Every discussion of the crowded slot sector these days tends to speculate which of the many small companies swelling the ranks of manufacturers stand the best chance to break free from the pack.
For the past few years, those discussions have invariably pointed to American Gaming Systems, a private company that until December was owned by San Francisco middle-market equity firm Alpine Investors. The reason AGS has raised eyebrows in the sector has revolved around one executive—Bob Miodunski.
In 2010, Alpine hired Miodunski, the former chief executive of Alliance Gaming (now Bally Technologies), to take AGS to the next level. Alpine chief Graham Weaver lured Miodunski out of retirement to execute a vision he had of AGS expanding beyond its status as a Class II supplier with a core base of installed games in Oklahoma.
Three and a half years later, Miodunski is heading back into retirement after handing off a very different company to new CEO David Lopez, the former Global Cash Access CEO and longtime Shuffle Master executive.
In the interim, the former Bally chief has transformed AGS from what was a respectable Class II supplier to a company many see as a slot-maker poised to capture serious market share in commercial Class III jurisdictions. Lopez inherits a company with a solid game platform, a new Las Vegas headquarters, and an executive staff replete with seasoned gaming veterans, well on its way to capturing new markets as it continues to secure new licenses across the U.S.
“The strengths of AGS are a good product pipeline, a solid platform for slot development, and a lot of white space in front of us for regulatory approvals,” says Lopez, who spoke with GGB only days after taking over as president and CEO last month.
“We’re on the upswing of the licensing curve now, so that’s a huge positive. But most of all, it always comes down to people. With the right team here, we’ve got a great foundation for growth.”
Team-Builder
The strength of the AGS team is one of the primary achievements of Miodunski, who started loading the company with gaming veterans—some who were old Bally colleagues—from practically his first day as CEO in 2010.
The company presented to Miodunski that year posed a challenge not unlike that he faced at Bally, struggling early in his tenure but turned around through timely acquisitions such as Sierra Design Group, which provided the slot platform that was to become Alpha—a new basis for products that would reverse that company’s fortunes. In 2008, AGS had acquired Toronto-based Gametronics, which also happened to have a strong gaming platform Miodunski thought could be the basis for expansion not only into Class III, but into another new market that had cropped up in 2009—Illinois VLTs, with thousands of potential sales.
To allow AGS to take advantage of these opportunities, Miodunski began building what is one of the enviable management teams of the slot sector. “We basically had to put together a management team and an organizational structure that worked in a regulated world,” he recalls. “We didn’t really have a management team—it was me, Vic Gallo (now general counsel) in compliance, and (former Oklahoma GM) Norm LeDoux running operations. That was the management team.”
To ramp up the move into commercial gaming jurisdictions, Miodunski brought in Paul Lofgren, who was his executive VP of new business development at Bally, to serve the same role at AGS. To develop the new slot platform into successful games, he brought in one of the most respected game designers in the business, Dr. Olaf Vancura.
Over the ensuing three years, Miodunski continued to load the AGS management team with seasoned veterans, from former Station Casinos and SkyWire vice president Curt Mayer as CFO to Ken Bossingham, the longtime Atronic and Spielo executive hired in January 2013 as chief operating officer.
Miodunski still marvels at the team he was able to assemble at AGS. “For a management team of a company that size, finding individuals with more than 125 years of combined gaming experience was pretty amazing,” he says.
Coinciding with building the team was building the product to move beyond the Class II world that was the AGS comfort zone. Vancura, who is vice president of game development, had been the head game designer for the former Mikohn Gaming, where he was responsible for some of the most memorable slot games in history—“Ripley’s Believe It Or Not!,” the original “Battleship!,” “Clue” and others.
His first task at AGS was to transform the former Gametronics slot platform into an operating system flexible enough to handle everything from Illinois VLTs to premium casino slot games. “Olaf Vancura headed the team in Toronto, did some restructuring, and created a gaming platform that’s second to none in terms of capability for both Class II and Class III,” Miodunski says.
The perfected platform would be dubbed Roadrunner, and Vancura wasted no time using it to develop games for all of the company’s emerging markets. For Illinois, the company bought rights to the Cherry Master brand, which had been prevalent in “grey area” amusement games in Illinois bars in the past, and used Roadrunner to create new versions of the familiar games. To date, AGS has sold around 1,000 games in that market, and the number is still rising.
For the move to Class III casinos, Vancura called upon some of the philosophies he had employed at Mikohn, not least of which was injecting an element of general knowledge into the bonuses in slot games.
Additionally, Vancura created a credo he called “Honor the Player” in offering player-friendly features such as equally weighted bonus wheels and multiple bonus features, first appearing in the hit game “Blackbeard’s Treasure,” the first premium release from the newly rebranded Roadrunner series.
Knowledge-based bonuses would come next, in a series now called “It Pays to Know,” kicking off with a new version of “Ripley’s Believe It or Not!” and to continue soon with “Family Feud” and “Are You Smarter Than A Fifth Grader?” All of the games include knowledge-based, multiple-choice trivia-quiz bonus events that pay the most if players get the right answer the first time.
Vancura also used Roadrunner to maintain the company’s core Class II business. “Olaf and his team developed some patents around the Roadrunner platform, and patents around its ability to develop games in Class III and port them to Class II,” says Miodunski. “He then actually started to put together some commercial activity in terms of getting that platform approved in all the commercial jurisdictions.”
The approval process for AGS is ongoing, but the effort—begun by Lofgren and continuing under Bossingham—is definitely in the home stretch as far as U.S. markets are concerned. With Roadrunner already approved in GLI jurisdictions, the company recently secured Nevada licensing, and at press time was in field trials in Mississippi and preparing to enter the market in New Jersey. Regulatory approvals have passed the halfway point in the 37 North American gaming jurisdictions.
“Once we get all those commercial jurisdictions lined up, we can focus on our product development pipeline, and put them out in all the jurisdictions where we’re approved,” Miodunski says. “We have a continuing focus on Class II. We have a commitment to Native Americans that goes back to the early 2000s; that’s very important to our business. Virtually every product we develop, except for pokers, we develop both in Class II and Class III—including even our premium products like Ripley’s. We’ll be releasing our Ripley’s Class II version in a few months, followed by Family Feud and Fifth Grader.”
Launching Pad
Despite all Miodunski has done to position AGS for future growth, he says he never anticipated being the company’s long-term chief executive. “I had never even thought about how long this venture would last, but certainly, three and a half years was probably longer than I envisioned it,” he says. “Time has just flown by; what we’ve done in three and a half years is just incredible.”
Last spring, Miodunski says, he advised the executives at Alpine Investors that he intended to retire soon. As it happens, he was already putting things in motion that would carry the company into the future, beginning with the hiring of Bossingham as COO a year ago.
“Ken was a great addition,” Miodunski says. “His experience in sales and market management, as well as operations and game development, really added a depth to our team we didn’t have. He took up a lot of the responsibility I had on a day-to-day basis, and allowed me to focus on more strategic matters.”
One of those matters was the sale of AGS, which had been the largest entity in a relatively small fund with Alpine. “The moon and stars were aligned, and it was the right time to put the company up for sale,” says Miodunski.
That effort ended in December with the acquisition of AGS by affiliates of Apollo Global Management, LLC, the massive private equity firm that also owns Caesars Entertainment. Several weeks after that deal was closed came the announcement that Miodunski would in fact retire (again), as the company named Lopez the new chief executive.
“I’m delighted to have a guy like David Lopez come on board,” says Miodunski. “I was blessed when I retired from Bally to have a guy like (current chairman) Dick Haddrill come in and take the reins, and I feel the same way with David Lopez coming to AGS.
“He brings a lot to the party, particularly his product management background at Shuffle Master. I think he’s going to bring a lot to the table in addition to just his skill as CEO.”
Lopez was in product management for most of his 14 years at the former Shuffle Master, serving as VP of product management, executive vice president, chief operating officer and interim CEO before being named CEO of Global Cash Access, the leading supplier of ATMs to the gaming industry.
“Bob’s got the company poised for growth,” says Lopez, “and that’s what I found attractive about AGS.” He says the fact of Apollo’s acquisition broadens the paths that growth may take, from organic growth to partnerships and mergers with third-party suppliers, tuck-in acquisitions and other possibilities.
“Apollo is in it to win it,” Lopez says. “They’re in the supply space because they’ve seen opportunity with AGS, and there’s potential opportunity to grow AGS not just organically but through other means. (The Apollo acquisition) puts us, AGS, in a position to expand our product offering through a number of different channels, and I think that’s a huge advantage for the company at this point.”
“Those M&A opportunities are wide open,” adds Bossingham. “If the business case is there and supports us adding companies into our portfolio, we’re now in position to do that.”
“I couldn’t be happier with the progress we’ve made here at AGS,” says Miodunski, who remains with AGS as Lopez goes through jurisdictional regulatory approvals, “and now, having Apollo as a sponsor really paves the runway for us to do some exciting things.”
Product Pipeline
While the future of AGS is that much brighter with the backing of its new parent company, first things first: one of the immediate challenges is to broaden the markets for AGS products—that “white space” Lopez mentioned. Bossingham says the next 18 months will be focused on completing AGS licensing in all U.S. jurisdictions, to be followed closely by Canadian markets.
“The challenge in this space is the ability of a new manufacturer to open up new markets,” says Bossingham. “We expect by the end of the year we’ll be able to sell into half of the North American addressable market. We expect to achieve all the final licensing required for Nevada, Mississippi and New Jersey, then we’ve got other jurisdictions that are going to follow. As the business moves forward, we’re going to continue to open up additional opportunities.”
Simultaneously, product development efforts will concentrate on feeding a continuous stream of games into that ever-growing pipeline. “I’m a product guy; I’m going to focus on product,” says Lopez. “There’s a place for technology and innovation, and I know that’s what the world is focused on. Obviously, we’re going to use technology and innovation, but our No. 1 focus will be on games, on product, on content, and on delivering a unique gambling experience to the casino patrons.”
He says one key to keeping those games coming is to augment Vancura’s team with outside providers. “The key is to just broaden the pipeline,” Lopez says. “We’ve got a good team here, we’ve got a good game studio, and we’ve got some excellent partnerships with third parties. I think the key is to deliver the goods that they’ve created to the industry, so we keep our relationships with our existing third-party providers, and as needed, we’ll expand those relationships with third-party content houses and establish relationships with new ones.”
“It’s exciting how much we’re thinking about and talking about product at AGS,” says Andrew Burke, the company’s senior director of product management. “That’s where Bob got us to. We had a lot of heavy lifting, but now, we actually have products, and we have good products—a lot of really good product internally and really good products from our third-party providers, and we’re delivering really good value to our customers.”
“We’re very young in our product development cycle,” says Bossingham, “so for us, getting out a new box with a full line of content has been very exciting. We have our internal game design, but we’ve also gone outside with third-party development houses. We’ve engaged four third-party development groups to help us really supplement the product line we’re able to offer—the product roadmap on Roadrunner.
“We expect that creates a good competitive set between game development studios, and may the best studio win. That’s going to allow all of those studios to learn from each other and also ensure we put out the best possible content for our players.”
Gambler’s Games
Lopez says the coming months will be dedicated to broadening that AGS product pipeline. “I think I’ve got diverse experience, which will come in handy as we look to grow the company, if we choose to go global, if we choose to expand the product line,” he says. “I grew up as a product manager at Shuffle Master, so I’m a product guy. And from my perspective, I look at AGS and I really see an opportunity for us to capitalize on a niche within the slot business.”
That niche: serving the gambler.
Lopez says games designed specifically for gamblers constitute an area of opportunity for smaller companies like AGS. “I really think we have an opportunity to deliver what I call ‘gambler’s games’ to the industry,” he says, “because I think there’s a good, heavy dose right now in entertainment games. I’m not saying we won’t be involved in entertainment games. We’re going to use licensed titles; we’re going to have a nice selection of games. But I believe where we can carve a space out for ourselves is games for gamblers.
“My roots are with a company where we focused on games for gamblers. When I was in that system, that’s how that company won. We put a lot of W‘s on the board by focusing on games made for gamblers. And I think that space is open today. I’m not saying nobody’s occupying it; there are a couple of folks out there doing a good job. But I believe there’s a space for AGS to carve ourselves out a nice little position on the floor to provide those types of games.”
He adds that this philosophy can fit into any game, even those with entertainment brands. “It does come down to a style of game play instead of the actual licensed brand or even your own brand,” he says. “The style of the game is what we want to focus on, rather than the title.”
Meanwhile, as Bossingham’s team continues to oversee the jurisdictional expansion of AGS, initial feedback from the field on Vancura’s first entries in the premium category has been universally positive. Ripley’s Believe It Or Not!, in particular, has hit the ground running.
“It’s still early in the rollout cycle, but it seems Ripley’s is off to a fantastic start,” says Burke. “We have about 40 units installed in five or six markets now, and the numbers are the strongest we’ve seen from our internal Roadrunner product. You’re seeing numbers that are two times, three times house average, and we feel that’s going to have a lot of momentum over the next few months.”
As more products roll out, and as AGS achieves licensing in more jurisdictions, Lopez says feedback from the field will be poured back into game development to improve the overall product. “No. 1, the players vote with their money,” he says. “They vote with their entertainment dollars. And No. 2, our customers vote with their op-ex or their cap-ex, if you will; they’ll install more of our product.”
Bossingham adds that feedback, and result-based research, is vital going forward. “Any organization that builds really strong product has very good analytics in place so they can understand why things work or don’t work,” he says, “and learn from those experiences to guide the future of product development efforts.”
The effort to garner feedback from operators includes on-site interaction with customers. “Ken has mandated that those of us at the director level who work with him go out and observe installs,” says Burke. “We’re on site with the customers at 5 or 6 o’clock in the morning, and we’re with them all day, as they watch us install product.
“It’s been a very eye-opening experience for all of us who have done it—a great bonding experience with our customers, too, as we watch something we previously had been not hands-on with. You hear about installs, and see them over the email chain, but Ken has had us out in the field with the customers watching and observing, and seeing if there’s opportunity to improve. That’s been a great experience for us internally.”
Developing the Brand
As all of these factors come together to develop the AGS style and proprietary brand of slot machine, the team’s principles of game design are being applied to all products in the company’s growing market base—including that Class II market with which the company began.
“Oklahoma is our core gaming market,” says Bossingham. “We’ve got a large gaming operational base there, and we continue to work really hard at optimizing the performance and yield of that install base. Our second key business is in Illinois, where we were one of the first entrants into that route market. We have done very well there, and can expect that market to continue to grow for us.”
The company’s third market is potentially the largest, and it is developing quickly. “The single largest growth opportunity is our national markets, and that’s where we continue to get licenses,” Bossingham says.
“We’re focusing on those markets with our premium products—Ripley’s, Blackbeard’s Treasure, Fifth Grader—and we feel with the national accounts, this is our first opportunity to really build our résumé. We want to make sure we maximize and optimize the first customer experience that each one of our national customers has with us. That’s why we’re pushing our premium product forward first. We feel that gives us the best opportunity to perform well.
“We want people to look at AGS and know the experience is going to be a positive one when we touch that customer.”
“We have so much opportunity in front of us with the domestic gaming space,” adds Burke. “When you think about the potential that markets like Nevada, Mississippi and Louisiana have for us to grow this business, as a team, we’re all heads-down focused on how we win in these new jurisdictions.”
“We’ve really put forward a very formidable plan as far as what we’re tackling,” says Bossingham, “and what we’re doing is methodically trying to pull each one of these markets across the finish line.
“Right now, we’re just trying to hit a single. As we tackle each one of these markets and get an approval in Nevada, these are very large events for our company—here’s a little Class II company that grew up in Oklahoma, and now we’re in the major leagues.”
For AGS, the time in the majors is just beginning. “This is certainly a company poised for growth,” says Miodunski. “Having the Apollo financial strength behind us really gives us opportunities we haven’t had in the past, and that is really exciting. The team will continue to get stronger and better, the products will continue to get better, and I think this is a company that is going continue to grow, is going to be solid on the Class II side and on the Class III side, and is going to be a real niche player in the near future.”
“We don’t have to be perceived as we stand today in the same lights as maybe you would look at the big four,” says Bossingham, “but I would like to think that in 10 years we’re considered to be a key innovator. We’re definitely as good as anybody in the space when it comes to developing product players like to play.
“I would like to think that we have singled our company out so that we are not exactly like some of the larger companies—that the customer base looks at our company as a fun, exciting company that really focuses on providing a world-class business experience.”
Adds Lopez, “With the ownership of the company, with the experience we have on the team, and with the ability to expand the team’s experience in the space, I really think it’s up to us as far as performance goes. But if we’re willing to grow both organically and otherwise, the sky’s the limit.”
