Once upon a time, IGT did not dominate the slot manufacturing sector. For many years BIGT (Before IGT), Bally Manufacturing was king, but for a short time in the early 1980s, Universal Distributing blazed across the casino sky with innovative payoff programs and cutting-edge technology.
Universal ate up Bally market share until the rise of IGT, and then faded from the casino scene as its owners opted to focus on producing machines for the burgeoning pachinko and pachisuro business in the company’s home market of Japan.
Last year, the company came back to the casino market in a big way via Aruze Gaming in Las Vegas, a private-company offshoot of the former Universal (which was renamed Aruze Corporation in the late 1990s) that has brought in high-powered slot development and marketing veterans to make its move into North America and other major gaming jurisdictions.
Aruze Gaming plans to capture that old Universal magic to grab a greater share of the slot machine market around the world. By using creative payback programs, advanced technology and business relationships, the company aims to make an impact on the market that will move customers and competitors alike.
Man with a Plan
The man behind Aruze (and Universal, for that matter) is Kazuo Okada, the company’s owner. Recently spun off from the larger Aruze Corporation, which manufactures pachinko and pachisuro machines in Japan, Okada took Aruze private in order to make a significant investment in the company. The larger company was renamed Universal Entertainment.
If that’s confusing, Okada’s strategy is not.
“Aruze Gaming was part of Universal Entertainment, which is a public company,” he explains. “Since I want to invest a lot of money in Aruze and the return might not come in for a few years, we decided to take Aruze Gaming Americas private so we can do what we have to do to make it a success and not have to worry about shareholder return over the short term.
“The only difference that operators will see is a more aggressive game development program and production of great games and systems.”
Okada plans to draw on the experience he gained with Universal as he grows Aruze.
“We were the first ones to use computer-controlled algorithms rather than mechanical technology,” he says. “At that time, Bally was the big manufacturer and they were using all mechanical devices, so it was groundbreaking to be able to use a computer that had a random number generator inside.”
Although Aruze has been around in one form or another since the Universal days, Okada has put his money where his mouth is by hiring former Aristocrat executive Kent Young, who left the Australian manufacturer in 2007, along with his partner and another Aristocrat expatriate, Scott Olive, to form his own content development company, True Blue Gaming. Young has no regrets about selling True Blue to Okada.
“I think we were very successful in the time we did it but it led us to Aruze, where we can accomplish bigger and better things.”
Young says True Blue was working with Aruze on content before the acquisition.
“I believe Mr. Okada saw us as a really good fit with the company,” he says. “We agreed to be part of the company and we’re extremely happy with the results.”
Young says the new ownership structure will spur the growth of the company.
“The way we are strategically moving into North America is probably the most apparent example,” he says. “We’re working to get into each jurisdiction, and that has a huge cost. We are also investing heavily in R&D and integration. It is fortunate that Mr. Okada understands you have to invest and re-invest in the business for it to be a success. We have to build the company the right way before we can be a true competitor in the marketplace.”
More Time, More Entertainment
One of the ways Aruze plans to compete is by turning to Universal’s tried-and-true strategy of creating innovative payback programs for players.
“When we installed the 95 percent-payback machines,” says Okada, “the operators didn’t understand that it would actually help them. We knew that the players would enjoy winning frequent small jackpots and would then put that money back into the machine. So we got a few of them to try it and they soon realized they could make just as much money if not more by using this payback system.”
“Today, because of the economic downturn,” Okada continues, “the operators want to raise the hold percentage because they want to make more money off their slots. But we still believe that if you return more money to your customers in small payouts they will put it back in and return again and again as loyal players.”
A recent Aruze innovation is a machine that reduces the hold percentage as the maximum bet increases. For this to work for the operator, it must increase the number of players who make the max bet. Early indications are encouraging, says Young.
“Overall, the theory of what we’re applying is working,” he says. “The player will get a higher return with a higher bet. And they are learning this very quickly. We believe that in most cases, we will get that increase in wagers that will compensate for the higher return. It worked well during the Universal period, so we don’t know why it wouldn’t work today as well.”
Another innovation that Aruze has been offering for some time is the “Rescue Pay” program that presents a bonus to a player who is on a losing streak.
“We know that there are some players who just can’t win at the slot machines,” says Okada, “so we designed this program to benefit them. Rescue Pay guarantees a payout for the players who don’t get lucky enough to hit a large win for a certain number of games. The players will want to insure a return on their investment and bet max coins to keep Rescue Pay activated. The countdown feature that shows how many games until Rescue Pay pays out will keep players going. The players will feel more loyal playing at casinos that have machines that carry the Rescue Pay function, which will also attract players back to the casino.”
Young says it’s a plan that is now built into all of the company’s products.
“It’s not an added option anymore,” he says. “It’s incorporated into our base games. And it’s been very successful. It just adds to the complexity of our products, and it’s working very well.”
One trend that Young has identified as a departure from the past has developed since the economic downturn.
“We’re seeing with the state of the economy in particular, a lot of diversity from casino to casino,” he explains. “One casino might have a high level of turnover that will compensate for the hold percentage; in others it won’t. In the last few years, the market has been very de-fragmented. It used to be that if a machine was a success in one casino, it would also be in others. Not so much anymore.”
Aruze’s first licensed product, Rock You: Queen, was a hit at G2E in November and continues to perform well on casino floors.
“It has exceeded our expectations,” he says. “It really stands out on the floor. The packaging is great. You always see people standing around it because it’s very loud and has a lot of attraction with the bonus features. Plus, there’s the music that everyone can identify with, even older people.”
The Queen machine is the first of a line of licensed products, according to Young. Some will be released at next year’s G2E, and Young says Okada’s ownership of the company helps in these situations when negotiations are under way.
“Mr. Okada is very engaged in the business,” Young explains. “He’s very determined to get what he wants. So if he wants to go after something or someone, he’ll go out and get it.”
The Strategy
When Young joined Aruze, it was licensed in only two U.S. locations, Nevada and California. Since then, Young has opened sales efforts in six other jurisdictions: Oregon, Oklahoma, Mississippi, Florida, New Mexico and the Caribbean. But that’s just the start.
“We want to be in 150 tribal and commercial jurisdictions by the end of this year,” Young says. “We’re focused on the ‘key’ jurisdictions-those that present the most opportunity for us and those where we can be licensed the quickest. It’s part of our strategy to be extremely aggressive in our licensing.”
Other goals that Okada has confirmed are simple. And branding the company to its customers is at the top of the list. Young believes that by providing quality products, timely and efficient service and winning machines, Aruze can crack the top level of slot suppliers.
“Building the brand is very important,” says Young. “Mr. Okada refers to it as ‘being asleep.’ Well, now we’re awake and we’re focused on this. We have to assure our customers that if they make a purchasing decision to use Aruze that we’re going to continue to support it. This effort is still in its infancy. We need to be in all jurisdictions, and that’s an ongoing effort. We’ve made some significant appointments. We believe success will be a combination of product and people, so you need to invest in both.”
Staffing Aruze for Young has been simply a matter of reaching back to his previous jobs and hiring the people he knew he could count on. He’s brought in seasoned gaming executives Sean Evans (COO), Sam Basile (vice president, legal and compliance, and general counsel), Steve Walther (vice president, systems product management) and Ken Jolly (executive vice president and general manager, Australia, Asia, Africa and Europe), along with other experienced industry executives.
“Success in the gaming industry is about two things: product and people,” he says. “Everything else falls to the wayside. I truly believe in that. We’re very much a relationship-based and trust-based business, so bringing on people who the customers know and trust has made a huge difference. And just as important is having people who understand the business, so when we make decisions about what we’re going to do with the business, we make informed decisions.”
Young has eschewed a recent trend in the slot manufacturing industry of hiring people with non-gaming experience.
“While there is definitely merit to bringing in people from outside the industry to bring a fresh look at the operations, as a company where we are in terms of growing and making important decisions about what our next steps are going to be, I think it’s important to have people on board who know the business and have the experience,” he says.
International Experience
While Aruze’s current thrust is focused on the U.S., its strength in Asia is an important factor in the company’s growth. But even though there are some very popular Aruze games placed in Asia, Okada says the vision is more global than Asia-based.
“I would like to see our machines sold and enjoyed not only in Asia, but around the world,” he says. “We have sales teams in place all over the world, and once we create the games people like to play, I’m sure we’ll be one of the leading worldwide slot manufacturing companies.”
Young says a good game can be translated into any language or culture.
“All our machines are for global applications,” he says. “Like a lot of manufacturers for the past few years, we are specifically targeting the Asian market. But we now know that Asian-themed games are successful around the world, not just in Asia. A classic example is Shen Long, which performs exceptionally well in Asia, but also is a success in other markets. In South America, we’ll translate Shen Long to Spanish.
“Generally speaking, our goal is to develop product that has global application. We don’t tend to do market-specific products, although we will tweak our products to the benefit of a specific market.”
Young says the Asia slot player, however, is different from a Western gambler.
“First and foremost is their adoption of technology-it’s a lot higher and quicker than it is in the West,” he says. “Macau, for example, totally bypassed the stepper, three-line, three-reel kinds of games. So they adopted a high level of technology very quickly.”
In addition, the goals of the gambler are more likely to be driven by the final result.
“They are a lot more gambling-oriented rather than entertainment-oriented,” he says. “That translates into a higher bet and a higher level of volatility. If you’re going to lose, you lose. If you’re going to win, you win significantly. This is probably like no other market I’ve ever seen, especially right out of the gate.”
System Savvy
Most slot manufacturing companies also have systems that run their devices. While the advent of the Gaming Standards Association has allowed every company’s systems to “talk” to each other, Young says Aruze will continue to develop product for the time being, while putting the development of a system on the back burner.
“Right now, we’ve very much focused on slot and multi-terminal product,” he says. “We do, however, have some technology that is being developed through our past relationship with Aruze Corporation, which is now Universal. We have had some discussions about the systems business. In the long term, Mr. Okada would like to move into the systems business when the time is right and with the right type of technology.”
It is those GSA protocols that give Young confidence that this strategy is the correct one.
“We’re implementing all GSA protocols so our products will be able to join any system out there that’s also developed to those G2S standards,” he says. “I’ve learned that being able to interface is the most important thing. Ticket-in, ticket-out was a classic example where some manufacturers were kept out of a market because they couldn’t interface with that technology.”
Of course, the progeny of all systems today is server-based gaming. Young believes that SBG will eventually be a huge benefit to operators, even though it might not be evident today.
“There are some tweaks that need to be done before SBG has a more widespread application,” he says, “but this is definitely the future. It’s a new technology that does add value that can be enhanced, but without question, this is stage one. At the end of the day, it will be adopted across the board, but probably not as quickly as some in the industry and the analysts have predicted.”
When the benefits of SBG become clear, Young believes the vendors need to do a better job instructing operators how to use it.
“On the system side, even now, there is so much functionality that is not being used,” he says. “And the onus is on the manufacturer, not the operators, to spend time to show their customers how to get the most out of the system.”
The ultimate “system” is, of course, the internet. While Young doesn’t plan to emulate some competitors who have invested millions of dollars in online gaming sites and online-specific content providers, he does have a plan.
“We’re in the process of prospectively doing some deals for putting our content online, of course subject to legal and compliance,” he explains. “Putting the content online is a fabulous model because you don’t have to invest so much money in the hardware and it goes directly to the bottom line. We’re leveraging development that we’ve already capitalized and we don’t have to invest in going full-fledged into the online space.
“But as a company we need to get there to learn about the internet space. I believe it’s a matter of when, not if, online gaming will be legalized in the U.S. There’s already a huge market there outside the U.S., but if you look at the gaming pie, we’re going to need to be there.”
Future Shock
Okada’s goal for Aruze is simple: “In five years, I want us to be the number-one slot company in the world!”
Young agrees and further explains, “In five years, we can be a significant player, up there with the big boys in terms of providing product to the market. If we’re getting a good share of new business, at that time, I would consider us a success.”
But it all depends on how the company performs this year and the next.
“What we’re doing right now is developing and investing so that we can be a major player in the market,” he says.
Although he has doubts about the speed of the industry’s economic recovery-he thinks the long-awaited replacement cycle won’t kick in completely until 2011 at the earliest-Young has confidence that Aruze will be there to capitalize on it when it does occur.
“I think people are surprised at the depth of the products,” he says. “We have a lot of bells and whistles in terms of the content, and that will continue to grow and develop in the very near future.”
