Slot company mergers: Why they happened, and how they’ll affect Las Vegas

Hangover Part II slot machines are displayed at the IGT booth during the Global Gaming Expo (G2E) at the Sands Expo Center Thursday, Oct. 2, 2014.

The major slot machine company mergers that have recently occurred shouldn’t dramatically alter what gamblers experience on the casino floor, at least for now.

Still, what’s happening behind the scenes is very significant for the gaming industry.

On Thursday, Nevada gaming regulators gave their blessing to a $6.4 billion merger between slot machine maker International Game Technology and Italian lottery operator Gtech. The deal follows a $5.1 billion merger regulators approved last year between slot machine maker Bally Technologies and lottery company Scientific Games.

IGT and Bally are two of the most dominant slot machine companies, and they’re even bigger now that they’ve merged with other entities.

They’re also not the only recent mergers on the equipment side of the gaming industry. For example, Global Cash Access, a company that provides casinos with financial equipment like ATMs, merged with slot machine maker Multimedia Games last year.

So why did all this merging happen? And what’s the big deal, anyway?

Why the mergers happened

Basically, the slot machine market became too crowded with companies. Eilers Research founder Todd Eilers said the market was, for the most part, flat in recent years, so the best way for big companies to continue growing was to merge with others. He said a “pretty favorable lending market where you can get some pretty cheap debt” also helped.

How they will affect Nevada

It’s often a natural — and unfortunate — effect of corporate mergers: “Synergies” are identified and “streamlining” happens, to use corporate-speak, and people can lose their jobs. That’s true in these cases, too. Executives from both companies have admitted that their mergers will result in layoffs, although it’s not clear precisely how many.

The new IGT corporate headquarters will be in the United Kingdom. IGT representatives said some corporate jobs will be eliminated, but they stressed to regulators Wednesday that they’ll maintain a strong presence in both Northern and Southern Nevada. The company’s global gaming operations will be based in Las Vegas, where work will include game design and development. Some of that will also happen in Reno, where IGT will concentrate heavily on its manufacturing operations.

“Let’s face it: Las Vegas is the capital of casino gaming,” Richard Trachok, an attorney representing IGT, assured the Gaming Commission. “Nobody is going to leave Las Vegas.”

Meanwhile, because of its merger with Bally, Scientific Games is moving its corporate headquarters from New York to Las Vegas, just off the 215 Beltway near Jones Boulevard. The move was important enough to warrant praise from Gov. Brian Sandoval, who said in a statement that it meant “hundreds of good-paying jobs for the people of Clark County and our state in the years to come.”

Why they’re important for the industry

Bally and IGT are already huge, and Eilers said their merged versions will control a majority of the market combined. Furthermore, the mergers are expanding the slot machine makers to include the lottery part of the gaming industry. That’s significant in terms of growth, although a lottery won’t spring up in Nevada anytime soon, because the state is constitutionally banned from authorizing one.

That expansion will benefit the companies in other ways. Eilers said they’ll be able to spend much more money than their competitors on research and development. He said they’ll have more resources to devote toward creating new games and technology.

Commissioner Randolph Townsend stressed at the IGT hearing Thursday that the recent mergers are “major financial transactions” by any measure. But they’re particularly important developments for the gaming industry, he said, highlighting the fact that the companies were able to finance the mergers as a good economic sign.

“What it also talks to is the change in the industry,” Townsend said. “This is really a technology industry now.”

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