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Introduction
Part 1
Part 3
Andrew Cardno
Chief Technology Officer
BIS²
Gaming is generating such colossal volumes of cash that it can’t help but propel a capital-driven frenzy of gaming growth across Asia and the rest of the world. Moving from Asia to Latin America, a market with already over 500 casinos and economic growth in double digits, consider Brazil (which has no legal casinos).
Now, as somebody who has personally traveled extensively in the last year visiting many of these markets, I have come to realize some common observations. Note: these observations are personal opinions and not the result of a scientific study.
Where once management teams were wedded to each country, it is now the case that management teams move among countries. My “flattening” observation is two-fold. First, that talent is moving between countries, and secondly, that global management is being dispersed.
The expansion of gaming continues at a huge rate with a seemingly endless stream of new plans or openings being announced. New properties everywhere from Spain to Boston to Japan seem to be on the roadmap. My observation is that gaming, once often confined by regulation, or in some cases regulatory exceptions such as the riverboats or the Class II gaming establishments, are now becoming mainstream and a universally accepted part of many cities. This massive shift in the industry, which is global in nature, will place huge demands for talent and only further the globalization of the industry.
The flattening of the gaming industry has resulted in competition in a similar pattern to the impacts of railways on industry. Listing some examples of this is helpful to put context on what is happening: Scientific Games, a systems company, has acquired WMS (a gaming machine manufacturer); LT Games won a patent infringement case against Shuffle Master; Ainsworth has produced some of the top-performing games in many jurisdictions; IGT has pushed deeper into online gaming; and Konami is now a strong systems vendor in North America.
Let me categorize the big trends here. Pure gaming companies are moving out of gaming, for example, IGT moving into online gaming; non-casino gaming companies, such as Scientific Games, are moving into casino gaming; and the market is much bigger, broader and deeper.
Multigame machines are a big part of many gaming floors. Consider the classic Game King games. Quite simply, they are a staple on the west coast of the U.S. Now, sadly, most systems cannot collect data from these games, and very few systems collect the individual player data for each game. In a world with free play, and other player-based incentives, some of the individual games can become unprofitable (as can the players). The BIS2 data matching engine solves this problem and gives the CorrectTheo for each game for each theme and for each player.
In gaming we are loaded with metrics. The fact that we have no single measure of customer value is a canonical example of how difficult the numbers can be in this math-based industry. This need has opened the door for dynamic campaign management tools that BIS2 has proudly delivered its first installs with this new capability.
2014 is lining up to be another wonderful year for BIS2, a year where our product range greatly expands our mobility and predictive capabilities. With such a bold innovation plan, 2014 will present it challenges, but BIS2 is ready, and we are having fun.
George J. Levine
Executive Director, Sales and Marketing
Casino Data Imaging Inc.
2013 was an exciting and busy year for the company. In last year’s CEM forecast, we talked about our migration to the new CDI GlobalSuite™ data visualization platform, including utilization of the latest from Microsoft framework and BI tools. Results have been impressive with more than 20 GlobalSuite installations and counting. Working closely with leading casino operators has brought subtle and profound advances to the program.
One example was feedback gleaned from casino operators requesting a more pragmatic approach to dashboard information. They wanted meaningful insights, not data. They want to see the most relevant information to the business at hand and make better informed observations and decisions. Collaborating with end users resulted in the development and implementation of GS interactive performance analysis portals (IPA). This feature quickly allows end users to select the analysis categories (i.e. denomination, manufacturer, game theme, lease products, areas, banks and more) to compare and contrast to one another and house averages. The user would then drag and sort applicable KPIs within the IPA data grid. A trending graph responds to the selections made, which provides immediate high-level trending feedback. From the same control center, end users are one click away from relevant 2-D and 3-D casino map performance color coding, game drill downs, core reports, pivot tables, pivot and report exports to Excel and more.
Providing a “does everything and the kitchen sink” product is certainly one path to follow but not recommended. If a solution or feature cannot be implemented properly, it’s of no use. Similar to the development of IPA, our ongoing mission is to continue to listen to the end users and focus on delivering more actionable features, information and best practices for all GlobalSuite modules, including slots, table games, player data and multigame, multidenomination games. And, of course, CDI engineers continue to incorporate user-friendly processes that layer the end user away from the complexities of analysis without sacrificing power and flexibility. In many cases, GlobalSuite maximizes other BI assets already in place at the casino.
A similar product business model also applies to CDI’s iGuide™ Wayfinder Plus. We’ve kept the front-end casino “live” map presentation fun, informative and elegant. Our unique, proven and proprietary method of guiding guests to a specific slot model, specialty bank or any other venue (restaurants, shopping, bathrooms, etc.) continues to provide a rich experience for the patron. Once again, receiving customer feedback is critical to success and under a SaaS plan, we are always advancing the program. A great example was a request to reveal game titles when a specific machine bank is touched. This made sense to our team and quickly turned around the “Touch Pop-Up” feature. Additional main map features are in the works which will further promote and inform what’s new at the casino. We’ve added more features within the iGuide user-interface console master that makes updating easy and, yes, fun for the administrator. This includes a grocery store method for game title positioning and promoting, plus incorporating more convenience features for searching and assorting content information. We recognize the product’s success first depends on buy-in from casino, marketing and IT personnel. This includes ease of operation and support.
Staying focused on our core competencies, our customers and being patient and disciplined has brought impressive results to our product line and organization. CDI is well-positioned for 2014 and looking forward to providing high performance solutions that are reliable, cost effective and easy to deploy.
Jim Bach
Chairman
NEWave
2013 was one of the best in our history, and we are thankful to our 270-plus casino customers in the U.S. for the support. As we begin 2014, we advise all casinos to re-read the critically important speech that Financial Crimes Enforcement Network (FinCEN) Director Jennifer Shasky Clavery delivered during G2E 2013.
After outlining several areas of criminal activity that FinCEN is tracking, which she declared to be “serious threats to the United States, our people, our businesses and our communities,” she [also] said that casinos play important roles in the fight against terrorists and other nefarious criminals, and robust anti-money laundering (AML) programs are the first line of defense in keeping these individuals out of the system.
Then she very clearly removed any blurred lines between casinos and other financial institutions and equated casinos with banks and virtual currency providers, responsible for reporting suspicious activity when they suspect that the money being brought to them for gaming derives from an illegal source. The importance of compliance cannot be overstated. For example, in 2012, 37 percent of the FBI’s pending counter-terrorism cases have associated Bank Secrecy Act records, and more than 90 percent of these were Currency Transaction Reports (CTRs).
Shasky Clavery’s landmark speech and these statistics are the basis for our forecast for 2014. It is clear that in 2014 FinCEN will hold casinos to the highest of compliance standards and accountability AML compliance fails, possibly including a focus on individuals, as well as institutions.
Because of that, we forecast that casinos will shore up their compliance policies and procedures. At NEWave, we have customers from coast to coast who rely on our Title 31 software to guarantee compliance and automate the entire process, and we forecast that our business in this area will continue to expand in 2014 as the gravity of the speech and the risks to the bottom line and reputation are more fully understood by casino operators.
Of course fraud can come in many forms and from many places. Our check-cashing software, now known as Check Prove®, has been protecting casinos since our company began in 1993, and its continual updates keep casinos protected up to the minute. As consumers continue to prefer cash as their primary casino currency, and as casinos continue to rely on and promote payroll check cashing as an important marketing function, we forecast that Check Prove will be a growth area for NEWave in 2014. We ended 2013 with several important Check Prove contracts, and we see this trend continuing in the new year.
Lastly, we recently launched a new software suite, myData Manager, which collects enterprise-wide data from compliance and financial perspectives, takes large daily reports and files and automatically converts them into relevant data dashboards and spreadsheets. This data then automatically [sends] daily emails with targeted, specific data to the finance, operations and senior management teams.
Because myData Manager focuses primarily on financials, compliance and fraud, and audit/reconciliation, we forecast excellent growth in this area as casinos continue to rely more and more on business intelligence to make better informed decisions.
Tammy Farley
President
The Rainmaker Group
The late, distinguished U.S. Sen. Henry Cabot Lodge is quoted as saying, “excitement is impossible where there is no contest.” That being the case, the gaming and hospitality industry today finds itself at the epicenter of a most exciting period. Jurisdictions the world over are legalizing gaming in greater numbers. Competition for today’s consumer—and his or her discretionary dollar—has reached new levels. At the top of the list of criteria from which today’s players assess the value of a casino is the operator’s answer to this two-part question: “do you have the games I want to play and at the right prices?” Failure to answer in the affirmative is a recipe for lost opportunity.
For years, the gaming environment was largely an oligopoly. Las Vegas, Atlantic City and a handful of land-based venues were the only games in town. That’s no longer true. In addition to more venues, more games and more play options, players also can now play on their laptops, iPads and smartphones. Casino operators must be continually attuned to the evolving purchasing habits and behaviors, as well as the value of today’s players—certainly to a much greater degree than ever before.
Today’s slot floor is a living, breathing, continually evolving entity. As such, more and more operators have begun deploying (or at a minimum, taking a closer look at) the principles of revenue management.
We anticipate casino operators are progressively going to recognize the need for an automated revenue management solution rather than attempt to “optimize” in-house. The number of data points is staggering, and operators will find third-party analytics as the best way to optimize or yield their slot floors.
Revenue management is already standard practice for ensuring availability of a hotel’s inventory for its most valuable guests and optimizing profitability. Hoteliers typically have one person—and many times up to three people per property—dedicated to revenue management. By contrast, slot operators may not even have one person dedicated to revenue management, which is rather surprising given slots can account for up to 10 times more profit compared to hotel profit.
Additionally, with the advent of multiple OTAs, individual websites and third-party meeting brokers, it’s quite easy for hoteliers and customers to see what hotels are doing from a transient pricing standpoint. This unprecedented level of transparency is making it increasingly difficult to gain an advantage via changes in room rate. A growing body of industry observers believes the next opportunity to differentiate oneself in pricing rooms will be tied to dynamically pricing such add-ons as room-, floor- and view-types. Today, the price of many of these add-ons is fixed (e.g., $25), regardless of whether the hotel is busy or slow that day.
The economic recovery in the hotel sector has been driven by transient revenue growth. Group business was lagging behind transient, and in many markets has in fact continued year-over-year declines. However, the latest data shows group room night increases due to a resurgence in short-term group activity. Across the U.S., group rooms are now up 8.8 percent compared to the same time last year. Now that group business is coming back, the need to manage and price group business demands greater focus, and we’re seeing a greater emphasis on that segment.
Brian Ferrilla
Managing Director
Resort Advantage
In 2014, Resort Advantage is anticipating that casino operators will significantly increase their investment in systems and processes to more effectively monitor patron gaming activity with the clear objective of uncovering and investigating more suspicious activity at their property.
Over the past year, FinCEN has taken dramatic steps to expedite history-making enforcement actions against casino properties for their suspicious and fraudulent activity indiscretions. These actions have resulted in extreme fines, thereby sending a loud message to the gaming industry: FinCEN will no longer accept casinos performing the bare minimum from an operations perspective in their attempt to meet today’s rigorous anti-money laundering (AML)compliance regulations.
The cost of effectively meeting the AML compliance regulations for a casino can indeed be significant. Interestingly, a few properties have analyzed the cost of meeting FinCEN’s enhanced level of AML compliance and have actually decided that the cost of obtaining or exceeding this level of AML compliance is so high, and the negative impact on their patrons’ gaming experience is so great, that they have elected not to invest in the required systems, people and processes at this time in favor of maximizing revenues now until the IRS forces them to take these steps.
In 2014, with FinCEN’s redoubled AML enforcement effortsbeing pushed to the forefront in the gaming industry, it behooves casinos to completely get on the AML compliance bandwagon—and even move to the front of it—to become significantly more proactive in their AML compliance management and reporting processes.
Most properties have the AML compliance program basics in place today: an assigned BSA Officer, a risk assessment, compliance reporting processes, a compliance training program for their staff, routine internal compliance audits and, optimally, a rigorous independent testing process. What properties typically don’t have is something that would now be considered the diamond in the rough: a proactive means of analyzing patron transactionactivity to uncover potentially suspicious patterns based upon the documented behaviors of its patrons that reside in the many legacy systems maintained by the property.
Given the industry dynamics noted above, as we look ahead to 2014, we are seeing progressive properties learning to beat the IRS at their own audit game and achieve world-class AML compliance with minimal impact to their patrons’ gaming experience. These properties are now working to implement innovative technology that is able to readily identify patron suspicious activity patterns for follow-up investigation and subsequent SAR reporting disposition.
This technology, which Resort Advantage has defined as “targeted SAR intelligence”, takes advantage of the huge volume of patrons’raw historical activity data collected by the many cash and non-cash transaction source systems at the property. This raw data is automatically run through a sophisticated scenario-based analytics engine to uncover patrons whose activity patterns are considered suspicious under the AML regulations or per the property’s risk profile. These “outputs” could never have been uncovered or seen via traditional manual means.
Heading into 2014, smart properties are making the deployment of targeted SAR intelligence one of their highest priorities to improve their AML compliance program, so they are well prepared for their next IRS audit and not becoming the industry’s next big audit fine story.
Brooke Dunn
Consultant
We’re going to see some changes in 2014 in the gaming industry. I believe there will be more consolidation on the vendor side (the Bally’s acquisition of SHFL entertainment) in order for the manufacturers to grow.
The cost of doing business for manufacturers will continue to escalate. More regulations, demand for bigger and more spectacular games, increased competition for floor space, push back by operators on “participation” games and the costs of game development will lead to declining revenues for slot games. One way for vendors to increase profits is to consolidate companies.
Two companies can operate so much cheaper than one. The cost savings from just redundancy can be incredible. Regulatory and licensing costs are basically cut in half. One marketing staff is completely eliminated. There is only need for one CEO, one CFO, one VP of Sales, one VP of Human Resources, one General Counsel, one audit, one service team, one sales team, one booth at G2E, one annual report, one investor relations consultant, one Board of Directors; —well, you get the idea. You combine the R&D teams and get either twice as many games or maybe, just maybe, you get games that are twice as good. A merger or acquisition will also increase pricing power. Consolidation may be one of the few ways for the manufacturers to grow profitably.
On the operators’ side, we may actually see the major players sell off some of their prized possessions to decrease their overwhelming debt. The consolidation model hasn’t been working too well for operators. The huge debt these companies are saddled with must be dealt with. They can’t just print money; they have to either increase revenues or sell off some assets in order to survive. How long will the stockholders, bondholders or the equity firms allow the operators to continue operating in the red? I’m guessing not that long.
The good news, the properties sold will be run by new management teams with different ideas and different business strategies. Maybe, just maybe, the new operators will actually offer something unique and exciting to the casino customers. Maybe this will increase the competition in the marketplace, resulting in better products, better customer service and lower pricing for the gaming patrons (yes, offering 6-5 blackjack and 15 percent slot games is the same as raising prices). Maybe this will entice more people to visit casinos and spend more money. Maybe this will increase the revenues and profits for the casinos.
When the casinos become more profitable, maybe, just maybe, the big companies and private equity firms will buy them, believing that consolidation will make them more money. Then we can start the cycle all over again.
Valerie Red-Horse
Owner
Red-Horse Financial Group Inc.
Although the markets have seemingly recovered, and business is back on track to pre-recession numbers in many jurisdictions, I believe the greatest challenge to both commercial and tribal gaming facilities in 2014 will be the continued difficulty of access to capital for new construction and expansion projects.
While it is encouraging to see the market recovered and the economy rebound, I understand the dismay of many gaming operators and their respective boards or government leaders when the process to access funding remains challenging. Although the debt markets are lending, the gaming sector took some definite hits during the recent crises, and the capital markets are still cautious with capital for new construction and expansions being extremely costly in most cases.
Gaming operators wanting to expand and grow will need to focus on both increasing revenue and identifying the lowest cost of capital. In 2014 I believe there will be plenty of opportunity for gaming facilities to expand operations and identify new opportunities for increased revenue, but I think the process will need to be thoughtful and complex.
Tribal gaming operators must assess online gaming both as competition and as opportunity and identify partnerships and implementation possibilities. Both commercial and tribal operators must utilize social media, marketing and PR campaigns to the fullest extent possible to maintain and gain market share and stay on top of the latest technology that is appropriate for their operation.
Tribal entities must exercise their sovereignty, accessing any advantages that can be provided via government funding possibilities. One program I hope to see more tribal nations explore in 2014 is the USDA loan guarantee program—although it cannot finance the actual gaming operation, it provides extremely low cost of capital for other related businesses and infrastructure and can be the determining factor in achieving an optimal capital structure. Both commercial and tribal operators seeking capital will need to be creative and seek financing via strategic partnerships, vendor relationships, grants and government incentives, as well as the traditional markets.
Mark Wayman
CEO
The Foundation LLC
This year was interesting for hiring. The first half of the year was strong; however, hiring tailed off in the second half. Each of the last several years we start off strong expecting a rebound in revenues…that never comes. By the second half of the year, companies tighten up. For 2014, I expect hiring to remain steady, with no noticeable increase. Certainly the new jurisdictions will help; however, with gas prices at $4 a gallon, and discretionary income tight, I expect the overall market to remain flat.
For talent, we remain in a “talent scarcity” situation, with very few senior-level executives available. This has resulted in a trend of gaming companies hiring executives from outside the industry and hiring folks who may not meet 100 percent of their requirements.
Two other trends from 2013 will continue into next year. First, given the economy, many companies are offering smaller compensation packages. Since all the best executives are gainfully employed, unless a company offers compensation 25 percent above market rate, they won’t be able to attract high-end talent. Second, the number of casinos owned by bankers continues to increase, and those properties are challenged to hire A-level candidates due to their financial condition. Again, all the top people are making above market rate at stable companies, so they won’t take compensation below market rate at a company in financial distress.
Online gaming was hot in 2013 with the biggest challenge, again, [as] a lack of qualified talent. Most of the experienced operators are in Europe, so online gaming organizations have been challenged to find good people and those that can get a gaming license. The end result is positions remaining open for six to 12 months.
Andrew Zarnett
Gaming and Lodging Analyst
Deutsche Bank Securities Inc.
It is impossible to have a definitive industry view without knowing the full impact of Obamacare on the American consumer and its discretionary wallet. It is our belief that higher premiums for many and great uncertainty for others will constrain discretionary spending throughout most of 2014. Policies that asked for manageable contributions from employees will now carry much higher monthly premiums or very high deductibles and co-pays, or both. We believe unemployment will improve, although wage growth will continue to be sluggish. We are worried about the crowding out effect that higher health care premiums, along with the widening gap between wages and price inflation, will have on discretionary spending. Thus, it is our expectation that consumer spending will remain soft.
Looking to industry demand, we believe visitation and spending will become flattish in 2014 affected by higher health care premiums, along with dubious economic trends, that will impact consumer wherewithal. Better convention volumes in Las Vegas will help performance in 2014. On the supply side, capacity additions have been fully absorbed in Las Vegas. Along the Atlantic Coast, near-term supply is greatly muted versus prior years. We forecast supply to grow by 4.5 percent over the next two years, which includes the Horseshoe Baltimore (Caesars Entertainment and Rock Gaming) and a Sugarhouse expansion (Philadelphia). It does not include casinos in New York, which we expect will come online in 2017 or later. Thus, limited new supply will quell the very big declines we witnessed in prior years.
Away from Atlantic City, we estimate the regional markets will experience flat revenue and lower EBITDA. Most regional markets will somewhat benefit from less new regional supply, easy year-over-year comparatives and preference toward traveling closer to home. In 2014, we will be watching how companies further align their cost structures to slightly higher revenues after rapidly reducing costs from 2011 to 2013. We expect little can be done to further reduce costs, and some operators may have to add expense to fill gaps left behind as significant cost cuts were implemented. Our review of the regional market clearly indicates that regional gaming properties are under pressure. Over the past 12 months, only New York has reported revenue growth, while other jurisdictions have reported declines, namely Connecticut, Missouri, Louisiana, Detroit, Illinois, Iowa, Pennsylvania and Colorado.
We believe Internet gaming will roll out on a state-by-state basis and not pass at the federal level. The first big test of online gaming is underway in New Jersey as operators began offering all casino games late in 2013. Further, as operators form an online strategy, the competitive set could be much more intense in the short run. In the longer term, we believe the business will consolidate. In a state with high penetration of gamers, such as Nevada, and little ability to extract additional dollars from players, the cannibalization could be great or business levels may just be small. In other states where casinos are somewhat isolated from the population, online casino games should expand the market. Lastly, investors should pay close attention to the potential impact of lotteries as they enter the online gaming market.
Moving from North America to Asia, with more supply being absorbed by the Macau market (table games +4.8 percent, slot machines -10.9 percent and hotel rooms +7.7 percent), our outlook for Macau is positive with growth of about 11 percent in 2014. We believe that the bulk of growth will be driven by mass market revenue, while the VIP business will experience modest growth in 2014. On the supply side, additional capacity is not expected, as the next wave of supply will commence in 2015 (Galaxy Phase II in H2’15, Macau Studio City in Q4’15, MGM Cotai in H1’16, Wynn Cotai H1’16, LVS Parisian H2’16 and SJM Cotai in 2017).
Todd Eilers
Owner and Director of Research
Eilers Research LLC
Despite sluggish gaming revenue trends, we saw very healthy North American slot machine demand in 2013 with unit sales up +20 percent year-over-year to about 85,000 games sold, driven primarily by multiple large scale Canadian VLT replacement activity and the emergence of the Illinois Video Gaming Terminal (VGT) market, while U.S. casino-based slot replacements and new and expansionary demand increased at a more modest pace in the mid-single digits.
Looking forward we project 2014 slot demand to decline 10 percent to 15 percent to about 67,000 games sold driven by the conclusion of the Canadian VLT replacement cycle and the absence of a large video poker replacement order booked by IGT in CY13. Excluding these orders from the prior year, we project total slot demand to increase 5 percent to 10 percent.
While we look for decent market growth, we note the pie continues to get sliced across an increased number of suppliers as we see further gains from Non-Big 5 slot vendors making growth from the Big 5 suppliers much more difficult in 2014. We also look for Class II gaming to receive a boost from the recent proposal by the NIGC to reclassify one-touch electronic bingo games as Class II gaming devices, helping to revive this segment of the market.
As for Internet gaming, there has been much more focus on the sector following the Department of Justice’s (DOJ) more liberal interpretation of the Wire Act and Nevada, Delaware and New Jersey going live in 2013. Looking forward, we believe California, Pennsylvania and Connecticut are the next most likely states to approve some form of Internet gaming. As the i-gaming market continues to expand, we expect to see additional platform and content deals as operators and suppliers continue to jockey for position in this important new market.
While most industry observers are focused on the real money Internet gaming opportunity, we continue [to] highlight the emergence of the social casino industry as a more near-term growth driver for both operators and content providers in North America as there are no jurisdictional approvals and/or regulatory hurdles. According to our most recent social casino tracker, we estimate the market will reach $2.9 billion in 2014 versus the U.S. real money i-gaming market at only $220 million.
Finally, we look for industry consolidation as North American growth remains modest combined with the increased number of competitors. Additional i-gaming jurisdictional approvals and further growth in social casino gaming will drive mergers and acquisitions across traditional supplier and interactive gaming companies.
Frank Fantini
Publisher
Fantini
Gaming stocks far outperformed the overall market in 2013 as investors looked past weak financial performance to promises of a brighter future. The fate of those stocks in 2014 will depend on the execution of those promises. Consider these examples.
• Pinnacle Entertainment endured revenue declines, yet the stock shot up more than 35 percent because investors saw a free cash flow machine created by its purchase of Ameristar.
Now, it will be up to Pinnacle to become that machine and not be weighed down by the weak consumer spending and the cannibalization that has afflicted regional casino operators generally.
• Caesars Entertainment and Boyd Gaming have also suffered the difficulties of regional casinos, and Caesars is burdened by heavy debt.
But investors ran up their stock prices in anticipation of online gaming coming to New Jersey based on the assumption that Caesars and Boyd will benefit from market shares enjoyed by their Atlantic City operations.
That appears to be a pretty good assumption, especially given Caesars Entertainment’s huge player database.
However, online gaming might take longer to develop than bullish investors think, in part because banks and credit card companies are not freely facilitating Internet gambling accounts.
Analysts estimate online revenue potential of New Jersey at $300 million to $1.2 billion a year. We’ll see. It might take a while to get there.
And how New Jersey goes, so goes the nation. At least that’s the thinking. If Internet gaming is a home run in the Garden State, the push will be in other big states, namely California, Illinois and Pennsylvania.
Investors will also have to look at costs of running Internet gaming. It could be much higher than anticipated if operators get into marketing wars to acquire players.
• Penn National stock ran up 60 percent from November 2012 when it announced the spin-off of its real estate into a separate company and the day that company, Gaming and Leisure Properties (GLPI), came into existence a year later. Now, the two companies will have to prove the wisdom of the restructuring.
Penn National, now an asset-light casino manager, will have to perform well in the difficult regional casino environment, GLPI will have to grow beyond properties managed by Penn National as it purchases casinos in lease-back and other arrangements. GLPI will also want to broaden its investor base to those who put their money into the stocks of real estate investment trusts, which GLPI will become early in 2014.
• Bally Technologies and Scientific Games (SGMS) each had an acquisition to excite investors, though Bally has had a strong run of success in its core slots and systems businesses, too.
Now, the question to be answered in the purchase of table game supplier SHFL entertainment is whether Bally becomes the very attractive one-stop shopping opportunity for casinos or whether adding SHFL becomes defocusing.
Scientific Games’ purchase of WMS nearly doubled the stock price, but the question is whether SGMS can become the efficient, productive operator of two companies that disappointed investors in the past.
Finally, there are the world’s two gaming capitals, Las Vegas and Macau, and how the companies that play in both will fare.
Barring the unforeseen, Macau should continue its healthy growth in 2014, and Las Vegas should continue its recovery. And that should spell good news for shareholders in Las Vegas Sands, Wynn and MGM Resorts.
Grant Eve, CPA, CFE
Partner
JOSEPH EVE, CPAs and Consultants
The legalization of i-gaming in Nevada, New Jersey and Delaware forms the beginning of a movement that will see more states considering such initiatives in the coming year, but perhaps what may be most interesting among these developments will be the first interstate compact for i-gaming. I would expect that New Jersey and Nevada will establish the first i-gaming interstate compact, but what terms those states agree upon will inevitably have implications for other states considering legalizing such activity.
There are 42 states with either racetracks or some form of casino gaming (tribal or commercial), and the preservation of those industries will likely be a priority when considering the legalization of i-gaming and particularly interstate compacting on i-gaming.
Casino stakeholders and politicians have considered taxing gaming based on player deposits as noted in the responses to the Nevada Gaming Commission’s Notice Of Request For Comments. Rep. Jim McDermott (D-WA) recently introduced federal i-gaming legislation HR 3491 that would tax i-gaming on player deposits.
Taxing player deposits may seem like a clean solution from an interstate commerce perspective, but from a casino accounting perspective, this approach is likely to be a barrier for operators evaluating the viability of i-gaming. Money can be moved online quickly and efficiently. Just because a player makes a big deposit doesn’t necessarily mean that player will gamble with it all. Certainly financial data analysis can derive average ratios of deposit to net loss per player, but we are in the very early days of regulated i-gaming in the U.S. Because the U.S.
i-gaming market will have unique laws governing such activity, there is no way to determine what acceptable ratios could be at this time.
Today our firm provides casino attestation services for more than 50 gaming facilities each year, and we calculate net win per location, per game type, per game device and other industry measurements, according to Generally Accepted Accounting Principles (GAAP) and industry demand. With i-gaming technologies, we will calculate this information in real time. So why are states looking to tax deposits instead of a revenue or per user? The answer is they see more tax revenue. So unless the casino industry can change the direction of the current i-gaming movement, we will end up with a tax system that hurts operators and players and only benefits state or federal governments.
We expect cloud computing accounting systems to continue to develop at a rapid pace. We consistently see several key areas of inefficiency in the casino finance function, including imperfect and problematic operational reporting and manual time consuming processes. These inefficiencies ultimately lead to a lack of detailed visibility into operations and wasted time and money. Cloud-based financial management solves these problems, which is why we continue to invest in a customized cloud computing casino platform using Intacct.
Intacct is a provider of cloud financial management and accounting software that is endorsed by the American Institute of CPAs (AICPA). By leveraging an Intacct casino solution, casinos have effectively removed these areas of inefficiency resulting in tremendous quantifiable benefits. We anticipate the pace of migration to cloud financial management to continue to accelerate in 2014 as the benefits become harder to ignore and the comfort level with cloud financial management increases.
Michael J. Pollock
Managing Director
Spectrum Gaming Group
Forecasts of gaming’s future in the United States were once a rather simple exercise. You simply noted that online gaming was inching closer to reality, albeit certain stumbling blocks remained. This year, any hopes of dusting off old forecasts and simply changing the last digit of the coming year have been dashed. Online gaming is a reality, and we can expect some significant advances across the landscape in coming months.
Indeed, online wagering in the United States did not exactly explode with a bang, but it did indeed emerge as a reality in Nevada, Delaware and New Jersey, and other states may not be far behind.
Obstacles still exist, and challenges loom, such as the stated opposition to online wagering by Las Vegas Sands and other interests. Such opposition, once nearly universal among land-based operators, cannot be dismissed or simply wished away. Rather, we suspect—“hope” might be a better word—that such concerns are formally addressed in 2014.
Our long-held view, memorialized in the Spectrum Internet Gaming Heuristic Theorem (SIGHT), is that online gaming should be harnessed and developed primarily as a means of marketing land-based casinos and identifying and cultivating new, younger demographics. Such efforts would not only advance public policies such as encouraging employment, tourism and capital investment, but would [also] have the added, critical benefit of encouraging more online play than would otherwise be derived. (All else being equal, the opportunity of winning comps at a casino will generate more interest than a relatively plain-vanilla site would.)
The existence of opposition to a wide-open rollout of online gaming presents an opportunity to air this debate and establish policies that ensure that online [gaming] in the United States is not simply an emulation of European online gaming.
I note, however, that the interest expressed by lotteries of moving online potentially complicates such policy decisions. In some states, such as Delaware, lotteries have a vested interest in maximizing online play while encouraging casino visitation. That interest is hardly universal, particularly in states that have both casinos and lotteries, which are regulated by different agencies. In such states, efforts should be put forth to make sure that online interests converge, rather than collide.
Rich Baldwin
Managing Director
Union Gaming Analytics
Last year at this time we predicted a maturing domestic gaming industry and that 2013 would experience minimal top-line domestic gaming revenue growth despite some new gaming supply. At the same time, we believed that the industry would not benefit much from an uptick in the broader economy, given our views that the economy, most notably unemployment, would remain sluggish due to the inability of the Obama administration to implement effective pro growth business policies. Hence, in our view, the stage was set for a year of increased consolidation, merger and acquisition activity, asset swaps, etc., as both public and private gaming companies continue to be pressured with increasing growth expectations and diminishing returns on invested capital by their key stakeholders. We also predicted that by and large (and with few exceptions), new domestic gaming supply would merely cannibalize existing supply within the weakest link in the chain, further adding to competitive market pressures. Lastly, we predicted that we would see some movement in the rollout of state Internet gaming (while federal legislation continues to be debated), but we did not anticipate 2013 to be a breakout year for the domestic Internet gaming market.
Suffice it to say, we were correct on all fronts, but the bad news is that we have now set a high bar for ourselves as we look ahead to 2014!
At the risk of sounding both repetitive and boring, our expectations for 2014 are similar to what they were one year ago, so no need to repeat them in detail. However, given the sluggish domestic gaming market backdrop, one key theme we expect to gain significant traction next year is a flurry of increasing activity at the state level to reassess and reevaluate outdated gaming regulations, restrictive operating rules and caps, tax policy, etc., particularly in those jurisdictions that have already experienced a significant reduction to their gaming tax base and employment. Unfortunately, for some states, the sad reality is it may be too little, too late to have much of an impact at this point other than survival as the window of opportunity to optimally manage this risk has come and gone.
However, this is certainly not the case across the board, and with the increasing proliferation of gaming across the country, we believe that the time is now for all states to face reality and proactively manage this risk on a continuous basis and take the necessary actions. Although this will take some time to play itself out, at present we believe several of the more established gaming jurisdictions actually have a significant advantage over those markets that have come online in more recent years, the primary reason being the punitive gaming tax rates that have been and continue to be imposed by short-sighted politicians who subscribe to the view that gaming is a sin industry in order to appease their base, so why not tax it accordingly?
Of course, this type of tax policy not only restricts new investment, but reinvestment as well and puts a ceiling on the overall long-term economic benefits, job creation, etc., and it is therefore incumbent upon the industry to do a better job educating the states. We are in the gaming biz after all, so we are placing our bets on those states that figure this out and start to employ both a rigorous and ongoing reevaluation of competitive market dynamics and can demonstrate the ability to effect necessary changes in a timely fashion in order to remain competitive over the long term. Stay tuned…
Julius Patta
President
GameAccount Network
Momentum is building. As more and more traditional casino operators are understanding the reach of Internet and the power of ever-present mobile devices in the hands on their players, they are ramping up their exploits in the online space. Casinos want to continue the “dialogue” and the relationship they have with their players, or [they] risk losing them to competition. Frankly, we cannot imagine a modern commercial offering, regardless of industry, without a meaningful Internet, mobile-accessible presence.
In our context, mobile applications give players the utmost convenience, expedite their requests and needs, and build a relationship with the operator. Regardless of regulations, casinos can engage in entertaining their customers and continuing to build their loyalty with fun and stimulating online programs. Free play and simulated gaming, combined with expertly crafted loyalty programs, are viable now, ahead of regulated online gaming. There are many successful examples of people willing to spend time and money on quality entertainment.
When connected to a specific property, rewarding players for online participation and bridging their experience to the actual property offerings, operators will establish a feedback loop that will continue to drive repeat visits not only online, but back to their property. At the heart of our i-gaming platform, gameSTACK ™ is our patent-pending technology. The iBridge™, which links the online CMS to an operators enterprise CMS, ultimately giving players and operators a single view onto their relationship. We see this convergence as a driving factor for success for operators who wish to expand their operations online.
Jim Murren
Chairman and CEO, MGM Resorts International
Chairman, American Gaming Association (AGA)
One year ago, I wrote a letter to our employees wishing a successful 2013. A colleague responded: “I wish you well, and I hope it is an uncommon year for our company.” Her comments proved to be profound, and her hopes were fulfilled. It was an upbeat year for our company and for our industry.
To say that our industry is alive with fresh potential is an understatement. Having gained more solid financial traction this year, and with many economic indicators pointing in the right direction, our industry is poised to embark upon another vast transformation.
Having weathered the recessionary storm, many consumers are using more [judgment] when making decisions about how to spend their discretionary dollars. Our guests are demanding more value for their dollar. The U.S. Travel Association has made great strides in encouraging international travel to the United States while also uniting various segments of the travel industry—room-booking engines, airlines and others to join as marketing partners in promoting tourism growth.
Going back to the late 1990s and early 2000s, our industry witnessed a dramatic shift in customer preferences, where nongaming offerings at Las Vegas Strip resorts surged in revenue, and gaming revenues shrank to a much smaller piece of the revenue pie. Today, we are seeing another evolution in the preferences of our guests.
Our guests now expect (without having to ask for it) all of the hotel conveniences that fast-changing technology has spawned. Before they leave home they expect online booking capabilities. Upon arrival, they expect Wi-Fi access throughout our hotels and automated hotel check-outs, along with mobile applications that will bring them experiential opportunities when and where they want them.
On other fronts beyond the green felt, our customers have expectations for our industry to demonstrate another type of green—strength in environmental sustainability. While it was uncommon 10 or 15 years ago for a hotel—especially a luxury resort—to ask their guests whether they really need their towels or linens changed every day, it has, of course, become a very common practice today. Our guests are scrutinizing how much responsibility we are willing to assume to be part of the solution in saving the Earth for future generations.
Regionally, internationally and in the virtual world, the outlook for our industry’s future market and revenue growth is promising. The major Las Vegas Strip companies and others are pursuing opportunities on the East Coast and elsewhere to enter their markets. In Maryland, MGM Resorts hopes to build a $925 million resort on the banks of the Potomac. In downtown Springfield, Mass., we are also planning a destination resort valued at $800 million. In China, we’ve broken ground on the Cotai Strip for a second resort in Macau valued at $2.6 billion.
Virtually and digitally, growth in international gambling has practically unlimited potential, as legislators in state capitals across the country seek to find ways to pass laws that protect consumers.
Our industry’s economic outlook is very encouraging because of the potential for growth in the national and international marketplaces. I would like to thank Frank Fahrenkopf for his steady hand at the helm of the American Gaming Association (AGA) since its inception. The torch of leadership has now been passed to Geoff Freeman. He joined our industry mid-year from the USTA with knowledge, energy and focus that will help our industry to further grow and mature.
I was asked to write about the gaming industry, but I’d like to add a few words about the importance of company culture. MGM Resorts’ strategic plan is guided by our mission to engage, entertain and inspire, along with our one company culture and core values of teamwork, integrity and excellence. These values are strongly embedded among the 62,000 employees of MGM Resorts as we continue to focus on providing our guests with the highest level of service and experiences.
I feel another uncommon year in the making. Thank you for your contributions to our industry and best wishes!
Sim Bielak
VP of Sales & Business Development, Global Casino Gaming
Crane Payment Solutions
Before I get into what the future may hold, I would like to mention a few positive notes regarding 2013.
We, as a company, are very proud of the CashCode one bill validator and the product extension oneCheck that have created many successful ventures in the last couple years. Recently, the products have brought us many growth areas, including a new casino in Vietnam and the retrofit markets in Australia. We have also seen growth along the East Coast, not only among the typical gaming states such as New Jersey, Delaware and Pennsylvania, but also new areas such as New York and farther west into Washington where several casinos have retrofitted their old units and north into Canada where the CashCode one has been accepted by all operators within OLG for its slot machines.
Complementary to the gaming floors and slot machines, the redemption kiosk market has proven to be beneficial as well. We have found an excellent partner in Global Cash Access (GCA) for our 3,000 Note Capacity Cashbox. GCA has become the industry leader in redemption kiosks, and we are honored to have co-exhibited with GCA on several occasions. It is nice to mention GCA has widely accepted our 3000 Note Cashbox as the industry standard, which is also helping us grow our market share globally. Illinois, in particular, has proven lucrative for us in the coin redemption kiosk market.
We are proud to say once again that the Ardac Elite is Latin America’s favorite bill validator, despite importation complexities and other local challenges. We are continuing to be optimistic that the political situations in Argentina and other promising areas will iron themselves out, and the total market and area development will continue to grow.
As we inch toward 2014, we are hoping for new local casino growth in New York, New Hampshire and Massachusetts. We are certain that as the economy continues to improve, the bill validator replacement rates will move in parallel. In addition to the current successes of Asia Pacific, we know that Macao and the Philippines will be opening more properties in the next two to three years and we are looking outward to Japan.
As for i-gaming, we know it has been accepted by Nevada, Delaware and New Jersey; however, it would be more beneficial if there was federal law versus each state deciding upon their own regulations. We believe i-gaming can co-exist and excel best when linked to popular property names, perhaps creating a bridge between the youth of today who cannot seem to put the phone down and the previous generations who prefer the hands-on, land-based casino and resort experiences.
Overall, Crane Payment Solutions has had a fantastic year in 2013, exceeding our own expectations. We are excited as we are moving forward with the acquisition of MEI, and we are looking to an even stronger 2014.
John Edmunds
Chief Sales and Marketing Officer
FutureLogic Inc.
The economic recovery has been much slower than expected, and for brick-and-mortar casinos, dealing with an aging player base, attracting new Generation Xs and Ys and building a meaningful online strategy has only amplified the existing financial pressures. In 2014 and beyond, successful casinos will likely have to scramble to differentiate themselves and lure new players through the physical doors of their casino. More importantly, once in the property, casinos will need to both identify these new players and find creative ways to keep them in the casino, extend their play or encourage return visits. Many casinos have a proven marketing strategy to retain their club players, so the true challenge for most will lie with their ability to build and expand their brand loyalty with the untapped new and anonymous players. Promotional couponing is one of the options being considered by many operators as a potential solution.
FutureLogic’s PromoNet solution was developed to enhance existing player club programs. Its unique features allow casinos to identify and reward all players based on their individual play behavior, instantly, right at the game without any delays. The PromoNet solution also enables casinos to create, analyze and modify highly customized promotions for optimum effectiveness, using the built-in business analytics tools to demonstrate the return on investment for individual promotions across any number of games, from single slot machines to floorwide promotions. Marketing departments can match the value of their sign-up promotion to the theoretical value of the player, ensuring high-value new and anonymous players are never missed.
FutureLogic has also developed the GEN3 Evolution® printer as the latest generation of thermal ticket and promotional couponing printer. Featuring the industry’s largest standard paper capacity of 450 tickets, photographic quality, greyscale printing, a low paper sensor that eliminates paper waste by taking the ticket stack down to the last ticket, the GEN3 Evolution® printer is the fastest printer in gaming, printing presenting a ticket/coupon in less than one second. Moreover, operators can easily update firmware in a flash by simply connecting a pre-loaded thumb drive to a printer while it’s still in the slot machine, yielding a significantly reduced down time for each and every slot machine on the casino floor.
Working closely with operators, FutureLogic has once again developed several ground-breaking solutions in the past few years. In 2011, FutureLogic introduced the Ticket2Go™ ticket-out solution for all AWP games, eliminating hopper refills, increasing machine uptime and improving cashbox. The FutureLogic TableXchange® printer/scanner developed in 2012 brings TITO to table games, enabling players to use cash-out vouchers at table games, moving directly between slots, table games and cash redemption terminals. Most recently, FutureLogic launched its PromoNet Print Manager®, enabling third-party system vendors to build promotional couponing into their existing offering, and PromoNetBank™ couponing solution, a network-less couponing system designed to be deployed within hours in one or more banks of slots.
At FutureLogic, our vision is “to be the world’s leading provider of innovative ticket printing and couponing solutions to every gaming technology provider and operator around the world.” Our mission is to “anticipate, create and deliver innovative solutions and world-class experiences that excite, satisfy and inspire,” delivering added value to our customers’ business and having some fun in the process. Choosing FutureLogic is not just about specifying a reliable, high performance printer or couponing solution—it’s about the world-class support and personal service behind the FutureLogic name. From the design and development of our award-winning products, to providing the very best technical support and customer service in the industry, our passion for quality, innovation and service is second to none.
Mark Yurcisin
Vice President of Sales
Gary Platt Manufacturing
What an exciting year 2013 has been for Gary Platt Manufacturing. We were privileged to be a part of a great number of casino expansion projects, remodels and upgrades, as well as new casino openings. This year also saw us deliver our first orders to Australia. In December alone, we expected to deliver nearly 10,000 chairs to various properties in North America. We look forward to 2014 with great optimism as we continue to expand our presence both in the United States and internationally.
Casino gaming has always been a one-of-a-kind source of entertainment for its customers and consistently relied on the strength of discretionary spending. The most recently released numbers detailing U.S. consumers’ self-reported daily spending shows a slight uptick from the previous month and continues a slow but steady climb from the 2009 lows. Since that time, there has been approximately a 30-percent increase in daily spending. This trend leads to great opportunity for casino owners and operators as they position themselves to capitalize on this growth.
A unique and personalized experience for the gaming customer has been a primary focus of the casino industry for the last several years. Properties continue to look for ways to separate themselves from their competition and offer their customers visits that will be both memorable and fulfilling. Gary Platt Manufacturing’s seating plays a vital role in that experience. We have always believed that providing a comfortable, ergonomically designed seat for casino players is critical, and we go to great lengths to continually improve our existing designs and develop new solutions. In addition, we are keenly aware of the importance of overall casino floor design, and we work closely with design teams and operations to provide seating that enhances the vision of the property.
In 2014, we see the focus on customer experience continuing to be a major driver of design and construction. Newer, innovative materials, the use of unique colors and textures, comfort and pleasing aesthetics will all play a major role in design, particularly when creating a local or regional atmosphere. We at Gary Platt Manufacturing stand poised to deliver all of this and more.
To prepare for the expected 2014 growth, we have added several key members to our team, including a new product development and design position, along with key finance, support and sales staff. We have also recently appointed new representation in the eastern United States and added a second outside sales position to serve the Las Vegas and southern Nevada area.
The casino industry has enjoyed several solid years of growth recently, and we have some of the brightest, thoughtful and innovative minds working together to create the ultimate customer experience. We look forward to continuing these partnerships in 2014 and the coming years.
Mark Gasser
President
Gasser Chair Co.
After more than 60 years of manufacturing commercial seating products, and with 2013 appearing in the rear view mirror, Gasser is starting the new year with one of the largest backlogs of business in its history. The tempo and excitement level of gaming operators is at a new high, not just for new venues but also for sorely needed renovations. While new budgets are being set and projects executed, the lessons of the great recession are firmly embedded in almost everyone’s memory. The painful demise of several seating manufactures during and after the recession has underlined the advantage of working with well-established, financially sound suppliers.
The need for the high-quality, well-designed seating products is widely recognized as being an important element in any successful project. After all, next to the games and the staff, there is no other product that impacts the customers experience more than the seating at each gaming position.
The importance of well-designed and -manufactured seating is of paramount importance at Gasser. The integrated design and manufacturing facilities allow maximum quality control and flexibility to benefit their customers. There has been a sharp increase in the demand for customized, build-to-order gaming seating for all types of operations from racinos to full-service resorts worldwide. Emphasis on complete functionality has trumped mere “ergonomics” in many situations. Ease of mobility and serviceability are of equal importance. Also, avoiding the institutional or “office chair” appearance is often a design criteria. This is where Gasser excels.
Another interest of customers is the environmental impact of the products and the companies they choose to do business with. Gasser has a long history of practicing environmentally friendly manufacturing processes. In addition, Gasser pioneered the practice of accepting old, existing gaming seating on trade when new stools and chairs are purchased. These products are then remanufactured and placed back into service or repurposed/recycled to the fullest extent possible. This not only keeps old products out of landfills, but often solves a logistic issue for the property. For example, disposing of 1,000 or more well-used slot stools can be a challenging distraction for management. The ability to load the used stools on the same truck that delivers new furniture can save hundreds of man hours and solve storage problems.
2014 promises to be full of new challenges and opportunities for the industry and its suppliers. Gasser is well-positioned as a manufacturer with decades of experience in supplying seating for both the gaming and nongaming public seating areas. We look forward to serving this exciting industry for many years to come!
Tom Nieman
VP of Global Marketing
JCM Global
As we turn the calendar page to 2014, we look back at 2013 and are humbled by the successes we have had in creating technology that inspires, and we are grateful to our customers around the globe for their continuing support.
Certainly 2013 was one for the JCM record books. Our iVIZION bill validator gained further market share in markets around the world, including winning more than 80 percent of all new property openings in North America. Notably, iVIZION won all eight properties in Ohio and 100 percent of the new Downtown Grand in Las Vegas. We were also very pleased to earn the ultimate trust of suppliers and operators, being named the default provider for IGT, Comar Group and Princess Group.
Turning our attention to 2014, we forecast that iVIZION will continue to gain even greater traction in multiple jurisdictions. In North America, Latin America, Europe, Australia and in growing and new markets in Asia, operators will turn to iVIZION for new installations and new casino openings. Also important is the fact that aging legacy bill validator technology is creating a large replacement market, and we continue to maintain market share with next-gen upgrades.
As we say at JCM, iVIZION is “the foundation of intelligent validation,” and building on that foundation, our new Dynamic Network Applications (DNA) has been met with great interest at G2E, ICE, G2E Asia, AGE and SAGSE. Based on incredible feedback at those diverse gaming shows, plus results of extensive market research, we are fine-tuning the product, adding capabilities requested and suggested by suppliers, operators and regulators, and we forecast that we will be in field trials by the third quarter of 2014, with sales ready to begin by G2E 2014. Our goal is to have total peripheral control managed by DNA across the operation.
A relatively new area for JCM is that of digital media. We have been selling ePosters and other similar digital equipment and solutions into a wide range of properties for several months, and at G2E we launched a new flexible digital product with NanoLumens. The response was tremendous, and we forecast that in 2014 we will at least double our current digital media business. The equipment itself is only part of the package, as we also offer a total solution through JCMedia, which empowers operators to create, display and manage digital media. JCMedia’s total solution encompasses hardware, systems, content and installation and maintenance, and the response from operators to this one-stop solution has already been very positive.
Operationally, JCM is positioning itself for further growth in key markets. For example, we recently opened a sales and marketing office in Japan, which is servicing existing and emerging markets throughout Australasia. We anticipate that as legislation moves forward in Japan and elsewhere in the region, this new field office will grow JCM’s bottom line even more broadly and will further solidify JCM’s position as the dominant leader in the region.
Again, thank you to our operator and supplier partners around the globe, and we wish you the very best for 2014.
Jason Cohen
Executive Vice President
KGM Gaming
To help paint an accurate portrait for what’s to come in 2014, I have to first reflect on the groundwork laid and growth experienced by KGM Gaming in 2013. We are proud to have added multiple new products to our line, 40 clients to our roster and three gaming markets—Canada, Las Vegas and online gaming—to our business scope.
To expand the Canadian market, KGM entered into a partnership with highly respected Bet Rite in October 2013. This exclusive agreement has Bet Rite overseeing distribution and service of our custom slot bases, millwork products, casino signage, graphics and specialty work throughout Canada. KGM’s first foray into the Las Vegas market was an order for 1,559 chairs for Circus Circus, an MGM Resorts International property, which was delivered in December 2013.
Finally, our company led the way in New Jersey’s online gaming industry by being the first to submit a complete working remote gaming server (RGS) to the New Jersey Division of Gaming Enforcement. When the state’s online gaming went live in November 2013, KGM was at the forefront again with a multiyear agreement to provide our RGS and several exciting game titles—through our company’s license agreement with Spin Games—to one of the largest casino operators in New Jersey.
Now KGM is poised to double its growth by maximizing its presence in the Northeast and expanding into our new markets in 2014. Our seating division alone has forecasted a 40-percent increase due to several sizable corporate projects throughout the Las Vegas market, 1,300 units shipping to Sands Bethlehem and orders for 1,000 seats to the Illinois Route operators and 1,200 to New York.
The coming year is also looking promising for our custom millwork with 2,100 fusion bases going into the New York and Ohio markets, 300 all-wood comfort bases to Connecticut, 1,000 all-metal comfort bases to Indiana and 600 comfort bases to Canada. The signage side of our business is also off to a brisk start in 2014 with agreements to replace existing products in six Canadian properties and refurbish signs in yet another resort in Niagara Falls.
I attribute our success over the last year, and moving into the future, to a relentless focus on our mission. We continually strive to improve our products while keeping prices down to maintain a competitive edge.
Ali Saffari
President and CEO
Leap Forward Gaming
The picture-in-picture (PiP) space is exploding, with operators demanding more features, increased revenues from their substantial capital investments and increased longevity for their slot machines. The PiP ROI story has become a compelling business motive. Leap Forward’s PDI multimedia ecosystem was selected as the industry’s top new technology for 2013 in Casino Enterprise Management’s Slot Floor Technology Awards. The awards honor new gaming technology products that bolster casino revenues.
PiP technology is reducing the cost of deployment of exciting new applications and features and opening the market to creative newcomers as third-party developers of games and applications. New forms of player communication and interaction, as well as added gaming functionality, are bringing new life to existing casino operations. Moreover, PiP features can be combined with access to additional game device peripherals, such as the touch screen, bill validator and ticket printer for increased player interactivity.
We believe that the hardware and software associated with this technology represents a $2 billion to $4 billion opportunity for suppliers over the next 10 years, and this is where Leap Forward comes in. It is not by accident that influential customers like the MGM Grand, Las Vegas Sands, Wynn and Sands Macau have adopted our technology.
These days the economy is foremost in everyone’s mind. While the economy has modestly improved, there are still many challenges ahead. On the business front, this means that operators continue to look for means to reduce their capital expenditures while improving the player experience. LFG has developed a solution to meet that demand.
It is amazing what a small team of dedicated and talented people can do in such a short period of time. One year ago, Frank Fantini projected LFG to capture a small portion of the PiP market share. One year later, that same projection shows us gaining substantial traction in this important emerging market.
Our thin-client gaming, targeted marketing, bonusing and tournament campaigns grew from just ideas into strong product offerings shown at this year’s G2E. Our engineers are busy augmenting the four core application areas to further enhance the player experience and provide operator value. SaffariNet is proving to be the technology conduit through which future gaming content and features will pass. LFG is uniquely positioned to offer an enterprise-wide multimedia PiP solution offering exciting new features to legacy gaming machines and provide operators with substantial new revenue opportunities.
Nick Jarmany
Chief Executive
Quixant
Quixant’s business is the supply of highly optimized computer platforms designed to meet the specific needs of the global slot machine industry. 2013 was an exciting year as we transitioned to become a public company on the London Stock Exchange. As part of this process, we spent time explaining to investors the unique, complex and dynamic nature of the gaming industry. This process reminded us of why we decided to build a business focused exclusively on supplying computer platforms for slot machines and why we remain so highly motivated by the opportunities this industry brings to those prepared to invest in it.
As we all know, the origins of slot machines were the old mechanical and electromechanical machines from decades gone by. The big change came with the advent of video slots. Throughout this period there was one common thread—everything was proprietary and almost everything was done in-house. Internal innovation in electronic hardware was a major differentiator between manufacturers and was of competitive importance.
The relatively recent move from highly bespoke embedded electronics to PC architecture-based gaming controllers has benefited machine manufacturers in terms of increased capability, powerful software development tools, flexibility and re-programmability. This has resulted in a greatly enhanced gaming experience. However, the characteristics of the machines have largely moved away from being identified by the underlying electronics hardware to being defined by the software that runs on it. Players are completely isolated from the hardware technology that beats inside. What matters to them is the quality of the game, and that means the software.
In gaming, it is all about persuading people to play the machines you own or supplied rather than your competitors. The emphasis is therefore moving more and more toward the game software, and the leading companies having to focus their valuable resources in this direction, this being the most dominant factor to success.
These pressures and realities mean that machine manufacturers must increasingly focus their valuable and expert resources into creating the best possible games. These same pressures have also recently impacted the gaming console world with the new Playstation 4 and Xbox One consoles all ditching their previous proprietary architectures and adopting PC processor and graphic technology, all from AMD. The performance benefits and, most importantly, the ability to use standardized game development software tools have driven this change. The computer platform, while of vital importance to the success of a machine, is not in itself a commercial differentiator.
In the past, slot machine manufacturers could not easily buy in complete computer platform solutions that met all the requirements of gaming, but this is no longer the case. Quixant’s primary objective is to provide its customers with access to the latest computer technology optimized for gaming and designed to meet the regulatory standards of all the major gaming jurisdictions. The landscape has changed.
The final benefit of buying in the complete gaming computer hardware platform is time to market. Manufacturers like Quixant are able to introduce products based on the latest technology more quickly. We have a track record of releasing complete gaming computer platforms on the same day a new chipset is announced. Internal development by slot manufacturers generally takes a lot longer, typically one to two years. This has two major effects—games are forced to run on older technology platforms, and there is a more limited stable product supply lifetime. Typically Quixant can offer a seven-year lifetime on its new products, removing a major headache.
Of course, it is no surprise that our industry continues to evolve at a fast rate. Things are not what they used to be. Recognizing change and adapting to it always has been and always will be the key to success.
Jeff Jordan
President and Founder
Reward View
In a recent Fantini report, Frank Fantini discussed the impact of a planned Horseshoe Casino in Baltimore. Forecasts indicated that it would generate $464.4 million in revenue in 2016.The analysts quoted predicted that much of the revenue would come from the expense of Maryland Live! and Penn National’s Hollywood at Perryville. The analyst referenced by Fantini forecasted that these casinos could lose 19 percent to 26 percent of their business. It is predicted that every new casino added in the U.S. cannibalizes existing casinos. It also creates challenges for operators and investors deciding on new projects, such as measuring the scale of investment and projecting sustainable revenue streams. More difficult for our industry is the challenge of right sizing the expense structure operating a facility that suddenly loses 20 percent of its business.
Losing 20 percent of your business creates difficult decisions as managers must alter their operating structures and marketing tactics. The manager faces difficult questions such as: Can you identify players that are only entry level but have a larger budget than is allocated to a competitor? Do you know when your player is defecting versus simply stopping his play? Answering these questions becomes imperative when you consider the scale that casinos reward their players.
Casinos spend 20 percent to 40 percent of their gaming revenue providing players with entitlements within the players club and sending out offers. We estimate that casinos spend $20 billion to $30 billion in comps, cashback, free slot play and other incentives to lure players back to gamble. Business erosion of this magnitude makes predictions of future behavior difficult. The casinos’ historical database of players and their activity is no longer as good a reliable forecast in designing player offers. Designing and delivering a profitable promotional offer can come down to guessing versus sound decision making.
When I speak to casino marketing executives about potential inefficiencies in the delivery of these rewards, they easily indicate that there is at least a 10 percent inefficiency in the current program. This represents a $2 billion to $3 billion opportunity to improve margins and profits if we as an industry can find a way to optimize this relationship.
Reward View is designed to provide the player with the ability to see all their rewards in one location on the Internet. Players can view, sort, catalog, receive expiration notifications and share their activity with others. Reward View is a digital initiative designed to address the need for operators to have improved insights into the value of the player, the relative market share being earned and how that changes over time. It also addresses the fact that consumers are using digital media more and more to make consumption decisions. With our technology and service model, we can identify loyal players and those who spread their play around. We can examine how offers change the player’s behavior. This data can be used to examine those activities that create incremental returns versus those that destroy margins.
While our approach can be unsettling to the status quo, the threat of cannibalization from new casinos, both land-based and online, requires that we look at novel ways to conduct our business. Otherwise, we will continue with the same tools and approaches to executing our business while facing a steep negative trend toward negative investment returns.