The term “video lottery” has had a wild ride over the years. In the 1980s, a video lottery terminal was a primitive kind of multi-game video slot, including several games so as to provide variety within the confines of small lottery retailer locations.
These days, a video lottery terminal, more often than not, is “lottery” in name only. Traditional Class III slot machines are called VLTs in some markets as a reference to ownership only. In U.S. states such as West Virginia and Maryland, VLTs are simply Class III slot machines purchased and operated by the state lottery. In other states such as Pennsylvania and in the Canadian provinces, they are simply slot machines monitored by the lottery, via a central computer system.
Other VLT markets employ different methods for the delivery of results. In the states of Washington and New York, results on the slot machine are the result of an electronic “draw” of results, normally likened to an electronic stack of lottery tickets. Called “central determinant,” the result of every spin or hand dealt is the particular game’s reel or screen result that returns the prize—or non-paying result—of the next lottery ticket in the electronic stack.
In Europe, where Italy is leading what could be a new boom in the VLT segment, the terminals in VLT locations are fully server-based slots, with the random number generator residing with the central server—a well-established practice of networked gaming that is only now beginning to emerge in the U.S.
Regardless of the electronics used in achieving game results, though, the top VLT suppliers say content is the key. The successful manufacturers serving growing VLT markets know that you’ve got to play the crowd—what works in Las Vegas may not work in Illinois, or in Italy—and produce game content that appeals to local players.
The Italy Model
Maintaining that local-player appeal has been essential in one of the world’s newest VLT markets, Italy. The Italian model of VLTs joining AWP machines in non-casino locations has been predicted to start a new surge of VLTs in other European nations, the first likely to be Greece.
In the thick of the Italian market is manufacturer Spielo International, which has served Canadian VLT markets for more than two decades. Spielo, the subsidiary of Italian lottery giant Lottomatica, has close to 11,000 terminals already operational in Italy, and has projected a total soon of close to 15,000, or more than a quarter of the entire market.
Walter Bugno, president and CEO of Spielo International, says the key to his company’s success in Italy has been the same as in Spielo’s traditional Canadian home market—know the player. “We take the view that VLT markets all over the world are unique to themselves for the most part,” Bugno says, “because of different history, geography, regulations, political context, cultures… When we enter a new market, we spend a lot of time up-front researching both the market and potential players who may choose to play once VLTs are introduced.
“We hold several focus groups in different parts of the jurisdiction, we run through game concepts—existing games, new games, what the player categorizes as interesting and exciting. To the extent those results are different, we will adapt.”
To prepare for Italy, Spielo sent teams of designers, content managers and producers from its studios in Moncton, New Brunswick, and Graz, Austria to Italy to study market preferences and subsequently translate them into new games. According to Bugno, the teams examined all the popular gaming alternatives, including the burgeoning AWP street markets. He says Spielo successfully entered that market as a side benefit to its research into what works in that market.
Spielo used this research to become the first supplier to serve the new Italian VLT market. “We’re sitting in a very nice position in Italy,” Bugno says. “We were first to market, we built a strong reputation, and our games are performing well above average.”
Spielo has used the same formula for success in Canada and the U.S., as well as Sweden, where it has supplied VLTs for 16 years. It now looks to extend that success to the next European VLT hotspots. “A number of countries have passed VLT legislation,” Bugno says. “Greece, Hungary and others will obviously be looking at VLTs as an attractive way to generate government revenue without impacting taxation. Each market will set itself up in a slightly different way.”
Those differences may address system architecture, he says, such as the case of Greece, which originally was thought to be pondering a replica of the server-based Italian market but has since announced that it will allow either centrally determined wins, or results determined by an RNG in each machine.
The company is gearing up for new growth in its traditional markets as well, with the Canadian replacement cycle now nearly complete, and new U.S. markets such as Illinois coming on line in addition to the European growth. The differences in these markets, says Bugno, will guide the games that Spielo places.
“Everywhere, our approach is to look at the players and see what works for them,” Bugno says. “What works for one market does not necessarily work for the other, so we adapt our games not only to regulatory requirements but also to player preferences.”
Action in Illinois
The Illinois market, where Spielo joins other slot-makers in launching games in what will be a very competitive market, offers another great example of the custom-tailored approach to VLTs. Last year, the Illinois Supreme Court upheld the 2009 Video Gaming Act, defeating a constitutional challenge and freeing bar owners to purchase up to five VLTs each in what will be the newest VLT boom in the U.S.
Estimates of the potential size of the market, while lower than some early estimates of 65,000 potential machine purchases, have leveled out to 25,000 to 30,000 machines, according to Bob Miodunski, CEO of slot manufacturer American Gaming Systems. AGS was a successful supplier in Class II markets, already with more than 7,000 machines in the field, when the company caught the eye of Miodunski, the former Alliance/Bally CEO.
Miodunski took over as CEO of the company in 2010 with an eye to expanding into Class III markets, the most appealing being Illinois VLTs.
With the help of former Bally colleagues such as Paul Lofgren, who is vice president of business development for AGS, and game design ace Olaf Vancura, VP of game development, AGS targeted the wider gaming market, while concentrating on the more immediate opportunity in Illinois.
The Illinois VLT market was created essentially to replace grey-area gaming machines that had been in the state’s taverns for decades. AGS is courting that particular bar customer by duplicating a few grey-area games using modern technology. Dominant among the traditional machines has been the Cherry Master brand. “The Cherry Master series was probably developed back in the 1970s—simple line games, three-by-three (reel setups), Pac Man-esque style, very crude video games,” explains Miodunski. “But it was the dominant game, with thousands and thousands operating in the grey-area market.”
AGS acquired the rights to the Cherry Master name, and used it to develop “a game to create a bridge for those (grey-area) players with something they recognized,” Miodunski says. The company is sprinkling Cherry Master games among the 24 offerings in a multi-game unit designed specifically for the Illinois VLT market.
As that unit goes through the licensing process, AGS is adding a feature to Illinois that draws directly on the traditional casino experience—the loyalty club. Miodunski says the Illinois Bonus Club offers lottery retailers the chance to create reward programs that increase their revenues. The system works along the lines of a similar program Miodunski’s former company, Alliance Gaming, used in the 1990s in its Nevada slot routes.
The loyalty program enables cash awards drawn from the revenue cuts of the terminal operator—the supplier that provides and services the machines—and the tavern owner. The state lottery’s portion of revenues would be untouched. Players’ points would be redeemed for tickets that could be inserted into the VLTs as free play.
According to Miodunski, in addition to offering rewards, the system will aid in operating and marketing the games. Operators with several thousand machines will be able to link into the route management system to gauge the performance of individual games, to determine which machines are the most popular with players.
Another AGS product aimed at improving Illinois VLT operations is the “Smart Cycler,” which addresses the state’s ban on ticket-in/ticket-out payment. Retailers in Illinois are required to have enough cash on hand to pay all machine cash-outs; this system allows the cash to be recycled, by giving an option for the games to print tickets which can be re-inserted into VLTs for cash, which can be re-inserted into the games—essentially, an on-board ATM that Miodunski says cuts the amount of cash tavern owners need to have on hand (currently $10,000 to $15,000, just to cash out tickets) by half.
Central Determinant Success
The other style of VLT that is healthy and growing is the central-determinant model, employed in the states of New York and Washington in the U.S. In New York, the new Genting casino at Aqueduct raceway provides a huge boost to the market, and player appeal of the games will be crucial in the crowded Northeast gaming region. In Washington, Indian tribes operate more than two dozen popular casinos.
While central determinant markets are similar to Europe in that decisions come from a central server, the restrictions of the laws make competitive, high-earning games more challenging to produce, according to Mick Roemer, senior vice president of sales for Multimedia Games, which supplies the central computer system for New York and games for Washington.
Roemer likens the challenge to that in Class II gaming, where Multimedia has long been one of the top suppliers. “It’s similar to Class II in that it goes through a central server for the outcome,” he says, “and any time you have that, there are mathematical challenges to making the games interesting.”
As with Class II, though, Multimedia has placed a product in the central determinant markets that is competitive with traditional Class III games in nearby casinos. “We’ve done an excellent job with Meltdown and other high-denomination games in those markets,” Roemer says. “The games really do play well—manufacturers have done a good job with the math, and making the game appealing, with a lot of the feature functions and game mechanics popular in traditional casinos.”
Ultimate success in central determinant video lottery markets, though, requires the same basic principle that has led companies to success in emerging VLT jurisdictions in Europe, and in Illinois and other new markets in the U.S.:
Games are designed with the player in mind.