The pandemic taught slot machine manufacturers the lessons they’re using during the current trade wars created by President Donald Trump’s tariffs, including how to manage higher costs for electronic components. 

But it’s not simple, said Light & Wonder CEO Matt Wilson.

“The dynamic situation changes by the day or by the hour, or by the tweet,” Wilson said, referring to how social media continues to stoke the issue. 

The tariff situation has fluctuated, but most countries, including Canada, face anywhere from a 10 percent to 25 percent tariff on goods and products entering the U.S.

During the pandemic, certain costs were passed along to casino operators, such as charging more for slot machine purchases or a slight percentage increase in the lease agreement associated with games where manufacturers and the casino share in the revenue.

“We see this as being no different,” Wilson said. “But it starts with us, and us mitigating our cost as effectively as possible.”

Casino operators have also acknowledged increased costs during the last several weeks. 

“It is our hope that we can manage that through alternative sourcing and negotiating with our vendors,” Red Rock Resorts President Scott Kreeger said during a first-quarter earnings call. “It would be a last-ditch effort on our part to start to pass on costs to the customer.”

During Las Vegas-based Light & Wonder’s conference call, Wilson said supply chain issues have kept slot machines and other products from reaching customers. 

“From a tariff perspective, it’s a burden that the entire industry is going to have to manage through,” Wilson said. “It starts with what we can control and managing our cost basis as effectively as possible. Secondly, it’s about suppliers stepping up to the plate and shouldering those increased tariff costs.”

Trevor Crocker, CEO of Australia-based slot machine developer Aristocrat Leisure, said the company is prepared because it “diversified and derisked” its supply chain after the pandemic and is “no longer dependent on any single market or supplier for key components.” 

Crocker said the supplier now receives its gaming equipment components from multiple countries.

“Only 14 percent of our supply chain is coming from China,” he said. “We have an extensive playbook around what would happen if tariffs were implemented and how we would configure our supply chain and our options.”

It began with Canada

Shortly after the Trump administration initiated a trade war with several countries in March, the government of Alberta, Canada, banned the purchase of slot machines and video lottery terminals (VLTs) from U.S.-based suppliers. Other provinces followed along with the ban, which involved equipment produced in Nevada by the industry’s leading developers.

“I would say at the moment that tariffs are looking [manageable] from where we’re standing, but I think it’s evolving,” Wilson said. 

Tariff issues did not affect Light & Wonder’s first-quarter earnings, which increased 4 percent, primarily because of equipment sales in Australia, where the company maintains a large presence.

Wilson said Light & Wonder initially had trouble getting gaming equipment components into the U.S. from Asia when the tariff policies surfaced.

“Over time, we found ways to mitigate that through reconfiguring the supply chain,” Wilson said.

Truist Securities gaming analyst Barry Jonas wrote in a research note following the call that moves undertaken by Light & Wonder to deal with supply chain issues have led to efficiencies in the company’s operations.

“Management expects the recent tariffs and trade policies to create cost pressures in the near term but remains confident in its ability to mitigate the impact over time,” Jonas wrote.

Aristocrat, whose U.S. headquarters are in Summerlin, has manufacturing centers in Europe that can provide slot machines and other gaming equipment to North American casino markets.

“We can service Canada from Europe or Australia if there continues to be a dispute between the U.S. and Canada on doing business with each other,” Crocker said. “We're well-positioned to manage it as we see today.”

Tariff-related costs affecting casino operations

Casino operators said tariff issues have affected the costs of redevelopment projects, pushing up prices for products such as lighting, electronic components and stone finishes that are difficult to source outside of China. 

The most notable consequence was Wynn Resorts' announcement that it was delaying $375 million in projects this year because of high tariffs, including a $200 million remodel of the Encore Las Vegas hotel tower.

Wynn CEO Craig Billings said that the company wasn’t canceling the Encore renovation, but would investigate options for purchasing items required for the remodel once tariff rates have settled.

Boyd Gaming, which is planning to open a temporary casino later this year in Norfolk, Virginia, ahead of its planned $750 million casino resort on the city’s waterfront, is taking steps to mitigate any elevated costs, such as looking at other sources for materials. The company has not determined how many slot machines and table games will be needed to stock the temporary casino.

“We have identified those areas that we will see cost increases or we expect to see cost increases because of either existing or possibly new tariffs,” Boyd Gaming CEO Keith Smith said. “But as we've calculated them and looked at our budgets, we're comfortable that they're not going to hinder our ability to go forward and that we can handle those increased costs.”

Red Rock executives have several renovation projects in the process, including a $120 million expansion of its 16-month-old Durango Casino Resort, which includes an additional 25,000 square feet of casino space and a 2,000-space parking garage. The company is also spending $150 million to refurbish its Green Valley Ranch Hotel and Resort. 

Vice Chairman Lorenzo Fertitta said the company had locked in some costs for the $750 million North Fork casino project it’s building near Fresno in partnership with Central California’s North Fork Rancheria of Mono Indians.

“We're going to figure it out,” Fertitta said. “We wouldn't expect that we bear the full brunt of the tariffs, whether it be in the past on a contract or on a go-forward basis.”