souring economy prior to the ban, and now attribute 5 to 6 percent of current declines to the economy. Still, they are reporting 15-25 periodic percent reductions on top of that.
Revenue volume fluctuations can be compared in a number of ways, including year-to-year, this quarter compared to last, and "coin-in" compared to "hold." So depending, comparisons can yield apples-to-apples or apples-to-oranges, according to differing definitions and viewpoints.
Century has favored comparing this quarter's activity with last quarter (July 1-Sept. 30) because in their view the difference reflects more purely post-ban impacts, since July 1-Sept. 30, down 5.35 percent, was already reflecting the impacts of the economic recession. To compare current volumes, then, with the previous quarter, yields more of a true net smoke ban related decline.
The company has seen: Week One post-ban (Oct. 3-9) down 7.46 compared to the previous quarter, Week Two (Oct. 10-16) down 14.97, Oct. 17-23 off 16.73, Oct. 24-30 off 15.54, Oct. 31-Nov. 6 down 16.26, Nov. 7-13 off 15.37, Nov. 14-20 down 16.27, Nov. 21-27 off 19.82, Nov. 28-Dec. 4 down 21.52 and Dec. 5-11 down 20.87.
Schmalz notes the last two weeks were the two worst since the full ban took effect. She also says long-standing fears, that smoking customers now forced outdoors would not come or would make stays much shorter during severe cold, appear to have been realized.
During Nov.28-Dec. 11 in Billings, temperatures were 10 to 30 degrees below normal and four days had lows below zero and as low as -13, while two days, Dec. 7-8, temperatures never got above zero.
Carson at Amusement Services, has looked at the numbers from all angles, and says Dec. 6-12 "was hands-down by far my worst week since the ban, down 33 percent from one year ago." His previous worst was a negative 27 percent. Since the ban, he says he's been off about 20 percent across his route and region and said he believes that number holds pretty true state-wide.
Carson notes "coin-in" has seen big hits but the impact on machine "hold" is even more substantial. "Coin-in" simply represents the total amount of currency put into machines, whereas "hold" reflects coin-in less winnings paid out – the gross revenue. And gross revenue is down more than coin-in as a percentage because player behavior has changed, he explains.
Whereas a player may have previously put in $20, then played it until the whole amount was spent, the same player may now play the $20 until $10 of it remains, then cash out.
"They just aren't playing as long per session," Carson says.
Stedman says the American Music route doesn't reflect so much the east-west or rural-urban nature of the others, but there is still a significant regional difference: the Great Falls segment of the route has seen more substantial declines than the Helena region.
He said what he has read in the November and December editions of the Montana Tavern Times concerning the reported experiences of other route operators as well as location operators, coincides almost exactly with what he has been seeing on the AM routes – "almost to the exact percentage point," he says.
"This past week with the cold snap (Great Falls had temps down to 24 below) just put an extra damper on everything. We were hoping it had bottomed out (the first and second week of November) but it got worse," Stedman said. He said so far the worst AM week (Nov. 28-Dec. 4) showed a 23 percent drop year-to-year. "But we haven't seen a week on par with last year since Oct. 1," he added.
"We were bucking the trend," he said. "We were up in the first quarter (July-September)" when state-wide revenues were down 5.35 percent. "And we were only down one quarter in the last Fiscal Year (July 1, 2008-June 30, 2009)" while the rest of the state was down three of the four quarters.
Stedman also observed that the businesses least affected may be those that went smoke-free long before the Oct. deadline, having taken their lumps earlier in the transitional cycle. He also notes businesses offering entertainment may be doing better now on weekends.
"It was just a perfect storm" of poorly timed events, he says: An economic recession, cold weather, liquor and beer price hikes and a smoking ban all converging at once.
Stedman said any good news from this point will be – and is – helpful.
"We got a pretty good morale boost when the Great Falls City Commission did the fair, and right, thing when it repealed the 20-foot rule (Dec. 15)" that required smokers outdoors to stay at least 20 feet away from doors, windows and vents, which the Council deemed arbitrary and unworkable.
It is also true that during a recession market share is often reshaped quickly and dramatically. These company principals agree there will be winners and losers, and Stedman says those who maintain their marketing and promotions – but do it smarter and more efficiently than before – will be market share winners.
They also agree a key is attracting new customers, then exhibiting exemplary levels of service, which includes taking the necessary time to thoroughly educate them in ways of maximize gaming machine entertainment value.
Schmalz says many new customers may not have tried a gaming machine before or in a long while. "You'll have to demonstrate machine functions, but also all the new features like the fun bonus rounds. The new generation machines are so much more advanced and fun," she says. "You must make your place a fun place to be."
Carson adds that keeping customers, once inside, in their seats longer is a key to profitability.
Stedman says keeping machines up to date is now more essential than ever and adds that businesses have been doing a good job of cleaning, redecorating, recarpeting, painting, generally giving interiors a facelift. "Service will make the difference from place to place," he says.
All of the spokesmen said they were avoiding depictions of "doom-and-gloom" because that is never helpful, and that optimism always is. And while they say they have an optimistic long-run outlook, they also admit some retooling of the basic business model may be required to bring the industry back to former levels, and hopefully back to the steady growth pattern seen in the previous decade.
Carson says a ground-up examination of business fundamentals and parameters is called for at this time.
"We want everyone to hit the ground running after the first of the year," Schmalz says. "There will be more competition and it will require more hard work. We've got to get past the smoking ban and apply our positive energy."
"We're going to get through it; that's a given," says Stedman. "It might be February or March" before a rebound begins," he says, "but there is light at the end of the tunnel. We'll be shooting for pre-ban numbers."
Editor's note: After this article was wrapped up, we talked to IGT's Kevin Lintner, who is in charge of machine sales for this state but is currently working out of Renton, Wash. He said he had some important and positive news that he would be releasing within 30 days regarding new initiatives at IGT pertinent to the company's long-term strategy for the Montana market.
Lintner also works closely with the Oregon Lottery and has followed the implementation of a full smoking ban there Jan. 1, 2009, so we asked him about the effects.
Lintner said the Oregon Lottery is different than the Montana jurisdiction in that the state owns the game and the machines, but it is similar in other ways. There, six machines are allowed per location and 2,100 establishments have been licensed. Wagers and payouts are similar to Montana's.
He said the effects of the national economic recession arrived late in Oregon, but earlier than in Montana. In fact, recessionary pressures were just being felt when the smoke ban went into effect and so it has been difficult to distinguish exactly how much of the 15-20 percent decline in gaming there is attributable to a lackluster economy and how much to the smoking ban, Lintner said.
"But the Lottery agrees both are playing a big role," he said. "It was sure a one-two punch. It stumbled badly after the first of the year in 2009." The decline was steep and rapid at first, then the rate of decline gradually slowed until a bottom was reached and things flat-lined, which is were activity remains today, he said.
Things might have been worse, too, in Oregon had the state not allowed the introduction of reel games in 2006 in addition to poker, Lintner said.