One of the longest running debates in our industry is: “How many leased[i] or participation machines should we have on our floors?” Indeed, the late Charles “Chuck” Mathewson, who headed IGT during its prime years, once told me that he never got so much grief and as many angry phone calls as he did when he greenlighted a “Triple Play Poker” deal with inventor Ernie Moody. Casino owners and operators were outraged that IGT was asking them to pay $15/day/machine.
It didn’t seem to matter to them that this was one of the best video poker machines ever created. Nor the fact that their daily Win Per Unit Per Device (WPUPD) was much more than $15/day higher than the house average and better than any video poker machine had ever produced.
Largely due to these products, the second largest expense line on everyone’s slot budget (right behind HR costs) became “Leased Games”. Depending on the budget format used, CFOs listed these fees as an expense item or a contra-revenue.
Even though these two iconic IGT games were producing Net Wins (the game’s WPUPD after subtracting all lease fees) significantly above house averages (HA), some operators rebelled and staged protests.
Circus Circus on both ends of Nevada banned WAP games. So did the Peppermill operation in Reno, along with several others. The rebellion didn’t last long, as slot players began leaving the boycotting properties in droves to find the games elsewhere (especially Wheel of Fortune).
But why bring up this ancient debate now? You may not have noticed, but something is changing and changing fast. Software developer and gaming analyst Andrew Cardno of Quick Custom Intelligence (QCI) characterized this as a milestone event: “This is a strategic, massive black swan event, and operators need to understand and react to it strategically. It requires a change in course in the management of gaming floors.”
This “event” is that the percentage of our floors devoted to lease games is hitting new highs and has more than doubled in many cases. The influential Eilers-Fantini nationwide survey showed that the percentage of leased games grew from 7.5% in 2017 to a new high of just under 14% in December 2024. Another well-respected survey from ReelMetrics was even more dramatic showing a 3.25% share of lease games in 2014 jumping to just under 16% now. That certainly qualifies as a “Black Swan” moment in the slot world.
Back in 2017/2018, ReelMetrics CEO Nick Hogan was one of the first to challenge industry notions on this subject and began strongly encouraging operators to add more and more top-performing games whether or not they were leased. He said recently, “Floors were consistently rammed with hyper-diversified junk that did little more than crowd-out the highest demand inventory.” One of the previous cornerstones of the anti-lease philosophy was that these shared-revenue games were cannibalizing the casino’s own games and simply moving money around the floor.
During COVID, ReelMetrics and many other analysts were able to see that despite 30% to 40% reductions in the number of slots, casinos were achieving stronger results, often better than pre-COVID. Analytics from field testing by ReelMetrics was convincing. “We altered 3% of the inventory in five large-scale North American casinos, modifying premium / core ratios, and benchmarking against 19 control casinos,” Hogan added the results were convincing “ADT (Average Daily Theoretical spend) increases in the target segments ranged from 35% to 106% per casino. They have remained that way for more than 26 months.”
One CFO reflecting on these results said, “With these numbers, who gives a #@*! about the lease fees?” That shocked Hogan: “I never thought I’d hear that during my career.”
He, like Hogan, credits the post-COVID period stimulating some of these changes: “Many casinos removed a lot of older casino-owned games and did not add them back at the same rate.”
There is also agreement with another of his assessments: “You have a lot of good tools out there, including our game performance database and several other 3rd party analytics providers that I think have helped slot directors see that having a higher mix of premium games has helped to drive revenue.”
No one argues that analytics are providing new insights, but not everyone is on board with adding more and more leased games. Cardno, who co-founded the influential QCI analytics software company, acknowledges that these latest lease games are terrific, but at the same time he urges caution in concentrating on just individual WPUPD.
He says, “Greater win per unit per day is helpful and interesting, but the fundamental question is, what are you trying to optimize? You should be trying to optimize the total revenue of the property.”
“Traditional outcome-based optimization models will likely further erode overall profit as these methods are blind to customer preference,” he adds. “Market basket-based optimization can yield increased overall revenue, while potentially reducing revenue per machine per day and still resulting in increased overall profit.”
To oversimplify, his “market basket” concept is that all players have a certain selection (or basket) of machines they like to play. Certainly, leased games are often part of that. But, by removing a weaker game that was part of their market basket to add another lease game could result in losing players and/or a reduction in overall profitability.
Cardno also mentioned an often-heard comment today from some operators that “as the shift to participation goes, so moves the power in the industry towards manufacturers, who become not manufacturers anymore, but they become operators.”
The bottom line is that everyone agrees that leased games are better today than ever before. But what you do about that, and how you optimize your floor to take advantage of the trend, remains one of our great debates.
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[i] For this article, the term “lease” or “participation” refers to all forms of “shared revenue” games where some of the win the casino generates from their games is demanded by the manufacturer. The various cost models include a “% of Win;” “Fixed Fee per Day;” “% of Coin In (generally on WAPs). There are a few hybrids such as a “% of Win up to a $ Cap,” and so on. But we’ll just call them all “lease games.” Please note that most operators do not consider standard games that are purchased on a true lease (much like a leased automobile) as part of this participation group. Many properties choose to lease a good portion of their standard non-participation games from specialty slot companies like the Gaming Capital Group or PDS Gaming. Likewise, all Class II, VLT and HHR machines require a form of a payment (or lease) for connecting to their central determination servers. Neither are these types of agreements included in the context of this article.
