GGB is committed to providing updated news and analysis on our weekly news site,

New Day

Aristocrat Technologies in turnaround mode as it zeroes in on North America

New Day

Aristocrat Technologies is no stranger to revolutionary change. In the slot business, the manufacturing arm of Australia’s Aristocrat Leisure Limited has caused its own share of revolution—from introducing the world to the multi-line video genre in the 1990s to a series of groundbreaking slot innovations this decade.

This year, the 56-year-old slot manufacturer is embarking on another revolution—this time, of its own operations. After five months on the job, new CEO and managing director Jamie Odell announced a new executive leadership team and a “business transformation strategy,” to be revealed when the company’s half-year results are announced August 25.

“I am confident that we now have the right structure and the optimum blend of skills, industry experience and external perspectives to ensure we will be successful in executing our plans to lift performance to meet our potential and the expectations of our stakeholders,” Odell said in announcing the new executive leadership.

Among the new executives are Toni Korsanos, a veteran of corporate finance who will serve as chief financial officer. Veteran banking executive Sam Nickless has been named “business transformation director.”

Much of the new talent will focus on new slot products. The research and development function has been re-dubbed “Design and Development,” and will continue to be led by David Hughes, whose title will now be chief design and development officer. There is a new chief technology officer, Julius Patta, who will be based in the United States.

And it is the United States—along with the rest of North America—that likely will be ground zero for Aristocrat’s “business transformation.”

American Pie
North America has been the epicenter for Aristocrat’s flat results over the past two years. According to Nick Khin, president of Aristocrat Americas, it also will be the epicenter of the slot-maker’s return to prominence.

That one needs to write of Aristocrat’s “return” to prominence would have been unheard-of early this decade, when Aristocrat was at the apex of a 10-year ride of U.S. market success. It started in the early-to-mid 1990s, with the introduction in Native American markets of the company’s first video slots. Aristocrat’s multi-line video format, with low denominations, a new math model and—importantly—second-screen bonus events, took the U.S. market by storm. Within a few years, all slot-makers would be offering what became known as “Australian-style video.”

It can be argued that Aristocrat’s game format changed the entire slot industry, from the emergence of WMS Gaming as a force in video to IGT revamping its video line, and ultimately to the prominence today of multi-line formats both in video and stepper genres.

Aristocrat, though, saved its biggest innovations for early this decade, when the slot-maker took flight with game styles like the Hyperlink multiple progressive, the “Reel Power” scatter-pay slot, the “Bonus Bank” series of games that offered bonus events with an ante wager, and a host of slots that mixed and matched these new game styles (all, as would soon be seen, to be much copied by other slot manufacturers).

By 2003, Aristocrat had firmly established itself as one of the top innovators in the business. However, what should have been its finest hour was also the genesis of the company’s problems. Former CEO Des Randall was fired that year, for allegedly hiding sales problems that led to profits missing projections by wide marks. (Randall subsequently lost a lawsuit against the company related to his dismissal.)

Randall’s replacement, Paul Oneile, was more a victim of the times than anything. His first few years were spent righting the ship, restoring investor confidence as his marketing team worked to exploit the benefits of the great innovations of the previous few years.

Then, the recession hit, and for Aristocrat the timing couldn’t have been worse. Replacement cycles lengthened, capital budgets dried up and projects went on hold just as the manufacturer was rolling out its new operating system, Gen7, and Viridian cabinet. The new game format was designed to fit seamlessly into the networked slot floor—which, by the way, was also largely put on hold as server-based floors like CityCenter were delayed.

Gen7 and Viridian were introduced to the industry at the Global Gaming Expo in November 2007, just as the recession was deepening. By the time the format was approved and available to casinos, it was the second quarter of 2008, and casinos were not exactly on a buying spree.

“Last year was a bit of a difficult year,” says Khin. “During the first half, we struggled to get the new platform and cabinet approved. That certainly hurt us in ship share, which was around 11 percent for the first half, the lowest in quite some time.”

Added to the problem of shipping new products was a drop in revenue from revenue-sharing slots. “We had issues in getting our key participation games approved,” Khin says. “We had no new participation games approved for the whole year of 2008.”

By the time Oneile resigned last September, Aristocrat was back in the same spot as when he had taken over. Stock price, which was more than A$12 a few years ago, had sunk below $A4. The company’s loss of a shareholder lawsuit related to profit write-downs under Randall only aggravated the situation.

Enter Odell, a former operations executive for Australian beverage giant Foster’s. According to Khin, the new chief dove in with both feet. “His team spent significant time redefining us, establishing our key priorities, making sure we’re playing in the right segments,” he says. “It’s been great having him on board, because it is an opportune time for us to be reexamining where we’re going.

“Another thing he added: a very strong realization in Australia that the U.S. market is really where our opportunity lies right now. It’s almost 50 percent of Aristocrat’s total revenue and total profit, so we need to be more focused on this particular market.”

Next Generation
Aristocrat Americas, the Las Vegas-based subsidiary of Aristocrat Technologies that led the new product surge early this decade, appears to be primed for another product renaissance. “We’re back at around 14 percent in terms of ship share, and Gen7 and Viridian are approved in all jurisdictions, as well as a good number of games in the new format,” says Khin.

In addition to continued rollout of last year’s introductions in the new format, 2009 marks a new direction in slot development and marketing for Aristocrat. Early this year, Khin brought in Seamus McGill, a slot industry veteran who formerly held executive posts at WMS Gaming and Cyberview Technology, as chief operating officer of Aristocrat Americas.

McGill has revamped the sales structure and implemented a new product strategy, beginning with the key area of recurring-revenue games.

“We restructured a part of the business that had not been structured—gaming operations,” McGill explains. “I created a team headed by Dallas Orchard (now director of gaming operations) devoted to getting attention focused on gaming operations that it did not have before.”

There already have been two major participation-game introductions this year, beginning with a reel-spinning version of “The Sopranos,” which takes the famous brand first introduced in video and places it in Aristocrat’s increasingly popular stepper series.

However, the new emphasis on participation games reached a peak more recently with a game that could be the slot-maker’s biggest success of the decade: JAWS.

For Aristocrat, JAWS, a Hyperlink multi-progressive game based on the shark-attack film series of the 1970s, represents both a reliance on the best of the past and a totally new direction for the future. While exploiting the strengths of the Hyperlink and Bonus Bank game styles, the product totally immerses itself in the branded theme, which is something of a departure from Aristocrat’s established M.O.

The games have special ocean-blue cabinets, trimmed in lighting that changes different colors with various bonus events. Each machine has a moving mechanical buoy topper that lights up and rings during game play. There are speakers shaped like shark gills, and even a “shark tooth” spin button.

The JAWS-themed cabinets are banked together under an LCD screen embedded in the signage that shows clips from the films and images from the games’ bonus features. The face of each game screen, framing the reels, depicts a bubbling underwater scene. It is the farthest Aristocrat has ever gone in “theming” a slot machine.

Players are already familiar with the Hyperlink bonus, but with JAWS, they also find a series of themed bonus events in addition to the random progressive event—a feature borrowed from the popular Bonus Bank series, requiring an ante bet from the player. There are events like “Golden Jaw,” which has the player putting his hand inside the shark’s mouth to reveal credit amounts hidden in the teeth (you have to get your hand out before the jaws slam shut); or “Shark Hunter,” which has you touching spots on the screen until you locate the shark.

“The cabinets are different than anything in the U.S. market,” says Doug Fallon, director of marketing for Aristocrat. “Our R&D groups around the world worked together to create the JAWS-themed cabinet. To increase the player experience, our mechanical engineering team worked with our game designers and artists to design a product that would provide mass appeal to a wide variety of players.”

So far, it appears the company has achieved that “mass appeal” with JAWS. A few months after its approval, there was expected to be well over 1,000 units in the field. “And they’re all doing well,” says Khin, who adds that immersion in a theme will be a hallmark of branded Aristocrat slots going forward. “We are going to come out with more fully themed products in the future,” he says. “We’re not taking anything away from our home-grown, organic brands, but as a company, we definitely have realized we need to be more focused on brands and licenses.”

“We’re going to be out there looking for new brands,” adds McGill, “but there are also internal brands we will be reinvigorating over the next couple of years. We’re putting a couple of dedicated development teams together to do that.”

Focus on America
Both Khin and McGill say there are more new product revelations to come at Global Gaming Expo in November, although details are being kept close to the vest.

“New technologies are something we are diligently working on right now,” Khin says. “There will be new product styles, new bonusing concepts and new progressive styles launched at G2E.”

McGill adds that the company also is currently improving its server-based technology, thanks to its acquisition two years ago of Sweden’s ACE Interactive. ACE created a turn-key server-based video lottery system for the Norwegian Lottery.

“We’ve been presenting that technology in North America, not only for VIPs but for casino-style server-based technology,” McGill says. “We’re in the final stages of relocating the ACE development team to the U.S. That will be complete by the end of the calendar year, and we will be offering the ACE product in a banked environment in casinos.”

To market all this new technology, McGill has revamped Aristocrat’s sales structure, dividing North America into four dedicated regions with additional sales reps to focus on existing customers.

New markets in the Americas also will be exploited, McGill says. The company has been steadily increasing its presence in South America, where he says Aristocrat now enjoys a 25-30 percent presence on any given gaming floor. The company also is poised to enter the Mexican market, where Class III games are expected to join the Class II slots already there in the near future. “The beauty of the Mexican market is that we already have developed an extensive library of games in Spanish,” McGill says.

However, the clear focus for Aristocrat for the near future will be on increasing market share in the United States. Khin says that even before the new products are introduced, the current crop of games on Gen7 and Viridian is likely to gain new momentum now that approvals are complete. “I don’t think we as a company have fully taken advantage of the capabilities of Gen7,” he says. “It’s still relatively new in the market, and our MKVI products are still performing extremely well on the floor—that makes it difficult for us to encourage our customers to replace them.”

In addition to continuing the rollout of Gen7, Khin says another reason for optimism for Aristocrat in the U.S. market is an entirely new slot genre for the company, the multi-line stepper. The company has perfected its RFX Stepper series, and is in the process of re-releasing many of its most popular titles in stepper form, as well as a number of new stepper-only titles.

“Up until now, we’ve only been playing in the video space, which is 45 percent of the market,” says Khin. “Our 13 percent or 14 percent overall market share may not seem impressive, but when you’re only working in half the market, that’s pretty good. Now, with our stepper product approved, we will definitely increase sales in North America.”

Even with all the challenges in front of the company—and the difficult economy in which the industry in general finds itself—Khin says he is confident the company’s new direction will take advantage of its strongest attribute, its R&D, and the new technologies that are sure to keep pouring forth from the slot-maker’s engineers in the coming months.
“The RFX Stepper product represents a tremendous opportunity,” says
Khin. “Our system business is very strong. We had a record year last year, picking up seven casinos in Oklahoma. And there is a tremendous opportunity in our pipeline of recurring-revenue products.”

The nature of that product stream will become more clear two months from now, when the next generation of Aristocrat innovations is launched at G2E.

“Our U.S. developers really understand the importance of establishing the strength of that division of the company,” says McGill.

“Stay tuned.”

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.