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GLOBAL GAMES 2010 Part 3: American Gaming Systems

Seizing the Moment-Opportunistic Class II supplier AGS enlists Miodunski to bring in the big Class III guns

GLOBAL GAMES 2010 Part 3: American Gaming Systems

Before a headhunter contacted Bob Miodunski last March, the idea that the former CEO of Alliance Gaming would once again be at the helm of a slot manufacturer seemed unlikely.

But the opportunity presented to Miodunski, who had spent most of his time since his 2004 retirement from Alliance in Mexico developing real estate, was intriguing—and eerily familiar.

During his five years at Alliance, Miodunski had conducted a remarkable turnaround, with split-adjusted stock price soaring from under $2 to more than $100. The epicenter of the turnaround was the Bally Gaming & Systems unit, which fueled the company’s fortunes after the acquisition of a private company that had seen much success in Class II markets, Sierra Design Group. SDG’s great video slot platform formed the basis for the Alpha platform that has returned Bally to the elite of the slot manufacturing world—and led to the name change from Alliance, Nevada’s largest route operator before that business was shed, to Bally Technologies.

The opportunity presented to Miodunski last spring was to take the helm, at least temporarily, of a successful Class II slot supplier with a sophisticated new computer platform, a company that was ready to expand into Class III.

American Gaming Systems has approximately 7,000 Class II slots operating on a revenue-sharing basis in Oklahoma, and upwards of 3,000 more placed in other jurisdictions in the U.S., Mexico and the Dominican Republic. Lately, the company has been busy collecting licenses to move into Class III markets—the first being a potentially lucrative new “route,” the nascent Illinois market with a potential of a maximum 75,000 units in bars and taverns across the state.

AGS recently acquired Canadian slot game developer and system supplier Gametronics, and has modified the Gametronics platform to create a platform for server-based or stand-alone slots, called the “Encore” platform. The company itself is owned by San Francisco-based private equity firm Alpine Investors, which has pledged strong financial backing for the expansion of AGS into new markets.

Miodunski says he liked the idea of working with a private firm, and the idea of assembling a team to develop and maximize what is already solid technology for new markets. He also liked the fact that the revenue to expand is already there.

“With 7,000 games in Oklahoma operating on a revenue-share basis, it gives us the financial stability and cash flow to enter other markets,” he says.

Finally, Miodunski says he liked the parallels to the SDG acquisition, arguably the most important development at Bally during his tenure there.

“It’s very similar in a lot of ways to SDG,” Miodunski says. “AGS has the same presence in Oklahoma, the same type of quality platform on Class II games that is applicable to Class III. There are remarkable similarities between the two companies.”

Miodunski signed on with AGS in July as chairman of the board, and interim president and CEO, headquartered in what is a temporary office in Henderson, Nevada, while a search is conducted for a permanent Las Vegas headquarters.

Miodunski says his first order of business has been to assemble a team of gaming industry veterans. He’s already well on his way to achieving that goal. To help with the company expansion, he has brought in Paul Lofgren, who was his executive VP of new business development at Bally, to serve the same role at AGS.

For R&D, Miodunski tapped Dr. Olaf Vancura as his new vice president of game development. Another veteran of the slot manufacturing side, Vancura headed game development at Mikohn Gaming, where he created such games as “Yahtzee,” “Battleship” and “Trivial Pursuit”—all featuring skill elements that were ahead of their time.

At press time, Miodunski was close to hiring a chief financial officer—another industry veteran. “Our strategy in the short term is relatively simple,” Miodunski says. “We’re hiring a management team, and probably sometime in the next year, we will look for a permanent CEO.”

That permanent CEO could be Miodunski, but he says it is too early to tell. First things first, he says, and the next big thing for AGS is Illinois.

Chicago Connection
The opportunity presented by Illinois’ 2009 Video Gaming Act is one for which AGS is uniquely qualified.

The act authorizes up to five video gaming devices at each of an estimated 15,000 licensed liquor establishments across the state. Licensed suppliers, including AGS, are now waiting while new bids go out for a central computer system on which all the games will reside.

“It’s a great fit for us,” Miodunski says. “All of our installed base in Oklahoma is basically a revenue-share route, and we bring a lot to the party as far as tailoring games to the local player—it’s a little bit of a niche we have that the big guys don’t have.”

Just prior to hiring Miodunski, AGS opened an office in the Chicago suburb of Itasca, and hired Todd Cravens, a veteran route operator in the amusement business, as president of AGS Illinois.

That amusement business includes the so-called “gray-area machines” that are currently in taverns across the state—slot-like games that are technically for amusement only but which become quasi-legal gaming machines as bar owners pay out cash for machine jackpots. Some estimates put the total number of these machines in the tens of thousands across Illinois.

The new law aims to replace all those machines with licensed video lottery games that are taxed with all state revenue going to capital construction and highways. Projections put the tax revenue at around $450 million a year once the law is fully implemented.

Cravens says he was brought in because he knows how to run a route of machines. “I’ve been a regional operator for a long time,” he says. “My background is on the amusement side; I was born and raised in the coin-op business. When the legislation was passed, I was hired to roll out the VLT part of this business.”

He says AGS is equipped to be a dominant player in that business. “We plan on being one of the top players here,” says Cravens. “The reasons? We are operators. Ninety-nine percent of AGS product in the field, we operate. We’re coming at this not because we want to sell boxes, but from the mentality of an operator. Also, our product plays mostly in locals markets. People don’t go to Tulsa for a three-day vacation; most of our players go in after work for a couple of beers and $20 or $40 worth of entertainment.

“Here in Illinois, the match is a $2 max bet and a $500 max payout. So we have to make sure we get those players time-on-device.”

Cravens estimates AGS could capture as much as 40 percent of the Illinois market, perhaps as many as 7,000 units or more. One way the company will do this, he says, is by designing games that will already be familiar to the players. In other words, the multi-game units will include simple video slot games with three-by-three game screens that play just like the gray-area machines.

“We see Illinois as a real opportunity,” Miodunski says. “With our installed base in Oklahoma, we understand the locals market and the locals player. So, our games will offer existing games that the gray-market players are playing, along with casino-style games. The multi-game format will offer existing players something they’re already comfortable with, and will offer new players the game styles they’re used to playing in Indiana, Illinois and other nearby markets, including a full complement of video poker and keno games.”

Miodunski adds that AGS will implement a server-based feature in Illinois that will give cash-back and reward play with a promotional game called “99 Bottles.” The reward system will be cardless—players will sign onto each device when they sit down—but will reward players like a traditional slot club.

The bonus game will overlay all existing games through the central server. “It’s similar to the Gambler’s Bonus product we did at United Coin,” says Miodunski, referring to the legendary Nevada route operator that was ultimately folded into Alliance when he was CEO.

Coming-Out Party
The Global Gaming Expo will provide AGS the forum it needs to introduce itself to the industry. The company plans to showcase its new Encore platform with an array of new titles. A total of 24 games will be displayed, with half dedicated to Illinois product.

“The Encore games each have five to seven bonus events,” says Cravens. “One of our product’s strengths is a very rich experience for players, with a lot of bonusing. Because we’re in locals markets, we’ve found that players really like that.”

At the same time, the format includes features to help operators maximize both average bet and overall revenues. For instance, each bonus event allows the player to “tap through” the animation to get directly to the end result, and get back to the game. “Operators appreciate that, because it yields more spins per hour,” Cravens says.

To jack up average bets, some games have a “Bet More Get More” feature, which displays a thermometer with payback percentages rising to 98 percent at maximum bet. “Paybacks go up based on players’ bet levels,” says Cravens. “That’s increased our average bets quite a bit.”

Titles to be displayed at G2E include games designed for the bar environment like “King of the Cage,” a game that includes live-action video which Cravens says has yielded the most enthusiastic responses from bar owners; and “Lucky Larry Leprechaun,” a game that is becoming a franchise for the company with sequels, playing on a “luck of the Irish” theme Cravens says has been a favorite in the ethnic neighborhoods in the gray-area market.

But the company also will display new games with mass-market appeal like “Diamond Lotto,” “Black Beard” and Miodunski’s favorite, “Devil’s Hot 7s,” a five-reel video slot with graphics reminiscent of a certain Bally game that uses 7s on fire—but adds a flaming video bonus wheel as a bonus event, along with unique features like the “Max Bet Inferno,” which changes all the graphic elements on the screen—the reels turn black, flames arise from the symbols, and the wins multiply—when the player bets the maximum.

“We’re starting to roll Devil’s Hot 7s out now, and I think it’s going to be the most popular title on the Encore platform,” says Miodunski.

Other game highlights include “Nuts or Money,” a 25-line game with an intricate two-level bonus event depicting nuts and bags of money in a tree that hide bonus awards—all displayed on a vertical, “portrait”-style LCD monitor; “Liberty Sevens,” a patriotic theme that includes the Bet More Get More thermometer; and “Spy Girls,” which is packed with free spins, Bet More Get More, second-screen bonuses and a two-level mystery progressive jackpot.

By the time G2E rolls around, AGS is sure to be well on its way to spreading its wings across the country. At press time, the company was licensed in 13 states with more being added every week. By early October, licenses included California, New Mexico, Arizona, Florida and Maryland, and the company was focusing on Mississippi, Indiana, Ohio and Canadian jurisdictions. Miodunski says Nevada and New Jersey—along with other East Coast jurisdictions—will be the focus of efforts by the end of the year.

According to Miodunski, the company’s short-term agenda, once management is in place, is “to launch in Illinois, and to put a few devices in each jurisdiction in the country.” Longer-term, he says AGS will “find a niche we can play in.”

“Our strength today is in Class II, so we will continue to focus on that and make it even stronger, while we find a niche on either the game or system side. We still have some work to do, to determine where that niche is.”

With Miodunski and the team he is assembling, it’s a good bet AGS will find that niche.

Frank Legato is editor of Global Gaming Business magazine. He has been writing on gaming topics since 1984, when he launched and served as editor of Casino Gaming magazine. Legato, a nationally recognized expert on slot machines, has served as editor and reporter for a variety of gaming publications, including Public Gaming, IGWB, Casino Journal, Casino Player, Strictly Slots and Atlantic City Insider. He has an B.A. in journalism and an M.A. in communications from Duquesne University in Pittsburgh, PA. He is the author of the books, How To Win Millions Playing Slot Machines... Or Lose Trying, and Atlantic City: In Living Color.  

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