Casino Enterprise Management

 Back in the office, and wearing socks and shoes again, many in the industry want to know what could have possibly lured industry veteran Bob Miodunski out of his sandal-wearing retirement in Cabo. The answer: American Gaming Systems, or AGS. Industry leaders in some markets, and definitely those in Oklahoma, know all about AGS. But for others, Miodunski says, AGS is still working to spread the word, “We’re still kind of putting the name above the door, if you will.”

AGS is a developer, manufacturer and operator of slot machines and systems. The company creates games in Class II and Class III, though its history is in Class II games. Currently, it is working to create more Class III stand-alone products—just one of the many things that sets AGS apart.

“Most companies, the big guys, have dedicated Class III games and are trying to figure out how to go to server-based. We’re kind of the opposite. We have server-based and we’re trying to back fill and create a stand-alone Class III platform just because that’s what some of the markets require. It’s not hard to do; it just takes a little bit of time. It’s actually easier to go server-based backwards than going non-server-based to server-based,” Miodunski explains.

AGS is not working with an end goal of being the next major slot and systems manufacturer. It may sound strange, but Miodunski says, “That space is already well served and well crowded. We have to find niche products that serve particular markets, both in Class II and Class III, and then secondarily to feed our installed base, which we have in Oklahoma, and other route markets to improve our net win there.”

But that doesn’t mean AGS doesn’t want to be one of the big guys. As Todd Cravens, president, Illinois office puts it, “We’re making a big bet in Illinois because we think that No. 1, there’s a really good opportunity to put product out on the street. But I think we are also looking to learn as much as we can and build a template, because we think that this is the first of several states where VLTs are going to roll out.”

Graham Weaver, owner of AGS through his company Alpine Investors, says AGS is actually a much larger company than some people think. AGS has nearly 8,000 machines on gaming floors in its revenue-share model. The company is headquartered in Las Vegas, has a game development studio in Toronto and has its largest office, assembly and testing areas in Oklahoma. There is also a team in Illinois and service representatives throughout the United States. In all, AGS employs roughly 160 people.

AGS Leadership

The leadership of AGS is one of the most visible changes the company has seen in the last year. At the top of it all is Weaver. He’s the founder of Alpine Investors, a San Francisco-based private equity firm with a half a billion dollars under management. He’s been guiding AGS since he initially purchased a portion of it in 2005. His first job was to build a great team and now he continues to lead the direction AGS is running so successfully. Weaver says, “I think that Alpine is different than most equity firms in that we’re really trying to build great companies. A lot of people in our industry are, I guess, sort of bankers. And we pride ourselves on being guys who actually are trying to build businesses.”

Weaver decided to get into the gaming industry after seeing the state of California lean heavily on gaming revenues in 2002. He thought, “How can we participate in this?” So Alpine Investors did its homework, visiting dozens of Native American casinos and interviewing players, casino managers, slot managers and tribal members. “What we found is that there were two vendors that really dominated that market, the Class II market. It took us a while to get the deal done but I bought into AGS in September 2005.”

Mid-2010 is when Weaver brought Miodunski on board. Weaver says, “Bob’s just a legend. After working with him closely, I can say he’s even better than advertised, which is saying something.”

Miodunski says he’s still in the process of getting the management team together, but he calls the leadership currently on board “a blessing with experience and energy.” At this point, Miodunski has brought on Dr. Olaf Vancura, Dave Johnson and Paul Lofgren, among others.

Vancura, vice president of game development, is responsible for the company’s overall product strategy plan. Vancura has been in the gaming industry since 1994, having previously worked at Mikohn Gaming and Progressive Gaming International. He was most recently principal of Game Ingenuity. You already know his games, as he was the chief architect of the Yahtzee and Battleship lines of slots and has 65 U.S. patents related to gaming. On top of it all, he’s a poker player himself.

Dave Johnson recently joined the AGS team as CFO, a position he has held at various gaming, telecommunications, software and marketing companies since 1996, including a stint at Sodak Gaming, the leading supplier to tribes before it was absorbed by International Game Technology.

Paul Lofgren is vice president of business development, and responsible for streamlining AGS’ entrance into new markets, optimizing sales, improving game development processes and developing strategic alliances. Lofgren has almost 25 years of industry experience in various aspects of the business. Most recently he founded Redhorse Advisory Group. Prior to that, he was executive vice president of Bally Technologies, and Bally Gaming before that. He also has a regulatory background at the Nevada Gaming Control Board.

When it comes to the new team, Lofgren says it has a great cross-pollination of skill sets. “That’s what we are seeking—to salt and pepper the team with experts from inside and outside the industry.”

 Weaver also got Todd Cravens up and running with the AGS office in Illinois. He is known in the coin-operated amusement world, having worked at Betson Enterprises. Cravens grew up in the industry. His father was in it and he and his brother, AGS marketing team member Ryan Cravens, owned and operated arcades as teenagers. Todd Cravens got a taste of the casino gaming industry when Betson acted as a distributor for WMS as the Pennsylvania market opened. He was hooked and jumped at the chance to join AGS. Todd Cravens says he is “over the moon” about where AGS is at as a company right now.

Weaver agrees, “In the last year we’ve put together one of the best management teams in the industry, top to bottom…these guys are all just first class kinds of guys. We’ve got as good of a team as anyone does in the industry.”

Now that “the band is back together again,” as Miodunski puts it, Weaver says his job is to make sure they have the capital needed to execute their growth plans. “We’ve helped AGS raise money for expansion, primarily in Illinois. That allows the team to be really aggressive in expanding in that market.”

Illinois

The Illinois VLT market was literally changing as AGS leaders were being interviewed for this story. Even before the legislation that legalized VLTs was ruled unconstitutional by an Illinois court, Todd Cravens said, “I keep threatening to write a white paper on this when it’s all said and done. But I think no one will believe it; they’ll just think it’s a work of fiction.” The ruling cited a portion of the Illinois constitution that says lawmakers cannot pass a bill that bundles unrelated issues together. The VLT language was part of a larger public works funding bill. He’d have even more to write now as the saga unfolds.

Just days after that ruling came down, Miodunski said he’s 99 percent positive the VLT market will open in Illinois in one way or another. But he wasn’t quite wearing rose-colored glasses, saying, “We’re very, very disappointed in what happened in Illinois the other day, with that delay. We expected a rollout sometime in early fall and now that’s questionable. Maybe it will happen this calendar year, maybe not; nobody really knows right now.”

At the time of publication, the Supreme Court of Illinois had granted a stay on the ruling, pending an appeal to the Supreme Court expected from Gov. Pat Quinn. Meanwhile, lawmakers in Illinois are considering passing the Video Gaming Act for a second time, this time on its own.

AGS has positioned itself as a source of expert news on the drama as it unfolds, utilizing various online communication channels to keep interested parties informed. This unfortunate opportunity is allowing the company to follow through on one of its goals in Illinois, to position itself as an expert in licensing and financing in the emerging operator-run gaming market. Todd Cravens says there are 15,000 licensable locations right now in Illinois.

Todd Cravens, Miodunski and the AGS team have the background to help those interested in getting in on the game in Illinois. Todd Cravens says, “It’s great that Mio ran Bally, but for me, really selfishly, what’s awesome is the fact that this is the guy that ran United Coin, and essentially what we’re doing here is helping guys set up these street routes. With what he did then, and with his knowledge, it’s really, really helpful.”

Todd Cravens says he thinks AGS will be installing a majority of the machines with or on behalf of the operators in Illinois. AGS currently operates the nearly 8,000 games it has on floors via participation programs, so Todd Cravens is looking forward to sharing what the company has learned. “Our package an all-inclusive long-term partnership with someone. And that’s important, because we think we know exactly which games are going to work. But inevitably, it’s going to take some tweaking. We want to make sure we’re kind of holding hands together to make the adjustments and get games earning for our customers.”

AGS is marketing its Gambler’s Choice Multigame in Illinois, which gives operators greater control over VLTs by allowing them to swap out titles on the fly. The company will be introducing even more for the market, including a product under its Illinois Bonus Club, a player loyalty program called 99 Bottles of Beer on the Wall, in which players randomly collect beer bottles through game play. Miodunski describes the feature: “You accumulate 99 bottles and you have to fill out a bingo card, and ultimately there are various prizes associated with it depending on your ability to hit all the positions on the bingo card.”

In general, Illinois Bonus Club will be a way for operators to link their venues together to offer players the recognition and rewards they receive when using player cards and major casino resorts. Todd Cravens says it’s a way for AGS to develop a game within a game. The system will not require a card; instead people will log in with an email address and PIN.

A route management system will also be in place to help operators who want to incentivize play at a certain location on an otherwise slow night. Todd Cravens sums up the offering, saying, “You have to put in a package that’s going to bring customers back into the location. It’s not just the game—it’s the reward system, and we’re huge believers in that. There’s no one else that’s really talked about this at this point, let alone announced it.”

 Regardless of the challenges the Illinois market hurls at AGS, Todd Cravens says the message will stay the same. “We’ve told people all along that we’re an operator as well as a manufacturer, and with operating experience, I think we bring more to the table than just a box with games. We’re pretty flexible, and we’re here for the long haul to make this thing happen.”

Todd Cravens is looking forward to getting comfortable in the local Illinois market, whenever it opens. “It’s kind of fun right now. It feels like a start up, even thought the company’s been around for a while. I think we might surprise a few people in Illinois with regards to the results that we have here. My goal is to surprise a few people with AGS’ results in Illinois.”

New Products

AGS is also working on new products to launch outside of the Illinois market. Weaver says, “We have some unbelievably exciting, game-changing products that are coming out, things that no one has ever done before.”

One brand-new product that Lofgren is excited about is called Boogie Ball. Officially launched in February, this video-reel game with a pachinko-based feature offers a carnival feel and tall top-box. It’s doing well in California and Oklahoma, Lofgren says, because it’s eye-catching with solid math behind it. “Boogie Ball fits into much of what we want to do from a game-design standpoint. It’s a niche game with a unique top-box feature. It’s very feature-rich in the base game, but the excitement escalates when you go into the bonus round. You’re actually playing a pachinko-style of game. So when the ball is released it will cascade down until it slides into a pay slot, and you’ll earn money based on that. Players are mesmerized by this feature.”

Lofgren says casinos would want to put this game on the floor in groups of four. “These games are great because they work as signage, they work as attractors, and they’re a way of keeping the casino floor very fresh and a break away from the lines and lines of homogeneous product.”

AGS is also working to bring its game Diamond Lotto into Native American casinos in California by using it to create the CNIGA progressive link it has been chosen to help provide. This is expected to be in operation, linking 20 to 30 tribal operations in June 2011. Lofgren says this is what CNIGA has been waiting for. “It’ll be a way for some of the success of the game to come back to CNIGA to help fund its regulatory needs. They’ve for a long time wanted to find ways to be self-funding, and this is one of the ways to help achieve that goal.”

The CNIGA link will also help AGS with its efforts to grow in California, where it currently has a smaller footprint.

Lofgren also expects Diamond Lotto to help AGS target the growing Hispanic player demographic. The game, as it’s currently played in Florida, plays very fast and allows players to pick their own numbers in a multi-card format and try to match with the random numbers drawn. “This game has taken the Miami area by storm,” Lofgren says.

 Between Lofgren’s employment at Bally and AGS, he spent significant time in Mexico, watching players. He found, “Half of the market is a Spanish bingo-type game. It’s a multi-card bingo game with extra ball draws where you can buy the extra ball, so a very interactive game.” Lofgren believes Diamond Lotto offers players the same characteristics. He believes the game will help casinos that are trying to market to the new demographics of players. “The mega trend within the United States is that there’s a high Hispanic population today and it’s going to be increasing. Then it’s going to be exponential as far as their value as a customer because, not only is the base increasing, but the disposable income of that demographic is growing. Second and third generation Hispanics are assimilating and are very much prospering.”

Proven Products

For years, AGS has been a major player in Class II gaming, especially in Oklahoma. Miodunski credits much of that success to three games: Royal Reels, Cool Catz and Liberty 7s. Miodunski explains, “If you go to any casino in Oklahoma, they will have all three of those or some mix of those three games. Those are titles that have been on the floor for seven years, and they traditionally perform well above house average. If you’re building a property in Oklahoma, you go ‘OK, how much of our floor do we dedicate to those three titles and then what else do we put on the floor?’ And I’m not just saying that because I’m a part of the company. These truly are legend titles.” 

Lofgren adds that players love the games because they are relatively simple and give back a fair payout to the player.

Unique Goals

Weaver says a focus on local players is what sets AGS apart from its talented competitors. He also credits the company’s participation model, which aligns AGS’ incentives with those of the customer. He explains: “We have an incentive to upgrade the titles; we have an incentive to make sure the math’s right, to always make sure we have the best title on the floor. We’re not charging for that. We’re doing that because it affects our revenue, versus a model where you’re making more money if you have some obsolescence in your product line because you can sell a new upgrade or a new cabinet or something.”

Todd Cravens believes this commitment to offering a solution, rather than selling a game, is extremely important in new markets like Illinois. “If you’re an operator, you say, ‘How do I buy the right machine and hope that it doesn’t become a $15,000 boat anchor?’” He adds that AGS partners will be reassured that the games will be profitable with the help of player-tracking systems, a back-office system, a route-management system and great games with unlimited title swaps. “If we come out there and, God forbid, the title doesn’t earn, ‘Well, Mr. Operator, we’ve been working in the lab and we’ve got it fixed for you to make sure that the product earns.’ You don’t run that risk of becoming that boat anchor.”

AGS leaders plan to use the company’s roots in the Oklahoma Class II market and continue growing into an emerging gaming company focusing on Class II products and niche products in the Class III market.

Weaver credits much of AGS’ success to its Oklahoma customers. “They’re really just first-rate casino managers and people.” AGS will continue to work hard on Class II products, remaining committed to the market.

AGS will also be devoting significant development resources for specific niche products. Weaver says, “We don’t need to be the best everywhere, but we’re definitely going to be the best in Illinois. Then we’re definitely going to be the best in southern Florida. And then we’ll pick another market and make sure we’re the best there,” he says. Miodunski says that by the end of 2011, AGS should be nearly licensed in all the major jurisdictions.

Lofgren wants to make it clear that AGS is easy to partner with and can quickly provide funding for development, if necessary. He says, “We have a number of games that are out there that we treat as a route, and we’re not so committed that it has to be our product that’s there. We’ll create our own game development team, and they’re going to have their role, but we’re absolutely looking at third-party content from the many game designers that are out there that sometimes have a hard time getting product in the market. We also provide limited development funding, when appropriate, to assist customers in opening a facility or achieving their goals.”

One recent example of AGS’ outreach to third-party developers is a deal announcing the acquisition of the patented Pay it Again Poker game from Las Vegas game designer Rocco Tarantino. Pay it Again Poker is a 10-coin game that offers unique player bonuses for commonly hit hands such as two pair and three of a kind.

Although AGS is still “putting the sign above the door,” Todd Cravens sees improvement in Illinois already. “Since January, when I jumped on board, we kind of went from, ‘Who’s AGS?’ or ‘What’s AGS?’ and today, I think we’re part of most, if not every part, of everybody’s conversation here. We’ve really worked the market, which was important to us. We’re going to back it up with solid programs for the customers.”

Listen to AGS’ Ryan Cravens discuss the company’s social media efforts in the CEM podcast.

Sarah Klaphake Cords is the New Media Editor for Casino Enterprise Management. She can be reached at editor3[at]aceme.org.