The slot machine shortage

Fears surrounding a slot machine shortage in the gambling industry have turned into acknowledgments of problems on the horizon.

Everyone is trying to figure out a workaround.”

“Everyone is trying to figure out a workaround,” said Eilers & Krejcik Gaming Partner Todd Eilers.   

The problem almost entirely centers around a limited supply of microchips, known as semiconductors, that validate automated transactions. As a result, several multi-million-dollar casino launches could perish or come with extreme caveats before the year is over.

A missing piece

Gaming equipment companies use technology and components from different suppliers to create slot machines, the most popular medium of retail gambling. According to The Nevada Independent, gaming analysts fear that a massive shortage in bill validators, which turn currency or vouchers into gaming tokens, could create a huge problem for American casinos.

Nevada suppliers were responsible for delivering 13,700 slots to both new casinos and renovating properties in 2022 alone. The most identifiable issue appears to be the supply chain, which deals with building and transporting a majority of materials from Asia.

has seen sizeable chip shortages impact its business”

According to a mid-May report from Barry Jonas, an analyst for Truist Securities, JCM, a Japanese bill validator provider for over half of the market, “has seen sizeable chip shortages impact its business, which we think could have wider implications for the manufacturer’s pipeline this year.”

JCM senior vice president David Kubajak, whose company is headquartered in Las Vegas, confirmed the report by saying JMC “is being affected by supply chain challenges.” Kubajak noted that his operation was facing similar troubles as other industries dependent on semiconductors.

Daron Dorsey, executive director of the Association of Gaming Equipment Manufacturers (AGEM), noted that gambling has become increasingly technology-dependent, and the materials and systems that are sought after have longer planning periods. Dorsey also revealed that operators often have suppliers dependent on sub-suppliers, which complicates the process.

“All of the different companies are trying to figure out alternate solutions to find the different pieces, and that’s what made it difficult,” Dorsey said. “Someone might have had a historical provider of some type of component in their supply chain. If that provider is no longer available or delayed, the companies are having to go to three, four or five (component providers) instead of just one or two.”

Workarounds and complications

The issue first popped up on the radar during a first-quarter earnings call in May; however, Jonas feels that the short supply of microchips is just one small problem in a growing list.

“Today, the risk is bill validators. But what’s the problem tomorrow?” asked Jonas. “That is the real concern when you combine that with inflation and higher gas prices, and rising costs.”

Max Chiara, International Game Technology’s chief financial officer, stated that microchip shortages combined with the emergence of the omicron variant cost the company around $30m in first-quarter profit.

equipment providers are heavily reliant on the airline industry, which has also struggled to reboot

Gaming equipment providers are heavily reliant on the airline industry, which has also struggled to reboot since the pandemic began.

Shelia Kahyaoglu, an aerospace industry analyst for investment bank Jeffries, found that travel between Singapore, the Philippines, and Malaysia to other areas, including the United States, had fallen 42-56% since pre-COVID times. 

As a result, companies have been “getting creative,” with some opting to recycle old components. Others could prioritize sending machines to companies with the largest profile. 

“This is a concern, but it feels manageable for now at least in terms of replacements, and some of the major casino openings have been well planned out for this year,” Jonas said. “I do think you’re seeing prioritization of some sort for any remaining inventory.”

The largest casino opening in Nevada this year is Sky River Casino, a $500m project run by Boyd Gaming for the Wilton Rancheria Tribe. The property and its 2,000 slot machines have a target launch date in the fall. Legends Bay Casino in Sparks may not be as fortunate, however, as 20 of its 660 slot machines could still be on backorder.