It’s midmorning, and Scientific Games CEO Gavin Isaacs is breezing out the front door of the Las Vegas offices of WMS to say goodbye to a visitor. “You’re a bit early [for the interview], aren’t you?” he says as he passes by. “I’ll be right back.”
And minutes later, he’s bounded back up on the second floor, smiling and energetically greeting several employees before arriving for the interview in an office borrowed from another executive.
He cheerfully complies with a photographer’s requests to stand here, put your hands here, sit at this desk, and then gets down to the business of describing what is possibly the most significant in a tumble of mergers within the gaming industry’s supplier segment—New York-based Scientific Games’ $5.1 billion acquisition of Bally Technologies. As the company’s chief executive officer, it’s Isaacs’ responsibility to create a new cohesive, profitable company from the sum of several parts while still keeping the brands intact and driving innovation and cost synergies along the way.
It’s a tall order, but Isaacs doesn’t seem at all daunted.
“I’m very passionate about what I do,” Isaacs said. “If you surround yourself with passionate people, you can not only love what you do, but have fun while you’re doing it and enjoy the successes that come.”
That passion becomes clear as he describes the scope of the company following the Bally deal expected to be completed in late 2014.
“We will cover everything,” Isaacs said, “tables, VLTs, Class II, utilities, slot machines, WAPs, progressives, participation games, systems and in the lottery business we’ve got instant tickets, lottery systems and brands. And I’m sure I’ve left something out… Oh, social and interactive.”
With integration meetings underway, Isaacs is dividing his time among Scientific Games’ New York headquarters; its Alpharetta, Ga. lottery facility; its Chicago-area WMS offices; and Las Vegas, where Bally is headquartered and WMS has offices. He’s also racking up plenty of frequent flyer miles on international flights to places such as Italy, Greece and London.
Scientific Games has a focused strategy: To create the best content and make it available to the customer to provide to a player no matter what medium they want to play it on. “In the lottery format, whether it be scratch or electronic format, if they want to play it on a social site or if they want to play it in a casino or if they want to play it at a racino or wherever they want to play it, we want to provide it,” Isaacs said. “Part of that involves a longer-term plan of rationalizing our core architecture and doing it so we can get much more efficient and when we put out a game, we can put it out across all of those platforms,” he said.
Hard Work Already Underway
Executing on the strategy will come with difficulties, but nothing insurmountable.
“I think the overall strategy already existed in both companies, so bringing it together is not that difficult,” Isaacs said. “I think what’s hard is we’ve got to make some fairly hard changes quickly, and we have to not skip a beat when we bring these companies together and really ensure that the strategy is communicated well and understood broadly.”
Assimilating Bally into the mix will require some difficult decisions. “You’re putting together two companies, two accounting departments, two legal departments, two compliance departments, so there are some obvious changes that need to be made,” he said. In addition, there are two different ERP [enterprise resource planning] systems, different backend systems, operating systems, etc. “You have two different ways of doing things, and you’ve got to ensure that there are sufficient resources so that we don’t create any pain points for the customer, and that we only feel it internally.”
Isaacs said he’s had a learning curve when it comes to the lottery side of the business.
“What a learning experience it has been. Clearly, the lottery business is very unique. The content is there and it is a customer-focused business where you form great relationships with customers, of course. But what’s unique about the lottery business is that when you bid for systems contract, win or lose you often become a partner to a competitor because they’re selling your instant games over their system. Everyone knows each other and fights like dogs to win the bid. Once the bid is won, we get on with being partners,” he said.
Isaacs said he was impressed with the Scientific Games’ lottery technology and operations facility north of Atlanta. “It’s just amazing to see the advanced manufacturing technology that has helped to increase our global production capacity to more than 46 billion instant games per year. That’s a big number,” he said. “I’ve learned a lot about our lottery business. Clearly, I’m learning more about social and how WMS operates. It really has been one of the most intense learning periods of my life. I feel like I’ve been drinking through a fire hose and loving it.”
Asked what keeps him up at night, Isaacs responds, “I always get a good night’s sleep, but when I swim in the mornings, I think about things.”
What is on his mind as he takes his morning swims, whenever he can fit them into his hectic schedule, is “people, first and foremost,” and integration, trying to determine whether there are any gaps. “Clearly all the things you would think about in my role, integration, the strategies, the multi-brands, things like that. But again the right people help make that happen.”
Isaacs said the integration should be completed by end of year, “but I think it will take some time to get it all sorted out.”
“At the end of the day, we’re going to have about nine and a half thousand people when we put these two companies together,” he said. “We’re targeting $220 million of anticipated cost synergies [over two years], which we believe is fairly achievable.”
Isaacs noted there’s a lot of low-hanging fruit to achieve some synergies.
“A lot of them are very, very simple like two booths coming down to one, and number of properties you need. We’re sitting here at this incredibly large property [the WMS Las Vegas building] and less than a mile away Bally has one as well. There’s got to be consolidation opportunities there,” he said. “The only way to do that is open and honestly and using the best objective methods so that at the end of the day you have the best team possible.”
But, Isaacs noted, cutting too much carries risk as well. “This is ultimately a content business, and if you keep cutting your R&D and you keep cutting the costs, you’re not going to make good products.”
Celebrate the Differences
One of the company’s slot strategies is to maintain multiple brands. “Each company is unique, each company has variety, and we’ll continue to invest in that,” Isaacs said.
Both companies are currently going through integrations from mergers last year that brought SHFL entertainment into the Bally fold and WMS into the Scientific Games fold. “Which is great,” Isaacs said, “because the cement is still wet. It’s a great time to do this.”
It also helps that Isaacs, 49, was heavily involved in both Bally Technologies, where he was chief operating officer for five years before leaving in 2011, and at SHFL entertainment, where he served as chief executive officer for two years before SHFL’s sale to Bally. A native of Australia, he also held senior positions with Sydney-based Aristocrat Leisure, including the role of president of Las Vegas-based Aristocrat Technologies.
Looking at WMS, Bally and SHFL’s company attributes, Isaacs commented that all three share common threads of being customer-focused, accountability-driven and focused on continuous improvement.
Isaacs ticked off a few of the strengths of each: “WMS, innovative, thought leader, very intricate graphics, good entertainment-style games; Bally, strong in steppers, great hardware, some really cutting-edge stuff that they’re doing in those kinds of areas; SHFL with their Australian-style math, doing incredibly well now in America, in Asia and Australia, places like that … You get the best of all possible worlds, so the strategy is to keep investing in all three categories and to keep each brand unique and out there.”
Isaacs said the acquisition will give Scientific Games the ability to leverage its strength in each of the company’s three divisions, lottery, gaming and interactive.
“You can take the best of breed, and you can cross-pollinate it, not only just in gaming but also across the lottery world, so I’m excited about that.”
On the lottery side, having the broad reach will be beneficial when it comes to wooing a particular license. “After closing, we can be a real powerhouse when it comes to licensors. If they want a presence on the casino floor, we can do that. We can put them in social. We can put them on real money gaming, in the casinos. We can put them on gaming tables. We can put them on the lottery tickets and online lotteries,” Isaacs said.
Then the trick will be to get even smarter. “When we do launch these big brands, we should cross brand and do a nationwide launch of a brand across multiple products,” he said.
Scientific Games will do something like that when the MONOPOLY Millionaires Club television game show launches next year in Las Vegas. Earlier this year, the Multi-State Lottery Association announced that MONOPOLY Millionaires’ Club, developed by Scientific Games, had been selected to launch the new game this month, with the plan to launch the game show in early 2015.
The game features a new approach to lottery national jackpot games, as player research has shown players would rather see tens of millions of dollars in prizes split among many winners, rather than one or two players winning hundreds of millions. The MONOPOLY Millionaires’ Club national game will create tens to hundreds of millionaires throughout the country whenever the top jackpot is hit. Excitement will build as players see how much the number of guaranteed $1 million prizes grows each week. Players may also win the chance to appear on the game show.
The gaming division will be bolstered as the company assimilates Bally Technologies, with its systems products, tables and gaming content, Isaacs noted.
“It’s very exciting for the WMS developers to be able to have a Bally Elite Bonusing Suite of products and the hardware there so that they can actually start launching games across all floors, and that must be exciting for customers as well,” he said. “I’ve had one major corporate customer come to me saying they’re very excited about this deal, and others have echoed support. If you’re strong, if you’re customer focused, if you make sure your team includes some of the best people in gaming today—and we’re doing that—I think the customers feel comfortable with us as their partner of choice.”
Isaacs said he has had a couple of customers question him about potential pricing concerns with fewer vendors in the market. “At the end of the day, if you out-price yourself, no one’s going to buy your product,” he said. “And, if anything, with our scale, we’ll have the opportunity to work on newer technologies and newer methodologies so maybe we could be more flexible and attractive in our pricing to customers in the long term,” he said.
Scientific Games will strive to be customer-focused and as flexible as possible, Isaacs said, while noting, however, “for us to continue to invest in our R&D, we can’t give it away.”
Facing a Challenging Economy
Asked to pick the biggest challenge facing the gaming industry right now, Isaacs didn’t hesitate. “The economy, meaning the economy of our customers,” he said. “A lot of our customers are doing well, which is great. But some of our customers have taken on a lot of debt, and accordingly aren’t really investing in their properties. So theoretically, you have this aging machine base, and frankly because of the recession you might have even tightened up the games a little bit so the players aren’t getting that value and you aren’t seeing increased gaming. We have to try to reverse that.”
Easier said than done, he acknowledged. “I think it requires a couple of things. It requires great games; it means that we need to be working better with our customers; and it means that we must be more open with how they [the games] should be set and priced so that there is greater entertainment value for our players,” Isaacs said. “These aren’t computers. If players are going to the casino and they’re not enjoying the experience, they’re going to look elsewhere for entertainment.”
Casinos need only look at the social gaming arena. “We’ve seen it in our industry over the last four or five years, as social has grown from zero to $3 billion, so there is a demand still out there for entertaining games,” Isaacs said.
Operators, he said, need to be a little bit more open to repricing the slots on the floor. Scientific Games, through WMS, will make the case for that by putting out a white paper showing its study of player patterns over the last 10 years. “You can see there’s definitely less value for the players today than there was a few years ago.”
Some Blue Sky Out There
While concerned about the current economic state of the market, Isaacs said he does see signs of improvement, including during a recent trip to some southern California casinos. “I saw some incredible properties, with new product on their floors and people packed into casinos, near record years again. I thought that was great, and I know there are pockets of that where you see new casinos opening,” he said, noting Caesars Horseshoe opening in Baltimore, for instance, didn’t destroy [the business at] Maryland Live!.
There is also blue sky in gaming markets around the globe, he said. “Internationally I feel really comfortable that we have opportunities, and we have some great opportunities in Sydney alone,” he said, where the two companies are in seven properties, and Scientific Games does business in every state.
“That’s one of the most attractive things about the Bally-SHFL combination,” he said. The Stargames team, formerly part of SHFL and now part of the Bally team, is doing phenomenally well in Australia and Asia. Asia also looks bright. “I know everyone’s down on Macau right now, but it’s still huge, and there are pockets of growth happening there.” Isaacs also sees potential in Europe, where gaming operators may be looking to refresh and invest in their floors, and in Latin America, where sales teams have made inroads and can likely capture some business.
Right now, Isaacs isn’t budgeting for growth, “but I do believe there’s opportunity. I think there are thousands and thousands of games out there that over the next 10 years are going to need to be replaced or reduced.” For his part, Isaacs doesn’t see cutting back as a growth solution for casinos. “You can’t keep cutting to grow—eventually you’ve got to start investing.”
Some casino operators that deployed a lower payback strategy to enhance revenues have already changed course to return to offering higher payback percentages on their games, Isaacs said. “Australia’s a great example. Australia went up to the high 80s and now they’re back to the low 90s, and their products are doing well,” he said. “It’s really up to each operator to set the floor how they want to do it, but you know there’s a huge debate among the operators and suppliers as to whether players know the difference. I think players do.”
A recent round of golf underscored that point for Isaacs, who was discussing the issue with the director of a very large publicly listed gaming company. “And our caddy turned around and said, ‘I know it’s none of my business but just give me some value; I don’t mind dropping a grand, but, you know, give me some time [to play],’” Isaacs said.
A recent report from the Las Vegas Convention and Visitors Authority showed that the age of the average Las Vegas visitor is trending younger. That has some gaming operators and observers concerned.
But Isaacs doesn’t see what’s happening in Vegas as a bellwether for other markets. “I don’t look at Vegas as a slot market; Vegas is an entertainment market,” he said. “Of course the people are skewing younger because of the nightclub investments. If you’re spending $100 million on a nightclub, you’re doing it because you’re trying to attract a whole new player.”
That said, Isaacs noted that Scientific Games has an edge in trying to attract a new type of customer. “We have innovation groups working on all types of products, like BetCloud, a gaming platform that uses online technologies. Both companies are developing products to entertain players while they’re waiting in line for the nightclub or whatever it might be,” he said. “By the same token, Bally has the table category, which younger players enjoy. Our portfolio will give us reach across all of that.”
Moving Forward
For now, Isaacs is looking forward to the acquisition completion and the integration is well under way. “The beautiful thing about this acquisition is it will balance out very well. We’ll have three major centers of operation, Alpharetta, Chicago and Las Vegas,” he said. “With the right people running those, I’ll be able to get back to running the business, driving it and looking for growth opportunities.”