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WIKI ANALYSIS
Gaming Partners International (GPIC) makes gambling chips - the stand-ins for currency used at most casinos - along with other gambling equipment such as dice, wheels, playing cards, table layouts, and furniture. GPI sells its products directly to casinos.
The company has been a major beneficiary of the growth of Macau, Asia's rapidly growing gambling capitol. Because most of GPI's products have a useful life of several years, the company's growth is driven in large part by the physical expansion of the gaming industry. Most of its new product sales occur when it acquires new customers or when existing customers build new casinos. The rapid construction of casinos in Macau, which grew at an annual rate of 23% from 2001-2006, has led to increased demand for the company's products.
RFID chips are the other area of growth for GPI. GPI holds a license that provides the exclusive right to manufacture and distribute RFID gaming chips and readers in the USA. GPI also owns international patents related to the process of embedding RFID components into gaming chips.[1] RFID chips have built-in radio components that allow a computer to automatically keep track of the chips on the table. From a security perspective, this greatly increases the difficulty of counterfeiting chips. This technology also adds value by relieving casino personnel from the work of detecting problem gamblers, card counters, or good customers who deserve free drinks. These are areas of considerable expense for most casinos.
RFID chips accounted for 30% of chip sales in 2006, but this percentage is expected to increase as technology improves and as GPI formulates partnerships with software makers such as Progressive Gaming International (PGIC).[2] Analysts also believe that adoption of the chips will increase as price continues to decline due to advances in technology. GPI is also innovating on the hardware side by releasing chips that respond to higher-frequency radio waves (13.56 Mhz instead of 125 Khz) so they can be read faster and in larger stacks.[3] The release of these chips has been set for May 2008.
Business Financials
GPI operates in two primary divisions: GPI-USA, which sells directly to casinos in the USA and Canada, and GPI-SAS, which markets to foreign casinos - largely in Europe and Asia. Approximately 1/3 of GPI's sales are to the U.S. and the rest to 70 other countries.[4] GPI's largest brands are Paul-Son, Bud Jones, B&G, and T-K.
Casino chips comprise over 60% of GPI's sales, but these are inherently durable products.[5] Thus, external factors such as the opening of new casinos, the expansion of existing casinos, and the replacement of chips, have a profound influence on GPI's revenue. Sales in 2005 and 2006 were strong as a result of new mega-casinos opening in Macau. Additionally, in those years GPI achieved 90% market share in the Macau casino chip market, and maintained that market share through 2007.[6] However, sales in 2007 retreated to 2005 levels and higher expenses resulted in a much reduced operating margin. Management attributes the decline in sales to the volatility of the external influences affecting their business.
The breakdown of GPI's revenue has remained stable over the past three years, though chip sales were particularly strong in 2006:
In 2007, chip sales dominated GPI's revenue, comprising 62% of sales, followed by table layouts and accessories:
Key Trends and Forces
Growth of the Gaming Industry
GPI's products have long replacement cycles, with its chips and gaming furniture lasting 5 years or longer and its table layouts lasting 60-150 days.[10] Thus, GPI requires a healthy flow of new customers in order to grow revenue. Since GPI sell its products to casinos, GPI relies on the growth of the gaming industry. The gaming industry itself is affected by tight regulation and varying degrees of social acceptance. PricewaterhouseCoopers reports that global gambling revenue is growing 6.7% annually. The fastest growth is expected to come from Asia, which is estimated to grow gambling revenues 15.7% annually through 2011.[11] Much of Asia's gambling growth is coming from Macau (see Macau Tourism), where operators of the 25 local casinos predicted in 2006 that they would double the number of Macau casinos to 50 by 2011.[12] Domestically, U.S. casino gaming revenues grew 7.0% from 2005 to 2006.[13]
Popularity of Table Games
GPI's products, such as chips, table layouts, and playing cards are used exclusively at table games. If the gaming industry thrives but were to switch away from table games toward alternatives like slot machines, video poker, or sports betting, GPI would suffer decreased demand. Online gambling may also be viewed as a competitor to casino's table games. While the U.S.'s Unlawful Internet Gambling Enforcement Act has significantly dampened the ease with which U.S. gamblers can play online, the online sector is growing quickly in other countries around the world.[14] In GPI's favor, some analysts expect casinos to shift their space toward tables games and away from slot machines, which appealed more to the baby boomer generation and less to the incoming generation of gamblers. ThinkEquity Partners expects table game to grow 7.2% annualized from 2006-2011.[15]
Success of RFID Casino Chips
GPI's greatest innovation in recent years has been the RFID chip, which adds security to casinos' currency and additionally relieves casinos from some of the tedious work related to rewarding good customers for their business and kicking out bad customers like card counters. Casino losses to counterfeit chips are minor.[16] However, casinos overspend by 20-30% on the perks they give to good customers, leaving a wide margin in which computer software could improve on the otherwise manual process.[17] The company holds a license giving it the exclusive right to manufacture and distribute these casino chips in the United States. The acceptance of the U.S. gaming industry (and indeed the global gaming industry) to pay nearly double for these high-tech chips[18], would significantly increase revenues and operating margins. Currently, casinos are still slow to adopt the RFID technology because of cost and customer privacy concerns, though many new casinos are investing in the technology.[19]
Competition
GPI competes against other large casino equipment companies across the globe. GPI is unique in that it sells a full gamut of casino supplies while other companies produce only a subset of GPI's offerings. GPI maintains a 90% market share of casino chip sales in Macau[20] and achieved 70% global market share in 2006.[21]
In the U.S. market,
- Chipco International produces casino chips
- US Playing Card Company competes in playing cards and gaming furniture
- Gemaco Playing Card Co. makes table layouts and playing cards
- Midwest Game Supply Co. manufactures dice and table layouts
In the Asian market,
- Angel Cards makes playing cards
- Elixir Gaming Technologies (EGT) produces casino chips (including those with RFID).
References
- ↑ Gaming Partners International Annual Report
- ↑ Goldman Sachs and Deutsche Bank Securities 2006 Gaming Investment Forum in Las Vegas, Nevada
- ↑ Progressive Gaming and Gaming Partners International Enter into RFID Technology Agreement
- ↑ Goldman Sachs and Deutsche Bank Securities 2006 Gaming Investment Forum
- ↑ Gaming Partners International Annual Report, pg 22
- ↑ Gaming Partners International Annual Report, pg 22
- ↑ Gaming Partners International Annual Report
- ↑ Gaming Partners International Annual Report
- ↑ Gaming Partners International Annual Report
- ↑ ThinkEquity Partners Initiation of Coverage, February 27, 2007
- ↑ Gambling Revenue Climbs to 144 Billion
- ↑ ThinkEquity Partners Initiation of Coverage, February 27, 2007
- ↑ American Gaming Fact Sheet
- ↑ Internet Gambling Industry Growth to Reach $528 Billion by 2015
- ↑ ThinkEquity Partners Initiation of Coverage, February 27, 2007
- ↑ Vegas Casino Bets on RFID
- ↑ Vegas Casino Bets on RFID
- ↑ Vegas Casino Bets on RFID
- ↑ Vegas Casino Bets on RFID
- ↑ Gaming Partners International Annual Report, pg 22
- ↑ Gaming Partners International: Playing With Microchips
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