The origins of the former Shuffle Master, Inc. can be traced to a simple, necessary utility in the pit: shuffling the cards. But for SHFL entertainment, as the company is now known, the universe is much larger.
The company founded as Shuffle Master pioneered the card shufflers that are standard in today’s pit—former Minnesota truck driver John Breeding founded the company in 1983 with a shuffling device he invented after reading about casino problems with card counters. SHFL still leads the market for the device that ushered in the era of multiple-deck games.
But these days, SHFL is all about the games themselves. Last year’s name change to SHFL entertainment reflects where the company is today, while giving a nod to the product that got the company started. The change was orchestrated by Gavin Isaacs, who became Shuffle Master CEO in April 2011 after a distinguished career in the slot sector—he had headed Aristocrat’s U.S. operations and served as COO of Bally Technologies.
By the time Isaacs took over at Shuffle Master, shufflers were only one product in an enviable lineup that draws big returns from recurring revenue centered on a group of proprietary table games—games with names so commonplace in today’s pit that it’s easy to forget that before SHFL, one of the most rare occurrences in the history of casinos was creation of a successful table game to rival the stable of games unchanged since World War II.
Banked table games like Let It Ride!, Three Card Poker, Caribbean Stud, Four Card Poker and Ultimate Texas Hold ‘em, along with a complete range of electronic table games, carved a new identity for Shuffle Master.
And a new brand—SHFL entertainment. “The link with the past was ‘shuffle,’ and it doesn’t hurt that SHFL is our NASDAQ ticker,” says Isaacs. “The ‘entertainment’ factor reflects that we really are getting into games that are much more fun to play, and in all different modes—be it on the land-based felt, or electronic slot machines, or in i-gaming. We felt ‘entertainment’ was the right message; that’s what we do as a company.”
“First and foremost, we’re an intellectual property company,” notes Louis Castle, chief strategy officer for SHFL. “This is a very good niche, because there are a lot of different patents, especially in the United States, and player adoption really comes down to familiarity with brands.”
SHFL has built those brands not only through in-house innovation, but through acquisition. “We’ve acquired a lot of smaller companies that had just gotten something rolling and were looking at 10 or 15 years before they could get worldwide distribution,” says Castle. “The company actually started with a shuffler, which enabled the first game, (Breeding’s) Let It Ride! But now, the company is starting with the content.”
Much of that content begins with Roger Snow, SHFL’s wizard game inventor. In fact, Snow, who joined Shuffle Master as table games product manager in 2000 and became executive vice president in 2008, recently had the word “wizard” added to his title. In his time with the company, SHFL’s official executive VP, chief product officer and wizard has compiled more than 30 patents, and has developed dozens of games, including some of SHFL’s most popular titles, such as Four Card Poker, Ultimate Texas Hold’em and Dragon Bonus. (See Page 28.)
Games invented by Snow have been combined with popular titles acquired from outside into a remarkable collection of intellectual property that has put SHFL at the top of the table game market.
From Let It Ride! to Blackjack Switch, to the venerable Three Card Poker to variations on Texas hold ‘em, SHFL is now a content company. And that content has enabled SHFL to spread its footprint across a variety of media, including electronic tables in the popular Table Master and Vegas Star lines and hybrid e-table setups like the Rapid line and the new i-Table automated betting and resolution system.
Cyberspace is next.
Expanding the Vision
Since becoming CEO, Isaacs has sought to capitalize on the power of the company’s IP by spreading it to the internet and mobile gaming markets. The company’s Interactive Division established a subsidiary and i-gaming hub last year in Gibraltar, and received a remote gambling license from the Gibraltar government. Nick Gabriel, a 12-year veteran of the i-gaming business, was named to run the Gibraltar office as head of online gaming.
Remote gaming servers that deploy SHFL’s “elastic cloud” have been set up at Gibraltar to serve proprietary games like Three Card Poker, Ultimate Texas Hold’em and Casino War to B2B partners.
In December, SHFL received an unlimited Category 2 eGambling License from Alderney, furthering its ability to spread its games to legal i-gaming markets across Europe. Also that month, the company strengthened its ability to capitalize on newly legal i-gaming markets in the U.S., signing as exclusive distributor of the online poker and gaming platforms of Canada’s Amaya Gaming Group. (SHFL received its interactive gaming license in Nevada last summer.)
Isaacs says the online potential of the popular SHFL table games was something he realized soon after he became CEO two years ago. “Our proprietary table game brands have always stood out in the pit,” he says. “People love the volatility of Three Card, Ultimate (Texas Hold’em), Mississippi Stud and Casino War, and these brands are recognized around the world. Coming into the company, when I was looking at opportunities, I noticed that if you went to Europe and got on these online sites, those games are all there. I thought, wow, we must have quite a good business.”
The only problem was that Shuffle Master wasn’t making a dime from those online games. “They were just doing it without our consent,” Isaacs says. “So, we put together a plan to capitalize on the internet space, to get our content and monetize it.”
Castle, who had been head of the game studios at the Zynga social gaming company, was brought on in November 2011 as chief strategy officer. He already had a plan to move into the online space. “We went to coffee, and he said, ‘I’ve found the perfect guy to run this for you,” Isaacs recalls. “I said, ‘Who’s that, Lou?’ And he said, ‘Me.’ We started from scratch, and he’s been unbelievable.”
“I’ve spent a lot of time in software development, and especially in different kinds of tools,” says Castle, “so where I contribute on the R&D side is trying to help get us all on the same technology basis from a software point of view, and Nathan (Wadd, head of R&D) has been running the same kind of idea on the hardware side.
“We’re trying to bring our costs down for delivering our content. And most importantly, we’re in the business of creating intellectual property—so when Roger Snow creates a table game, we can take that property and quickly move it onto lots of different platforms—ETS platforms, EGMs, if it’s appropriate, and of course, online.”
SHFL’s Interactive Division has grown from Castle and eight colleagues—many who had worked with him at Zynga—to nearly 30 people today. “We decided that from a content perspective, our strategy, for both money and free-play formats, is that we want the same infrastructure, the same games displayed in the same way,” says Isaacs. “So, we built that infrastructure up from scratch. We now have nine, soon to be 11 games (online). By the time this goes to print, we’ll have our first game on Facebook. That was all done organically.”
Meanwhile, SHFL has positioned itself to be a major player as internet gaming makes its anticipated spread across the U.S. Isaacs says the alliance with Amaya—which itself prepared for the spread of online gaming by acquiring Ireland’s Cryptologic and the Stockholm-based B2B poker network Ongame—will ease the move into the new U.S. online markets.
“Ongame is the best B2B technology that we’ve seen,” says Isaacs, “and it’s a modern infrastructure, so it’s not going to be too expensive to maintain.” He adds that Ongame, formerly owned by internet gaming giant bwin.party, had been a company on SHFL’s own acquisition radar.
“When Amaya bought it, they said, ‘Well, we’re not licensed across America,’” Isaacs recalls. “We said, ‘Well, we are; let us be your partners there.’ So, we’ve gotten one the best technologies out there, and we still look at the internet space as a growth environment that is not necessarily the same in the land-based market. And we always look for opportunities where we can add a sensible business to our portfolio, particularly anything to do with tables.”
The online space in the U.S., at press time, still consisted only of poker, and the only state with an actual game plan is Nevada. (Delaware has legalized online poker under the auspices of its lottery, but has yet to implement a plan.) Isaacs, however, predicts that it’s only a matter of time before other casino games—like SHFL’s proprietary games—become part of the mix in the U.S., particularly if i-gaming spreads state by state, as expected.
“Once you open the door a little bit, it can take off,” says Isaacs, “and people will see that it’s possible to regulate and monitor it, and how much is actually already being played out there.” If and when U.S. i-gaming does spread beyond traditional poker, he adds, it will be a great opportunity for SHFL. “It’s a huge market, and particularly for us,” he says, “because our content is really recognizable in America.”
That fact has already played out in online markets, where the company raked in nearly $3 million in settlements last year over sites using SHFL game content. “One of the beauties of this company is that we have intellectual property,” Isaacs says. “We went after infringers, and settled with many sites. Now, we will license games off our servers.”
Maintaining Growth
While the moves into online and mobile gaming represent potentially lucrative new revenue streams for SHFL, the company has never rested on its laurels when it comes to the products it currently offers, starting with its oldest core product group, the shufflers.
Recurring revenue from the shuffler segment was up 10 percent last year, thanks to products like the iDeal, Deckmate and most of all, the new MD3 shuffler. Snow, who oversees all product areas, says the MD3 is more than simply a replacement for the MD2 shufflers.
“People thought the MD3 was a replacement product for the MD2, but the opportunities of this shuffler far eclipse the existing inventory of MD2 shufflers,” Snow says. “The MD3 is a superior product; it incorporates optical card recognition, shaves 2.5 minutes off the shuffle time, reduces card wear-and-tear, and has other enhanced features. The MD2 was a good machine, but only carved out about 7,100 installs. The MD3 on track to surpass that.”
“This year, we’re expecting the MD3 to continue to grow,” says Isaacs, “but also, toward the end of the year, we anticipate some contributions from our new Deckmate 2. There are still MD1 (shufflers) in the field, some of which are nearly 20 years old. So this year, I expect to see similar kinds of numbers, and maybe even the following year.”
Isaacs calls shuffler replacement the “low-hanging fruit” of SHFL’s recurring revenue, if only because every model is an improvement on the previous version. “You’ve got the security factor, which is second to none,” he says. “When we bring out a new shuffler, apart from additional functionality such as card recognition, you have the speed factor—you get more hands per hour. The Deckmate 2 is twice as fast as the original Deckmate. That’s huge on a game like poker. As we keep adding value like that, it remains a very important part of our business.”
Shufflers may have been SHFL’s first product, but it’s hard to call the utility segment the company’s “core product.” These days, the core product is just as much the intellectual property—the proprietary table game content that is now found not only on felt, but in the still-strong market for electronic table games, i-gaming, and even in the stand-alone slot market.
“Wizard” Snow continues to pump out new specialty table games, as games he has invented or acquired during his tenure at SHFL continue to perform consistently. “We’ve just got an amazing stable of proprietary table games,” Isaacs says. “What’s most surprising for someone like me, who comes from a slot business where most core titles last 12 months, we’re averaging 12 years now (on the table games).”
Isaacs points to Snow’s Ultimate Texas Hold’em creation as one of the fastest-growing products. “It’s reaching that ‘Three Card Poker’ status,” he says, citing SHFL’s top game. “It just continually grows.”
SHFL’s side-bet games are performing just as well. “We’re very excited about House Money,” says Isaacs. “Everyone who plays it loves it.” House Money allows the player to place a side bet on his first two dealt cards in blackjack. If the first two are a pair, straight or straight flush, the player is paid on the side bet, and has the option to add the winnings to the bet for the regular hand. “It’s such a logical bet,” Isaacs says, “because it has the key ingredients to any successful game—it has attraction to the gambler, it’s fun and it’s simple.”
Augmenting the specialty table games are new electronics such as the i-Table system, which utilizes a specialty shuffler that identifies all cards being dealt, and interacts with software to instantly resolve all game play with accuracy. This system also allows a table to be converted to a different game, change limits or change pay tables in a few steps.
All of the proprietary live-game concepts, of course, transfer easily to SHFL’s line of electronic table games—Table Master, which replicates a live table via individual play stations around a life-sized video dealer; Vegas Star, with animated dealing on a central screen combined with wagering on individual play stations; and Rapid Table Games, the hybrid product that links a live table to satellite electronic play stations, permitting one live game to be played by dozens, even hundreds of players.
Table Master had been going like gangbusters in states like West Virginia, Maryland and Pennsylvania, which first legalized slots-only casinos. However, even with these jurisdictions now permitting live table games (Maryland being the latest, with tables to go live this spring), e-tables have found a permanent niche in the industry, with the Rapid model popular worldwide as a way to economically increase table play.
“I think there’s a market for both (live tables and e-tables),” Isaacs says. “E-tables are not going to overtake live tables. I’m sure if someone did a study, they would find that the dealers with the best personality drive the most play, because there’s nothing quite as fun as sitting at a great table.
“The electronic tables, though, serve a purpose, and we’ve seen them perform very successfully when you have limits up on a Saturday night and people want to play (lower limits). Also, if you want to learn a game, you want to play low limits; you’ve got to play the electronic versions. And, there are people who just like to play slot machines; this provides a transitional product. But there’s definitely a market for both. It’s not a market we’re shying away from.”
Of course, while SHFL provided hundreds of e-table play stations to each of the slot-only jurisdictions, it had one definite advantage in place when those jurisdictions legalized live tables: The company sells the shufflers and many of the games that will replace the electronic versions.
“We benefited from the electronic versions being in Pennsylvania and Delaware,” says Snow of the former hotbed markets for SHFL’s Table Master games. “And, when they changed the law, we benefited as well. We’re diversified, so whichever way the regulations go, we’re in good shape.”
Not that there is any lack of strong e-table markets worldwide in any event. Isaacs notes that the Rapid series, in particular, has a strong role in markets like Australasia, where the number of tables is limited and there is strong player acceptance. The company has invested heavily in serving Asia with a new product called Rapid Fusion, which accepts live feeds from several table games and allows the player to wager on four different games at once.
“I like products that solve simple problems or create simple opportunities,” says Snow. “With Rapid Fusion, instead of being tied to one terminal, you can play four different table games. I’ve got a baccarat table, two roulette tables and a sic-bo table, and I’ve got action on all of them. It’s multi-tasking, and it comes down to three simple words: More gambling now.”
The other SHFL product line performing well in Macau is one with which operators outside of the Australasian region do not typically associate the company: slot machines. “At the moment, we have the hottest slot in Macau,” says Isaacs. “We want to keep that momentum going.”
In fact, SHFL now has the top two slot games in Macau. “These two games, 88 Fortunes and 5 Treasures, are absolute monsters,” says Snow. “They’re just lighting the world on fire.”
The big success in Asia and Australia with the SHFL slot line will help the company in the U.S. The first SHFL slot games in North America went live recently with two banks of games at California’s Pechanga Resort. “We anticipate placing more there, and then we plan to expand into several different markets,” says Isaacs. “We’re planning on bringing 11 titles this year to America.” The slot platform, he adds, is the same platform that is used for the Rapid line of e-tables, so there are no regulatory approval issues for the cabinet. SHFL also already has roughly 280 various gaming and tribal licenses in the U.S.
Unlike most of its other products, though, the lease/participation model will not be used for placement of slot games in the U.S. “Our goal is not to go after the recurring revenue, which is a very highly contested, very expensive part of the slot business,” says Isaacs, “but we will aim for that other 80 percent of the floor—that for-sale area that is under-serviced.
“We do incredibly well in Australia with our games. We currently have three of the top games in New South Wales. We’re going to bring those games to America and put them on the floor. We feel confident we can hold a couple of banks on each floor, so that’s our strategy. It’s as simple as that.”
“The games are doing very well at Pechanga,” says Snow, “and will soon be going into Jackson Rancheria and other locations. I’m very enthusiastic that we’re going to succeed, and I believe we’re going to succeed quickly.
“Success with slot machines means content and new markets. North America’s wide open to us—we have zero market share. It can only go up. We’re doing it very strategically, very carefully, and as cost-effectively as possible.”
Team Approach
The variety of SHFL’s product line makes it obvious that the company does a lot of things well. But in the end, what the company really does well is to create value for its shareholders.
Earnings per share were up 25 percent in 2012. Recurring revenue was up 12 percent. Revenues for the fourth quarter were $73.6 million, a record. Adjusted EBITDA in the fourth quarter increased 6 percent to a record $23.9 million.
The company’s success can be traced directly to the strength of its team, and most of the top executives point to Isaacs. “Gavin has infused an energy into SHFL,” says Julia Boguslawski, the company’s vice president of investor relations and corporate communications. “If you look at our past, we’ve had some management transitions, but now, there is stability. Gavin’s brought passion and vision, and we needed that.”
Isaacs is quick to return the credit to his team. “I think we have a lot of great things happening here, and it’s just a pleasure to work with this team,” he says. “I get a great kick out of working with great people, and I’ve always been a part of great teams. I’ve got a phenomenally supportive board, and really great people to work with.”
There soon will be few sectors of the gaming industry in which SHFL does not have a footprint. The company is essentially debt-free, and Isaacs says SHFL’s growing resources will be used carefully to expand the company.
“Everyone says they’re a leader, but we really are the leader in tables,” says Isaacs. “I’d like this company to become the leader in gaming entertainment. We have the foundations to do that.”
The Wizard
SHFL’s game development has a secret weapon: Roger Snow
His LinkedIn profile lists him as “executive, game inventor, all-around bon vivant.” For SHFL entertainment, Roger Snow has been money in the bank.
SHFL owns some of the most successful table games in the business, and consequently some of the most valuable intellectual property. One big reason is Snow, owner of more than 30 patents and inventor of dozens of SHFL proprietary games.
Snow, who joined the company as table game product manager in 2000 and became an executive vice president by 2008, has been one of the industry’s most prolific game inventors. For SHFL, he invented Four Card Poker, Ultimate Texas Hold’em, Crazy 4 Poker, Dragon Bonus, Dealer Bluff, Six Card Poker, Hit and Run Blackjack, Ultimate Three Card Poker, Single 21, Sharpshooter, House Money Blackjack, House Money Baccarat and Face Up Stud Poker, as well as a number of “electronic upgrades” to other table games.
“Roger’s been just a breath of fresh air,” says SHFL CEO Gavin Isaacs. “He’s written more than half the games in the industry, but he said, ‘I want to do more.’ So, now, he runs all the product management as well.”
Isaacs calls him “the wizard.” In fact, he added the word to Snow’s official title, which is currently “executive vice president, chief product officer and wizard.”
“I thought he was joking,” says Snow of his christening as a wizard by Isaacs. “Then, one day, I got business cards that just said ‘Roger Snow, Wizard.’ I’ve actually signed legal documents with the title of wizard, which may be a first in the industry.”
When asked for his secret formula for games, Snow jokes, “Luck, and a lot of at-bats. That’s the secret to my success! Working for this company, I’ve had more at-bats than anybody else.”
But with Snow, the number of big hits belies more than the math of a batting average. Snow says the key to succeeding with new games is a bit alchemy and luck, but is mostly about taking a methodical approach to the creative process—“a lot of diligence, a lot of thinking, and a lot of time.”
First step: “I look for games that are novel,” he says. “This is a patent business. I try to look at games that have at least one patentable element. Otherwise, you’re creating a generic drug.
“Secondly, you try to think from a player’s perspective. I was a player—that’s how I got into this business. I try to think as a player: ‘What would be fun? It would be really cool if I could do this.’ Think of novel, patentable, and fun.”
He offers a current project as a good example—a new stud poker game in which the player sees the dealer’s entire five-card hand first, and the first three cards of his own hand. The player can stay in and wager he’ll beat the dealer, or drop out. If the player is in, his last two cards are revealed and the hand is over.
“It’s a quick game, but there are a couple of fun elements,” Snow says. “For example, what if the dealer has a flush? Even if I have a pair, the odds of beating him are pretty slim—here’s where the thinking and hard work come in. If you beat the dealer’s flush, I’ll pay you 200-to-1. Now, you’ve got my attention. Maybe I will stay in with a pair; maybe it will become a full house or four of a kind.
“It’s a game in which the dealer shows you his entire hand before you decide if you’re in or you’re out. It’s never been done before. It’s patentable—we’ve filed a patent on it. And it will be fun.”
The game’s working title is Face Up Stud Poker, but Snow says he is considering using it to pump new life into the Caribbean Stud brand.
But even a good idea, he says, requires the legwork. “This is a game I’ve been working on for six months,” he says of Face Up. “I’ve gone through four or five variations, a lot of math. It is analogous to writing, which I did in the old days; I was a journalist before going to Las Vegas. The hallmark of good writing is that it looks like it was just off the top of your head, when it is the result of hours of editing and rewriting and re-phrasing. It’s a lot of work to make something look like it didn’t take any work.”
It’s that combination of luck, diligence and skill, which Snow mentioned in his prescription for game success—as demonstrated with humility in his LinkedIn profile:
“Named inventor on 30-plus U.S. patents.
“Once, while driving, threw an apple into the back of a garbage truck that was stopped in front of me. Left-handed, mind you.”
