How to Start A Slot Machine Business in Kenya

Overview

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This fact sheet refers to the business of gambling using slot albeit at a small scale level and simpler manner. This as represented by individual slot machines placed in low end bars, ‘locals’ or small premises with four to ten machines. Think of it as the liberalization or devolving of slot gambling from the formal and perhaps intimidating casino in the city to estates, counties, peri urban and rural areas. The simple machines have broken the barriers to entry by making it affordable to gamble (Kshs10 and Kshs 20 ) and more important making slot gambling accessible. On the business side the Chinese have made it affordable to acquire the machines. They now produce them for the mass market making them relatively inexpensive to purchase. This as compared to say five years ago. Devolution has also helped the growth of the business by taking licensing decisions to the local. Although there are aspects of gambling controlled by a national body local authorities tend to carry more weight. The national authorities have also become more accessible by setting up regional offices.





How It Works

Before we get to the nitty gritty of the slot machine business it’s important to get a basic idea of how slot machines works.

At the simplest a customer comes and inserts a coin in the machine’s slot so as to play. The payment is for the opportunity to play irrespective of whether he wins or not. Once he inserts the coin he presses Play. The machine will spin different patterns on the screen in front of the player.

To win the machine has to settle on the winning pattern, otherwise the player looses. Different machines have various definitions of what entails a win; for instance it could be three similar patterns, a set of patterns or any other definition.

Let us assume in our case winning entails the machine settling on three similar patterns; particularly mangoes. So if the player inserts the Kshs.20 coin, the machine spins and settles on a Mango Mango Banana, the player loses. And if it settles on Mango Mango Mango then the player wins.

So to make money the owner sets the odds of the machine. He could for instance set odds of 50%. This would mean say for every Kshs.100 that a customer or customers pay; he is left with Kshs.50, while Kshs.50 goes to the customers as winnings spread randomly. If the odds are say 30 %, and customers slot Kshs.1000 then it means the owner will be left with Kshs.300, while the players will get Kshs.700 spread randomly among them. One will lose Kshs.100, another wins Kshs. 200, another Kshs. 60 another wins Kshs.300 and so forth. It’s all random. Even by the time the player presses the Play button his chances of winning or losing are already preprogrammed; the spinning images are just props for entertainment, to make it real and for effect.

To gamble using a slot machine does not require any specialized knowledge; just to know where to insert the coin, which buttons to press, and what the winning patterns and options are.

So How Do You Start A Slot Machine Business:

1.Get the premises

2.Acquire the Machine

3.Acquire the Licenses

4.Start Operations

Let us look at each in detail:

Premises:

As you select the premises keep in mind the main customers. They will be consumers with relatively low income, exposure and with simpler tastes. This could mean someone is earning Kshs.30, 000 but his mindset is not pretentious.

Income is relatively low one by virtue of how they earn the income; mostly daily or weekly, and also in actual amounts which do not fit the classical ‘middle class’ incomes say of Kshs.50,000 and above. And even when income is high consumption habits are less complex.

Think of the fundi who takes senator Keg, the student who gets daily or weekly pocket money, touts and drivers, young men with no permanent jobs, young men who will start drinking spirits then pop to a hip club to top up with a beer bottle, people who gamble with cards and pool tables.

These are the core customers, and this does not mean there are no customers outside this group, there are many others but they are not the core. You won’t find them in the estates gambling at 11 AM. Many also find too much randomness in the game (unlike say Sportpesa, pool or such others). They also care about their social standing so are hesitant to be seen playing slots; a ‘waste of money’. There are consumers earning less than the core customer but by their socialization they will not go to the slots. So it’s not just about income but social position.

Thus try acquire premises where there are as many of the core group as possible. You need foot traffic, a place with cash flow, easy to access but not all out in the open. Think near a bus stage, near a row of Wines and Spirits Bars, near a row of open air car washes, pool tables...

You sure get the idea.

Presently there are two methods used to acquire such spaces:

a)Partner with a bar / restaurant- Look for a bar that is patronized by the kind of target customer. Get into an agreement in which you are allowed to place the slot machine in the bar.

The arrangement takes the form of a fixed monthly payment or revenue share. The latter is the most common and preferred. In this case you share gross revenue with the owner bar based on an agreed percentage.

The advantage of a partnership is that you get to ride on the goodwill of the bar; your startup costs will be lower, and depending on the bar and the location skirt licensing issues. The con is the revenue share.

Some bars will also place the machine in an obscure corner where it attracts little attention. And since such deals are more of gentlemen agreements than binding contract there is no guarantee that the bar owner won’t wake up the next day and say the machine is a liability and you should take it away.

In other areas you will need to get the any needed gambling licenses on behalf of the bar. The other major shortcoming is that the machine can only be played when the bar is open. So that means a limited number of hours every day for a bar which operates from 5pm to 11pm on weekdays and 2pm to 11 pm during weekends.

Still this remains one of the easiest and most effective ways to penetrate the market and puts your machine right there in front of the customers’ eyes.

The question then is why the bar can’t invest in its own slot machine. One is because of the capital involved. The bars don’t want to invest money in a concept business that is not yet proved to them. So they are okay when someone takes the risk and they get a cut out of it.

Secondly some don’t know where to acquire the machines, and what is involved. Thirdly some don’t have the required capital.

These reasons mean that when you partner with a bar there is no assurance that he will let you keep the machine there forever. He will know what you make, and if he is the greedy or ambitious type, depending on how you look at it, he might throw you out and bring his own machine.

In addition some bars will be hesitant to have the machines on their premises for fear of the police or other authorities. Like with this kind of business all over the world even if you are in the right with all the required licenses, if the police want to squeeze money from you then they will. Some bar owners don’t want the police snooping around, more so if they don’t own the machine.

So when you get such a partnership you make hay when the sun shines.

A good example of how this concept is used is in Embu / Kirinyaga where a Chinese has placed the slot machines in at least 30 bars and small hotels on a revenue share model.

b)Own Premises – Instead of partnering with a bar you rent a premise (that is if you don’t own it) and place your slot machines. The premise need not very big in size.

In some places five machines are placed in a ‘stall’ size room about 4 meters by 4 meters. There are no seats and customers stand as they play. For breathing space and to let in more customers you can have slightly bigger space. The machines are table top.

With your own premises you acquire the licenses, control the marketing, deal with the authorities and perhaps very important you control the opening and closing hours, unlike in a bar when you are at the mercy of the owner, or more appropriately the Alcoholic Drinks Act 2010 (Mututho laws)

With an own premises comes rent, licenses and basic renovation. In some places machines are placed in an empty room on tables and voila that’s it. No advanced modifications are required.

The decision to seek a partnership or go for your own room will depend on whether you can get premises within a strategic location, whether you have enough capital (to incur the cost of rent ), your networks / relationship, sales skills with bar owners. You can have enough capital to rent your own premise but a partnership becomes the better option because of how it gives you access to target customers.

If you set up an own shop in a busy place (busy in reference to the target customer) it’s preferable if you have several machines so as to maximize the space. A machine would take just a meter by meter. And that’s it. More machines will also mean more capital.

You could partner and still have an own premises. If you have capital seek to ring the best of locations mostly through collaboration. The reality is someone will do whatever you won’t do. And as competition intensifies soon all the ‘good’ bars or locations for the business could be gone.

Equipment

The slot machine is the basic and major equipment. The simple slot machines that are spreading throughout the country originate from China. They are ‘made for the African’ market. Meaning they are made to work with ‘African’ coins, conditions, and income.

There is no proper central company that imports the machines, but they were first introduced by some Chinese residing in Kenya, and associated with the Funtime animation company of China. Presently though there are several dealers in the market; including individuals who are importing for their own use and to resell.

Those who import without necessarily going to China use own contacts in the Asian country or the website www.alibaba.com . If you are ordering online make sure that the slot machine can use Kenyan coins. Without necessary vouching for it Funtime has been promoting their machines through a demo video using Kenyan coins.

The importers tend to fall into two general groups ; those who import and resell but do not run their own machines, and those who are running own slot machines but still import for reselling. The latter tend to be the best to buy from because of their understanding of the market from the ground level.

Though the machines are more or less the same there are some subtle differences. The very basic being the coin that is used; either Kshs.10 or Kshs.20. The Kshs.20 is preferred because it results in more revenue per play. The lower fee does not necessarily result into more games and thus equivalent revenue as the Kshs.20. (Picture this you have a fixed number of games that can be played within one hour, and the people to play are available. Do you make more money charging a lower or higher amount? )

The other significant different is in the graphics, sounds and play options. You know the images that appear when a customer plays and the machine spins. Customers tend to prefer funkier images which pleasing to the eye. You will hear a customer say that machine has better images, or more playing options. The machine should be simple and entertaining.

There are also minor differences in the ‘admin ‘options. For instance how you are able to retrieve winnings; for some machines you can’t just open a vault and retrieve the cash, the coins drop one by one which is tedious, while for others you can.

So go for a machine which is easy to use for both you and the customer. Attractive to the customer. Where possible a machine that uses Kshs.20 coins, and offers requisite security features.

Like mentioned you can purchase the slot machines locally or import directly. If you would like to start with one machine to feel and test the market you can buy locally. This will help get hands on experience before you decide to expand. This is also the preferred option if you would like to beat the bureaucracy of importing. Also some Chinese suppliers could insists on higher minimum order quantities, meaning with some companies you can’t import just one piece, It also follows that the more pieces you import the greater the savings.

If you decide to import look at the options available. Go for a company which has slots fit for the Kenyan coins. (E.g. Funtime). You could take a photo or video of one machine and send to them as you make your order. Importers add a markup of 20% to 50%. So you make significant savings if you want many machines.

Most of the suppliers, whether the Chinese companies or local importers, don’t offer proper technical support in case the machine develops problem. The machine could develop problems in the display, spinning and so forth.

Still the system runs on a relatively simple circuit system. A keen electrician can study and repair it. But rather than take the risk with trial and error electricians some traders prefer to import the whole circuit system from china at a cost of say Kshs.6000. When purchasing locally ask the importer what happens in case of technical problems. He might not give an outright warranty but he will advice you on what options are available.

Locally the price of the machines range from one supplier to another. But range between Kshs.70, 000 and Kshs.120, 000. There is so much room for negotiations. The price difference

is more tied to the cunningness of the supplier, his mark up, the location and both your negotiating skills. Often it’s not because of major differences in quality.

Remember there are also brokers who represent the real importers and thus will add a markup of their own.

Local Suppliers

Here are two local suppliers:

Samuel – 0710 867745

Moses – 0701 002742

There are many others. If neither of these is satisfactory , kindly let us know and we will help you find more.

Operations

Once you have the machine, and have set up so as to start operations either in your own premises or bar there are some things to think about.

One you need a float. The float is to fund the winning of the initial customers. This is before players reach a critical mass such that there are enough losses to automatically fund wins. Remember the machine is programmed in a random manner, meaning your very first customer could win. And if he wins and there is no money in the till then it will reflect badly on the business. You can start with a float of say Kshs.3000.

You also need to think of where to get coins. Whether you are running from your own premises or collaborating with bars you need to have a good supply of coins. Ideally people should not leave the premises to go look for coins.

Coins can be ‘bought’ from retail shops and other businesses which transact with many coins but would prefer notes. Some banks will also provide you with coins. When you have coins if a customer comes with a Kshs.100 note you exchange with five Kshs.20 coins, and he continues to play.

Then you need to think of the odds you are going to set. It is tempting to set the odds such that you make very high returns, say 60%, whereby you get to keep 60% of the total revenue, and your customers keep only 40%. (Say they have played a total of Kshs.1000, you keep Kshs.600 and they keep Kshs.400). But this will be the wrong strategy to begin with. At the start you want

to hook customers to the habit, if we may use drug dealer parlance. You want them to win so that they keep coming back, and before they know it they can’t do without it. Start with high odds (high odds of winning for the customer) then lower them gradually. If customers don’t win enough at the start your machine will be “ile machine mtu hakulangi”, and well word spreads and no one tries their luck using your machines anymore. Think of 10 to 25 at the start.

Think of the police too. Gambling is not entirely illegal if you have licenses, but it’s the kind of business with the invisible loopholes that could make police harass you if they want. Be in good terms with the local police, you know just in case they come calling. As is often when dealing with the police being in good terms with them means lining their pockets or stomachs. Where possible collect the money everyday or within 24 hours.

Licenses

Individual small slot machines running at a small scale level are a relatively new phenomenon and most county governments have not captured them in their finance acts. This means sometimes they are not very sure how to classify the operations of such a business. The kind of small scale gambling that is captured is the pool table, the license which ranges between Kshs.2, 500 and Kshs.5, 000 depending on the county and the location within the county. Other betting schedules are for full fledged casinos and lottery schemes.

Thus the counties charge a sort of entertainment / amusement (think amusement) license. The cost ranges between Kshs.4000 –Kshs.5000. Some bars with pool tables are able to hide the slot machines under the pool table license. While others don’t get any license at all; they have developed relationships with the police and county authorities so that they turn a blind eye.

Often license or not the police will try squeeze something. And so you pay up once in a while they could chase away or arrest some of your customers. So you could need to get in their good terms.

Single User Business Permit

This is issued to all business within the county. The cost will depend on the county and size of premises, but budget at least Kshs.7, 000.

Betting Control and Licensing Board

Betting and Gambling in Kenya is governed by the Betting, Lotteries and Gaming Act and enforced by the Betting Control and Licensing Board. Like we have mentioned there have been a tussle between the board and the county government over who should be in charge of betting.

The issue is still not fully resolved, thus in addition to the fees and conditions in the act the county government have their own schedule of fees.

The Act has numerous terms and conditions touching on every aspect of gambling. Some which could trivial. Still a key issue is that those underage are not supposed to gamble in any way. Others include penalties for building owners who allow unlicensed gaming in their building, arrest of people who may be found in such premise, restrictions on advertising. And to quote verbatim “….not more than two gaming machines are made available for play in any one

building or, where different parts of a building are occupied by two or more different persons, in the part or parts of the building occupied by any one of those persons...”

But of interest is the licensing of gaming machines. The application fee is Kshs.50, 000 per machine, the location license is Kshs.200, 000 and the actual license Kshs.50, 000 per machine. Quite steep, right? The laws were made with casinos in mind. Of course none of the owners of the machines which are the subject of this guide acquires these licenses. It wouldn’t be viable to pay such fees for a license and operate e in numerous locations, or even just one location.

A way round this is that BCLB classifies the slot machines as amusement machines which attract lower fee. You pay Kshs.6000 to operate the machines. There are many others which operate without the license by colluding with police, BCLB officials and local authorities. In reality it would be tough for individual slot machines owners to meet all the conditions of BCLB and still make profit. This should not discourage you. The reality is that whether you have the license or not the police will still bother you. It’s like running a low end bar.

Capital

 

Item

 

Breakdown

 

Total

 

 

 

 

 

 

 

(Kshs.)

 

 

 

Licenses

 

 

 

 

 

 

 

 

 

 

 

Single User Business Permit

 

1

 

 

7,000

 

 

Amusement /Gambling License ( County)

1

 

 

4,000

 

 

BCLB License

 

1

 

 

6,000

 

 

Sub Total

 

 

 

 

17,500

 

 

 

 

 

 

 

 

 

 

 

Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

Slot Machines

 

3

@ Kshs.90,000

 

270,000

 

 

Tables

 

4

@ Kshs.3000

 

12,000

 

 

Stools

 

[email protected] Kshs.800

 

3200

 

 

Sub Total

 

 

 

 

285,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premises

 

 

 

Rent

2 months deposit + 1

30,000

 

month rent. Will depend

 

 

on location. (@

 

 

Kshs.10,000 per month)

 

Sub Total

 

30,000

 

 

 

Working Capital

 

 

 

 

Salary

2 months @ Kshs.8000

16,000

 

per month ( 1 employee)

 

Electricity

2 months @ Kshs.2500

5,000

 

per month

 

Miscellaneous ( Police/ Authorities take, transports,

3 months @ 4000 per

12000

airtime etc )

month

 

Sub Total

 

31,000

 

 

 

 

 

 

Grand Total ( Adding all the above sub totals)

 

363700

The figures are averages, and if you are operating from your own premises rather than partnering with a bar, hotel or any other business. In such a case your expense will be the cost of the machine, and perhaps the authorities. Figures will also depend on how much you purchase the machines and how many you need. Other costs are also variable. This should act as a guide. There are entrepreneurs who start with one machine in a bar.

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Revenue

So how much will you make from your slot machine? Before we look at some averages lets note some of the factors that will influence revenue.

First will be the location of your machine and the traffic you are attracting. Don't just think of the general population of the area but the specifics of your target market. Are they in abundant numbers? And can they easily access your slot machine? The more games being played, the more revenue for you. Games rather than players because two or so customers could play several games or as in some cases play for hours.

Still the number of games increases as the pool of possible players expands. This does not matter whether you are running from a bar or own premises. So if you are in a good location then you will have higher revenue.

Secondly are your odds. You need to find the point where the odds are high enough for the customers to keep playing but low enough for you to make profits. You also need to know how to play with the odds based on the performance of the business, and your competition too. If you are able to get the optimum point, often by keen observation of local habits, trial and error, then you will make more money.

Thirdly is your marketing. Many slot machines don’t market in anyway. Since they are placed where target consumers can see them then owners don’t see the need to market. And after the initial few customers word of mouth spreads and soon the business is crowded, but it doesn’t always work like that. Sometimes it helps to create some little buzz say in bars where no one seems interested, pay some people to play so as to attract attention.

Some investors in the business despite having license are afraid of advertising because of BCLB regulations (though not often enforced) but more so for fear of attracting the attention of authorities. You can use guerilla tactics to let people know. And initially let people win more, and soon they will be flocking your machine.

When you have placed the slot machine in someone else premises, revenue will also be determined by the share agreement you have with the premise owner. The more favorable the formula the higher revenue for you. Still you should set the revenue share in such a way that the owner is motivated to keep the machine there and encourage people to play.

From our survey on average one player spends Kshs. 80 per day. Not all players try their luck every day, some will play today skip a day or two then try again. Still there is a core group of customers who play every day, and spend an average of Kshs. 40 for good or bad. We saw players who spend even Kshs. 500 in a day. Of course there are wins and losses but that is the amount they are willing to risk.

The highest grossing slot machine that we recorded averaged Kshs.2, 500, against odds of 30% though the owner adjusts as need be. The machine was in keg bar in Nyandarua. The lowest we recorded was Kshs. 120. The machine was located outside a small hotel. Another case of low revenue was Kshs.180. The machine was in a mid class bar in Embu.

Among the highest grossing slots was one located near a stage and operated from 8 am to 9PM. Many of the machines located in areas which we considered good raked in between Kshs.600 and Kshs.1400. Aim for at least daily revenue of at least Kshs.800 .The most common revenue share with bars was 80: 20 in favor of the slot machine owner.

If you are operating from your own shop the major expenses in the business are rent and manpower. You need someone to man the shop if you are not there full time. Other expenses include electricity and perhaps occasional bribes to the police.

Competition

Competition in the business will continue increasing as more entrepreneurs get into the business. There will also be more people importing and reselling the slot machines. Competition will be based on location; investors in the business will jostle to get the best of spaces whether through partnerships or through booking shops in strategic areas of a town.

Competition will also be by trying to conquer virgin areas such as peri-urban towns and even rural areas. Investors in the business and with enough capital will import tens of machines and form partnerships with bars and entities across regions.

Competition will also be based on the odds. This will happen as the machines within an area increase. Unlike the present where you could go to a town and find all the slot machines placed in nine different bars belong to one person, as competition intensifies there will be more players within a small location. To attract more players entrepreneurs will raise the odds in the customers favor so that he can win more. This kind of competition is rare at the moment.

Competition will also be based on the machines. Different players will try get the most fancy and entertaining machines as possible. Under pressure to stand out and with demand increasing the slot machine manufactures could start customizing the images, sounds, graphics and other designs used to give a local or sexy feel: Anything that differentiates the machine and makes the customer continue slotting coins.

Prospects

This is a good business to get into but only if you are able to get a strategic location where you have a good flow of the right kind of customers. There is something addictive about gambling and soon it grows on customers.

That said this is also the kind of business where you try maximizing returns when the sun shines. There are already some murmurs in parts of central province that youth are spending so much money and time gambling. The complaints are not big enough but as expected if the pressure mounts the county governments will react with a ‘crackdown’, tough regulation or the cost of bribes will go up. More so now there is a group of billionaires (Mount Kenya Foundation) trying to influence that keeps the youth of the region in line and away from ‘time wasting’ activities. On the bright side as the elections near laws are pushed slightly to the back as politicians struggle to get reelected.

Still keeping everything constant the business remains attractive. To succeed you need to have a great location with a critical mass of the target customers. Do also take time to know the licensing regime in the area. Licensing here does not necessarily mean formal licenses but the informal licenses issued by the authorities such a police through occasional bribes.