How do you value a slot machine?

IB

4y

Velocity of money*(1-win rate), discounted appropriately. Hard part is figuring out how many quarters are going into the thing but presumably it would have that data.

YoungBanana

Monkey

AM

4y

Would you argue that velocity versus total inflow of currency would make a large difference?

Also any thoughts on approaching it comparatively?

Authored by: Certified Asset Management Professional - 2nd Year AnalystCertified Asset Management Pro

Banking Sucks Guys

IB

4y

I mean I guess both of those get you to the same place (that is, velocity is just a rate of the total inflow).

Comparatively to... what?

motley_accrual

PE

4y

Is it independent of the market? Sure your winrate is uncorrelated, but are the flow of funds correlated with the market at all? Do you think people gamble more or less during a recession? I honestly don't know, but the statement that it's independent of the market is certainly not obvious to me

Authored by: Certified Private Equity Professional - 1st Year AssociateCertified Private Equity Pro

YoungBanana

Monkey

AM

4y

I agree that cash flows may fluctuate depending on economic state, but I think it's logical to say it's independent of the market when you think of something like it's beta for if you were calculating a WACC

Authored by: Certified Asset Management Professional - 2nd Year AnalystCertified Asset Management Pro

motley_accrual

PE

4y

Most Helpful

If the cash flows (asset returns) are correlated with the market, that's by definition a non-zero beta.

Edit: my point is just that you would need to show that people's gambling behavior was completely independent of their wealth. I'd suspect that Vegas sees more business when the economy's doing well. If that's the case, and our slot machine has a higher utilization, then the slot machine is not independent and has a positive beta

Authored by: Certified Private Equity Professional - 1st Year AssociateCertified Private Equity Pro

YoungBanana

Monkey

AM

4y

interesting. thank you for the clarification.

Authored by: Certified Asset Management Professional - 2nd Year AnalystCertified Asset Management Pro

BillMurray

O

4y

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