International Game Technology - Company Profile, Information, Business Description, History, Background Information on International Game Technology

9295 Prototype Drive
Reno, Nevada 89511

Company Perspectives:

As a recognized leader in slot machine and video gaming machine design and production, IGT is committed to providing our customers with the quality products at a competitive price which, together with excellent service and support, will assist them in maximizing their profitability.

History of International Game Technology

International Game Technology (IGT) is the world's leading designer and manufacturer of slot machines and video gaming machines, controlling approximately two-thirds of the market. IGT sells wide area progressive systems that allow slot machines from a number of locations to pool massive payouts that can total tens of millions of dollars. IGT also manufactures video gaming terminals for state-run lotteries and accompanying monitoring systems. IGT software systems that allow casinos to monitor play and to track player activity have become the target of antitrust litigation. Competitors contend that rival machines are not compatible with the IGT system, thus making it difficult to sell non-IGT equipment to casinos.

Slot Machine Technology Dates Back to the 1800s

In the 19th century any machine that took a coin, whether it was for gambling or vending, was called a slot machine. The early gambling devices, such as a mechanical horse race, were penny machines that provided an opportunity for barroom wagering. Machines that dispensed a small payout of coins arrived in the early 1890s. These were crude devices that anticipated the spinning reels and symbols used in later slot machines. The basic mechanics of slot machines would remain unchanged through most of the 20th century. Spring-driven reels, generally three but as many as five, would portray an assortment of symbols, such as playing card suits, bells, bars, cherries, lemons, and JACKPOT. When the reels were sent spinning by a pull of the handle, the machine would pay out if the symbols lined up in a winning combination. It was the number of reels and the number of symbols that determined the odds of winning, a method that would change with the rise of technology in the 1990s when computer chips would select the random winners. Slot machines were popular in the 1920s and 1930s, especially in resort areas, but, because of suspected links to organized crime by the 1950s, they were prohibited everywhere but Nevada. In the early 1960s Bally developed a machine with electromechanical circuitry and motorized hopper pay that opened up design variations. For the next 20 years Bally would be the dominant manufacturer of casino slot machines.

IGT was founded by William S.("Si") Redd, the son of a Mississippi sharecropper. He began his career in the gaming industry at age 18, when he bought a used pinball machine and convinced a hamburger stand operator to keep the game in his establishment in exchange for 50 percent of its revenues. After working as a distributor for Wurlitzer jukeboxes in New England, Redd was hired by Bally Manufacturing in 1967 to distribute slot machines in Nevada. He founded his own affiliate, Bally Distribution, and became known throughout the state as "The Slot Machine King." In 1975 Redd created A-1 Supply and a year later entered into a deal with Bally Manufacturing through which he acquired sole rights to the company's burgeoning video business.

Redd devoted a large amount of resources to research and development. As a result, A-1 Supply became a pioneer in the video gaming industry, developing a line of video poker, blackjack, keno, as well as slot machines, which Redd sold to casino operators throughout Nevada and Atlantic City. Redd changed the name of his company to SIRCOMA (from "SI Redd COin MAchines") in 1979. In 1980, through an exchange of stock, SIRCOMA changed its name to International Game Technology and went public on NASDAQ in October 1981. Annual sales had grown from less than $3 million in 1975 to over $61 million in 1982. By 1982, approximately 9 percent of gambling machines in Nevada were video machines, and IGT held 90 percent of that market. More importantly the casino business was entering a major shift in emphasis. In Nevada in 1983 machines surpassed table games in revenues for the first time, ushering in a period of great opportunity for the makers of slot machines and video games. After twenty years of industry dominance, Bally Gaming had grown stale. The company's new slot machines were deemed bland by customers who simply refused to play them. Bally quickly lost market share and was overtaken by Universal, with IGT and Sigma looking to make inroads as well.

IGT also began developing its lottery game technology and by 1986 was one of the top six players in the $1 billion business. That year it purchased a 36 percent stake in Syntech International, Inc., a rival manufacturer of lottery ticket vending machines and manager of several state lottery games. IGT's total revenues dropped precipitously in 1986, however, due to a slump in the Nevada gaming industry and growing competition from Japanese manufacturers. To help revive his struggling company, Redd hired Charles W. Mathewson, a retired executive from the investment firm of Jefferies & Co., to take over as chairman.

IGT Controls Top Market Share by 1987

When Mathewson was subsequently named president in 1986, he boasted that IGT stock prices (then trading at 11 cents a share) would double within two years. The company's heavy R & D spending paid off in 1987 when it introduced Megabucks, a computerized slot machine network that allowed any number of participants across the state to play for the same progressive jackpot. Within a year, IGT had sold Megabucks to over 30 casinos throughout Nevada and had obtained rights to sell the system in New Jersey. Mathewson's boasting had been proven correct. Fueled by strong sales of Megabucks, IGT's sales hit $81 million in 1987, and earnings rose to 71 cents a share. In addition, IGT surpassed Universal as the top gaming manufacturer.

By 1988, IGT's Megabucks and other newly developed progressive jackpot systems had captured 60 percent of the Nevada slot machine market. IGT had also secured 25 percent of the international gaming market, with machines in Australia, Portugal, the Netherlands, Turkey, and Monte Carlo. Sales in 1988 were $95 million, 25 to 30 percent of which came from international markets. The following year, revenues soared 50 percent to $151 million as earnings jumped to $1.73 a share.

By 1991 IGT controlled almost 54 percent of the North American market. Its management team was seasoned and stable, and its rivals were being relegated to also-ran status. Whereas the U.S. gaming market had been limited to Nevada, Atlantic City, and Florida cruise ships, the early 1990s would see a growth spurt that sent IGT sales soaring. The federal government passed a law permitting Native Americans to own and operate casinos on Indian reservations. Many other states, particularly those along the Mississippi River, began permitting riverboat gambling. In all, some 60 new casinos opened between 1991 and 1995, and IGT was well positioned to serve these emerging markets. Over half the river casinos built in the early 1990s were stocked solely with IGT machines. The nation's largest Indian reservation casino purchased 80 percent of its machines from IGT, and the new Luxor, Treasure Island, and MGM Grand casinos in Las Vegas purchased a minimum of 70 percent of their machines from IGT.

European gaming markets also expanded, and in 1991 IGT opened a European division, with plans to establish an assembly factory, a product distribution center, and a direct factory sales center in Europe. After a long and arduous effort to break into the Japanese gambling market that took six years, IGT finally received approval to sell slot and paschisuro machines in April of 1993.

In 1993, IGT reorganized its corporate structure, establishing IGT-International to oversee manufacturing and sales outside of North America, and creating the corporate "Office of the President" to direct strategic planning worldwide. Sales in 1993 were $478 million, with earnings over $100 million. Stock prices continued to climb, peaking just above $41. IGT became the darling of many investors on Wall Street. However, a backlash against gambling set in as voters turned against gambling initiatives, government tightened regulations, and new casino building stopped dead. Moreover, foreign expansion at the time was equally uncertain. By 1995, when new domestic gambling markets bottomed out, IGT held 78 percent market share of the slot machine and video game business, but its stock was being battered. It dropped off 70 percent from its high in 1993.

David Hanlon took over for Mathewson in 1995, a move that would produce disappointing results. Several top executives left IGT, reportedly because of Hanlon's abrasive management style. Mathewson returned to replace Hanlon in 1996, and quickly brought back many of the people who had defected. Despite IGT's dominant market share, Mathewson knew that the company remained vulnerable to competition, just as Bally had been in the 1980s. IGT's new challengers in the business--Casino Data Systems, WMS Industries, Alliance Gaming, and Sega Gaming Technology&mdash--braced the possibilities of high tech, believing that younger gamblers, raised on computer games, would be attracted to better sound and graphics and interactivity. Mathewson maintained that the average player was a 55-year-old woman who couldn't even program a VCR. Nevertheless, in August 1996 IGT formed a new division to develop interactive casino games.

In other areas Mathewson was more open-minded. He established joint venture alliances to develop games, sometimes with rivals. When IGT acquired a license from Sony to develop a Wheel of Fortune game, he joined forces with Anchor Gaming which already had a popular game, Wheel of Gold, on casino floors. The two companies agreed to split the profits generated by the hybrid-design slot machine. IGT also teamed with Gtech to develop and market video-lottery games. Mathewson was also willing to continue spending significantly more on R & D than IGT's competitors. In addition, the company invested some $30 million overseas where markets appeared to be opening up, in particular Greece, Mexico, and South Africa where 40 casino licenses had been allocated. New majors casinos scheduled to open in Atlantic City and Las Vegas also promised to boost IGT sales.

IGT Rebounds in the Late 1990s

IGT's business was again thriving in the late 1990s. In 1997 it introduced MegaSports, a betting system that allowed players to make specialized wagers on sporting events. It developed computerized casino management systems to keep real-time records of activity on every gaming machine and table in a casino, as well as player tracking and the ability to award the best customers with specialized bonuses. IGT continued to outspend its rivals in R & D, investing more than $30 million annually while Anchor, Alliance, and Silicon Gaming spent less than $20 million combined. IGT, following its success with Wheel of Fortune, adapted other well-known pop culture icons and products, including The Addams Family, I Dream of Jeannie, Elvis, and The Munsters. In 1999 IGT purchased Sodak Gaming, a primary distributor to Native American casinos, for $230 million. The following year, the company purchased one of its rivals, Silicon Gaming, maker of a number of innovative games. In 2000 IGT debuted its EZ Pay paper voucher system that enabled slot machines to pay off in tickets that could be reinserted into machines for further play or redeemed for cash.

In 2000 not only did IGT manufacture its one millionth slot machine, it topped the $1 billion mark in annual sales. Its share of the U.S. market was still a robust 68 percent. And although IGT was doing well overseas, it suffered a setback in Australia when a Japanese newcomer, Konami, moved ahead of IGT to second place in sales. The 1998 purchase of Australian slotsmaker Olympic Amusements proved to be a financial loss. Konami also made plans to enter the U.S. market, especially targeting the California Native American tribes who were unhappy that IGT had spent money along with Nevada casinos to oppose a ballot initiate to allow expanded gaming in California. Furthermore the gambling market had clearly matured. State governments, enjoying the positive effects of a strong economy, felt little need to legalize gambling to augment revenues. The real market for slot machine makers was in replacing the games already on the casino floor, and that decision was in large part made by the customers. Many of the newer interactive games that IGT had once eschewed began to replace its reliable money-makers.

Potentially more troubling for IGT was an antitrust suit filed against it by WMS Gaming in 2000. WMS essentially compared IGT to Microsoft, claiming that it offered its computerized management programs for free to casinos in exchange for a promise to buy 75 percent of their gaming machines from IGT. Because WMS and other competitors were denied the protocol to the IGT system until after casino orders were made, they were placed at a competitive disadvantage. As with Microsoft, IGT was gaining a reputation for arrogance in its dealings.

IGT's stock soared despite the litigation. How the suit was resolved and IGT's response to the changing gaming culture would go a long way to determine if the company would continue as the Goliath of slot machines or the Bally of a new century. Its position certainly seemed fortified when, in July 2001, IGT announced plans to merge with its Nevada-based rival Anchor Gaming. Whether such a merger would pass scrutiny from antitrust regulators remained to be seen.

Principal Subsidiaries: IGT; IGT-Europe B.V.; IGT Japan, K.K.; IGT-UK Limited; Sodak Gaming.

Principal Competitors: Alliance Gaming; Anchor Gaming; GTECH Holdings; WMS Industries Inc.


Additional Details

Further Reference

Alm, Rich, "Gaming Industry Betting on Risky Business' Future Boom," Houston Chronicle, October 22, 2000, p. 2.Clements, Jonathan, "IGT Stock Is Riding High on Gambling Boom, and the Bells Could Keep Ringing for A While," Wall Street Journal, September 20, 1993, p. C2.Hackney, Holt, "IGT: Rolling Again," Financial World, April 22, 1996, p. 18.Lane, Randall, "Back into the Breach," Forbes, November 9, 1992, p. 96.Marriott, Michel, "Luck, Be a Microchip Tonight," Denver Post, December 21, 1998, p. E-07.Paris, Ellen, "Call and Raise," Forbes, August 30, 1982, p. 50.Pomerantz, Dorothy, "High Stakes," Forbes, July 3, 2000, p. 74.Rasmusson, Erika, "Hitting the Jackpot," Sales & Marketing Management, June 1998, p. 34.Schlesinger, Jacob M., "Tough Gamble: A Slot-Machine Maker Trying to Sell in Japan Hits Countless Barriers," Wall Street Journal, May 11, 1993, p. A1.Slavin, Al, "Slot Machine Supplier's Patent Lawsuit Turns into Antitrust Case," Crain's Detroit Business, June 5, 2000, p. 48.Weinberg, Neil, "A Run of Bad Luck," Forbes, May 22, 1995, p. 12.

User Contributions:

Comment about this article, ask questions, or add new information about this topic: