It was a surprise, last August, when Scientific Games announced that former Norwegian Cruise Line CEO and President Kevin Sheehan would take the same positions at one of the world’s leading gaming and lottery technology suppliers. Previous President and CEO Gavin Isaacs would be moved up to vice chairman of the company.
Scientific Games Chairman Ronald O. Perelman explained the logic.
“With the company fully integrated, it is the right time to expand our leadership team so we can take full advantage of the new and growing opportunities open to a company with our global scale and broad expertise,” he said. “Kevin’s intellect and experience will be an invaluable asset as we move forward as one company.”
Sheehan’s expertise has been well-documented. Prior to joining Norwegian Cruise Line, the company had an unenviable reputation as a low-end cruise line. New York native Sheehan engineered a move to the luxury level, helped by a $3 billion acquisition of two other luxury cruise lines. He then spent time and effort merging the cultures of the disparate parts to create a truly profitable and distinguished operation as one solid company. He did similar things at Avis Rent A Car and Cendent, a conglomerate of real estate and travel organizations and other enterprises.
His challenge at Scientific Games isn’t much different. With the company still putting together the merger of lottery giant Scientific Games with slot manufacturers WMS Gaming and Bally Technologies (not to mention SHFL entertainment, which Bally Technologies acquired in 2013), the promise of a streamlined, efficient and profitable single company is coming together.
Although Sheehan was familiar with gaming operations through Norwegian Cruise Line’s Casinos At Sea program, Sheehan says his relatively limited experience in gaming gives him a fresh perspective on the business and the industry.
“When I went into Norwegian, I had never been on a cruise ship. My joke was the only cruise I ever took was on the Staten Island Ferry after my high school prom. The same thing with Avis; I’d never rented cars other than when I was on vacation.
“So, here’s another one; a new industry to me. But what happens when you come into a new industry is you’re looking at it from a completely different perspective. Everybody here has either been here, or at IGT, or Konami, or Aristocrat, so they move around within the industry. So, I believe the opportunity I have here is to step back and say, ‘OK, I get it. But why don’t we look at it and try it this way; is there another way to achieve the same result in a smarter way?’”
Sheehan says the expected benefits and synergies from the mergers are still being realized.
“We’ve done some work, but we have more work to do,” he says. “It is a journey. To be realistic, it will take us two or three years to continue to position the company for long-term success.”
He says there was still some disconnect between the various divisions when he came on board.
“When you look at the overall organization, we still have a bit of a silo mentality. Each of our teams should be working together towards the best outcome for Scientific Games. We work for our shareholders—I want us always keeping that top of mind,” Sheehan says.
The collection of brands and talent under one umbrella is what excited Sheehan.
“We have some of the best brands in the industry, both licensed and internally developed, that we can implement across our gaming, lottery and interactive channels, coupled with more than 3,000 people focused on innovation and driving where we’re going to be as a company,” he says. “When you have that power, you make sure we’re using it across all of our platforms. We’ve got great products in the portfolio, and we want to make sure we’re optimizing those innovations across the different businesses. The sum of the parts exceeds the individual pieces. We want to encourage our people to want to work together and to create that incremental value.”
Sheehan says he values employees above all, and tells a story about how early on in his time at Norwegian he visited the crew’s quarters on one of the ships.
“I couldn’t believe how they lived,” he says. “There were four bunks to one tiny room. They had no privacy. I saw one woman had draped a towel down from the upper berth just to get a little privacy. So from then on, every ship built while I was at Norwegian had private cabins for each employee, and then we incrementally implemented lifestyle improvements for them while living on the ship.”
Diamond in the Rough
One of the first things that changed after Sheehan’s arrival at Scientific Games was to separate the social gaming interactive division into an unrestricted subsidiary. Just last quarter, the company’s social gaming business had an 81 percent increase in revenue, higher than any other part of the company.
“When you look at a massive business like we have, and you have this little jewel inside of it, it gets kind of buried inside the big business,” he says. “So we thought that by taking it and pulling it outside, people would be able to better see our growth rates and the incredible potential of that business.
“Our interactive division is still part of the consolidated business, so all the value that’s being accreted resides inside the entire entity. However, we want our investors and the marketplace in general to better see our continuing momentum.”
Synergy was one of the main reasons for the merger of the various companies under the Scientific Games brand. Sheehan says that can be accomplished by taking the best of all of them.
“Maybe the biggest realization I’ve had, early on, has been the similarities, differences and synergies in both the gaming and the lottery divisions,” he says.
“First, they’re both very regulated and competitive businesses. Also, both rely on innovation and exciting game content to help our customers and our company grow the bottom lines. And having them married within our organization, if you think about it, makes a lot of sense.
“Yes, there are differences, but those differences provide more consistent revenue. With lottery, government organizations sign long-term contracts, so there is a lot more consistency from a recurring-revenue standpoint. And to me, the opportunity is there. Most government-controlled jurisdictions are seeking more tax money to help fund important social programs. We need to make sure we are reaching the right people within lottery organizations and governments to demonstrate our ideas and technologies that can help them drive incremental revenue and deliver new ways to engage lottery players—to benefit the states, retailers, beneficiaries and players. And as we know, gaming contracts tend to have shorter life spans, making it critical to drive technology innovation and develop engaging games players love.
“When you take that as the premise and the base, we do have tie-ins between all of our businesses. There are plenty of things that we can do together: leverage our technology and content across all platforms, streamline management oversight and share ideas and technology, along with taking advantage of the different processes that we have.”
Customers Come First
As a B2B business, Scientific Games differs quite markedly from Norwegian or Avis in that there is a relatively small customer base around the globe. Sheehan says he has spent his first several months as Scientific Games’ CEO meeting and talking to customers.
“I was out and about throughout G2E, meeting with everybody,” he says. “And then I flew to the NASPL lottery show in Atlanta, and I had dinner with all of the lottery directors in a very informal setting, so I got a chance to really spend quality time with our customers. Then I flew to Singapore for the World Lottery Summit and another great chance to meet with our customers.”
Sheehan says Isaacs has been instrumental in helping him succeed in a new industry.
“Gavin is a great guy, and has been very helpful introducing me to many of our best customers and partners. So I think the comfortable and respectful relationship between Gavin and I has alleviated any of the concerns that people might have had about the transition.”
Without giving too much away, Sheehan says he is confident in the direction the company is going.
“On the interactive social gaming side, we’ve got a number of games that are highly successful and are fueling today’s growth rate,” he says. “And then we’ve got more engaging games coming out in the next couple of quarters, so that will propel further growth, with a steady pipeline of new games—many of which have already been very successful in land-based casinos and some of which were developed specifically for the online gaming environment. So, we’ve got a whole inventory of games that will keep driving our interactive momentum, and we have a great marketing strategy on how we attract new players. I think that our business is going to continue to have a very powerful growth rate.
“The other two businesses (gaming and lottery) are very innovation-driven. Our portfolio in gaming is the industry’s broadest. Casino operators can literally come to Scientific Games for everything they need, including cabinets, game content, table games, chip sorters and shufflers, electronic table systems, casino-management systems, and even mobile solutions with systems integration.
“We are known for our cabinet innovation, and it is exciting to see the rollout of our new TwinStar J43 curved, portrait-style slot cabinet, as well as our new PRIZM GameTable, which is a new form factor that encourages social and community play.
“The success of our Lottery Division lies in our ability to help lotteries manage their growth challenges in the face of government gaming regulations, procurement processes and limited R&D budgets. That’s where we come in, with instant games and other innovative solutions that can truly drive growth for our lottery partners. We have a program called Cooperative Services that works with our lottery partners and focuses on things like instant-game retail marketing and promotional services—a win for us, for lotteries, and for social programs.
“I think we have a fantastic opportunity at Scientific Games. We have been successful, and we’re going to be even more successful thanks to our great momentum, our innovation, and the best employees in the business.”