Bally Technologies CEO talks hot games, Internet poker, expansion plans and new jobs

Richard Haddrill, CEO of Bally Technologies, poses by a Michael Jackson-themed slot machine, March 5, 2012.

Richard Haddrill, CEO of Bally's Technologies

Richard Haddrill, CEO of Bally Technologies, poses by a Michael Jackson-themed slot machine Monday, March 5, 2012. Launch slideshow »

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Richard Haddrill has been giving his passport a workout.

Haddrill, CEO of Las Vegas-based slot machine and gaming systems manufacturer Bally Technologies since October 2004, has been hitting the road to expand the company’s product lines abroad. He believes the company can expand its international presence from the 3 percent market share it had when he arrived to 30 percent in the next three to four years.

To reach that goal, Haddrill is negotiating contracts across the globe in a bid to maintain the company’s position as the nation’s largest gaming systems producer and No. 2 slot machine manufacturer behind International Game Technology.

In addition to planting Bally’s flag in several continents, Haddrill has designs on being a leader in cyberspace, which could lead to hundreds of new jobs throughout the company — many of them in Las Vegas.

Haddrill sat down recently to talk about foreign and domestic expansion, the case for federal regulation of Internet gambling and how gaming is entering the social network realm:

Q: What jurisdictions have the most potential to legalize gaming in the next five years?

A: We just shipped machines to Ohio for the gaming expansion there. Illinois is expanding gaming into video lottery, and there are some proposals for further casino expansion. New jurisdictions on the horizon include lots of discussion in Florida. Massachusetts has decided to go forward. Kentucky is discussing it. Internationally, Greece has decided to go ahead with the video lottery. The economic crisis has really created a lot of new jurisdictional expansion that will start up over the next five years.

Is that because these states and countries see an opportunity to generate new tax revenue?

Exactly. And they feel like their gaming patrons are now leaving their home jurisdiction to go to another jurisdiction. Why not keep them home and keep that gaming revenue for our state?

What are some of the things Bally is doing that will get the attention of consumers who go into the casinos?

Two of the most popular games at last year’s G2E show (Global Gaming Expo) were “Grease” and Michael Jackson video slots, and they’re going into Nevada casinos. We’ve also been doing a terrific job with our iVIEW technology to create slot tournaments in a very customizable and easy way. You can convert any portion of your floor into a tournament. We just did the world’s largest slot tournament at Pechanga (Resort & Casino in Temecula, Calif.). We can do a floor-wide race event, a floor-wide cash spin event. We’re trying to bring to the casino floor that level of energy that you might find at a big sporting event to make brick-and-mortar casinos competitive with the best forms of social entertainment.

How does your company attract more international business?

It required big investments in people, staffing, product and design changes as well as feature changes. International growth is a pretty big story for us. When I got here, 6 percent of our revenues were from outside North America. Today, it’s 20 percent, yet our total revenues doubled. The rate of international growth has been quite rapid. We’ve been making some pretty big investments over the last five years to do that, and it puts us in a pretty good position going forward where we believe we can grow that international percentage to north of 30 percent in the next three or four years.

How is Bally capitalizing on the gaming industry explosions in Macau and Singapore? What other Asian jurisdictions are ripe for the industry?

Vietnam is going to have a couple of casinos. Japan now has active legislation to add casinos. There are projects proposed in the Philippines, plus further expansion in Macau. For us, we recently entered the Australia-New Zealand market, so that’s exciting. From a systems point of view, we’re the leading provider across Asia. On the game side, because we’re newer to the market, we’re just gaining our business there, but we’re excited at the prospect of achieving our normal share as we’re in those markets longer.

So most of the growth is Asia, Australia and South Africa?

Even in Europe. Europe today is only 3 percent of our revenue. It should be 7 to 10 percent. We have a great opportunity to keep expanding in Europe. We’re doing well in South America and Latin America, but Europe is a great growth opportunity, as are Asia and South Africa.

And you have people on the ground in all these places?

We do.

As far as regulation, how does Nevada stack up against some of those places?

Nevada is arguably the most advanced and sophisticated market, so it’s a terrific market to deal in. One of the things you will find in other markets is that you don’t have as much free casino competition as you do in Nevada. So, in many other markets where the gaming is more restricted as to quantity, you’ll find the business even more profitable. In Macau, for example, the business is more profitable. In certain jurisdictions outside Nevada in the United States where a Native American casino might have sort of a monopoly, they can be more profitable. Nevada is a great market for free competition, a great market for regulation and a great market for the industry as a whole, but the one negative for the operators is the level of profitability is much more competitive.

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A Cash Spin video slot machine by Bally Technologies is displayed in the company's showroom Thursday, March 29, 2012.

How much of the company’s resources are devoted to new games vs. new systems?

Our systems business represents slightly less than one-third of our revenues and about one-third of our profits. Our research and development expenditures are somewhat in line with those profit levels. From time to time, we’ll ramp up investment in one area or another to capture future opportunities so they can get distorted from year to year. But all three areas of our business — game sales, gaming operations and systems — are all growing in recent quarters.

Could you detail those different revenue streams?

Game sales is the sale of the cabinets or the sale of the software or parts that go in the cabinet. The gaming operations business is where we will either lease or revenue-participate with a casino on particular games. So it’s a game side of the business, but it’s an ongoing revenue stream as opposed to a one-time sale. The system business is the software and certain components of hardware that help a company manage their entire casino. They manage all the gaming devices, the player database and we have specific hardware technology that can go on every manufacturer’s machine to create a flowing experience. Those revenues break down with not quite one-third each. The gaming operations is the biggest. Game sales vary based on the economy, and the systems business is about one-third.

Why are operations the highest? Is it because certain games are really popular?

Some of our most popular games are in that segment. With a slower economy, the game sales segment hasn’t grown as fast as the gaming operations segment. But we’re seeing game sales revenue pick up as the economy turns and with the launch of our Alpha 3 platform, which is creating a lot of excitement around our games.

Tell me a little about Alpha 3.

Alpha 3 gives our game designers greater capacity for graphics, sound and bonus features, and we put it on a new cabinet that has an iDeck (touch-sensitive control panel) and much brighter graphics and enhanced sound. So now, we really have the leading technological platform in the market for us to put great new content on. It’s viewed by casinos as being a great investment for the long term because it has the iDeck and has great horsepower, and we’re proving we can do really terrific games on that platform.

Obviously gaming industry people know about the company, but do you think the public knows much about it?

From time to time, we have a challenge recruiting people to Las Vegas. If they’ll come and take a look, they always like it. But compared with certain markets, like California, where it’s viewed as being a hotbed of technology, they don’t realize until they come in how much exciting new innovation we’re doing right here. We actually do have good success in recruiting when people come and take a look, but sometimes getting people to take a look is difficult. We have great innovation going on in Reno as well, but, again, we have to get people to take a look at what we’re doing.

What does the public misunderstand the most about slot machines and how they work?

It’s probably that the outcome is really random. Most people I talk to seem to think there’s a trick or a gimmick or some secret, but the outcomes are really random.

So there’s no such thing as a “hot” machine.

Well … let’s just say that I think all Bally games are pretty hot (laughs).

How do you think the industry will change if Internet poker is legalized?

Internet poker is one relatively modest part of the Internet and social gaming experience. We see for our U.S. customers the broad spectrum of Internet gaming is evolutionary and not revolutionary. We think it’s going to be important, but it’s not going to be an overnight explosion for most of our customers.

Why is that?

Internet poker is a great game that’s highly competitive. Based on what’s happening in other jurisdictions where it is legal, casino-style games and sports betting are even bigger than poker. For us, our strategy is to provide great technology for our customers so they can participate with the best-of-breed platforms for poker, casino games and sports wagering and social gaming. We do have our own platform for mobile, hand-held gaming and we have our own Internet gaming platform that they plug into with their best-of-breed solution.

So you have a system developed that’s ready to go.

Through acquisition and internal development, we do. We’re very excited about that, and we expect to announce some poker partnerships soon. The integration will be done. Our casino customers will be able to have a best-in-class poker solution, but integrated into their marketing database so they get a single look at the player on their Bally technology. We’re excited about that, and so are our customers.

Will there be other opportunities beyond Internet poker? You mentioned sports wagering and casino games.

For us, near term, we think the hand-held mobile gaming is going to be a big business. We acquired this last year the leader in mobile gaming for casinos, Macroview. We now have more than 3 million players on Macroview’s technology. We think that will be approved faster than other forms of Internet gaming. Whether it’s restricted to a casino or not, we can still provide a good experience for our customers with that. We’re also putting our Bally content out on the Internet in those jurisdictions where it’s legal to have casino-style games, so that will generate profitability for us. Our technology platform that we acquired, called Chiligaming, will allow our casino customers to participate in sports betting or casino-style games when it comes. Our strategy is to be a technology provider and a content provider, not a direct business-to-consumer competitor to casinos, which is an important distinction.

So you’ll be selling this to your customers to reach the consumer, not using it yourself to reach consumers?

Exactly. That’s Part One. Part Two is that we develop great games, and those great games will go out on the Internet. Any casino that wants to license those from us or any Internet site that does direct-to-consumer in a legal jurisdiction that wants to license us, that’ll be the second area where we’ll make money.

What are your expectations about the economic impact of iGaming in Nevada?

It can be important. Nevada has a very thoughtful and sophisticated regulatory environment and is the home of a lot of casino companies. Nevada can take a leadership position if Internet gaming is approved nationally. If it’s approved on a state-by-state basis, it’s going to be more challenging for any one state to dominate.

It sounds like you feel the federal government should regulate it.

Regulation by the federal government would be better for our customers and probably better for players to have national standards for integrity, which is very important here and for uniformity. We would hope that it would evolve to some national legislation.

As far as the effects on Nevada, would you expect to need to hire more people in Las Vegas if Internet gambling were legalized?

We’re actually hiring people as we speak for our Chiligaming platform. We’re hiring and relocating people from Europe here. We’re hiring people for our mobile platform. To the extent that Nevada can be a leading state in regulating gaming, either through regulating casinos or hosting here, we would hire at an even faster pace. So we’re hiring now, but we see that accelerating as Nevada takes a leadership role.

How much additional hiring?

Overall, we’re attempting right now to hire more than 300 employees across the globe. The number that get hired in Nevada will depend on our ability to recruit the right people in Nevada, which, as I alluded to earlier, is sometimes a challenge.

You said that you’d prefer to see federal legislation for Internet gambling regulation, but how do you expect it to play out?

I think it will be federal. The longer it goes state by state, the more clearly it will become that there’s a need for federal. The federal politicians are working on it right now. Whether they can get an agreement soon is hard to tell. But eventually, I’m confident it will be federal and I would give it a 50 percent chance that it happens in the next six months.

Do you think they’d move that quickly in an election year? Do you expect it to be improved in the post-election lame-duck session?

Both good points. And that’s why it keeps the odds at only 50 percent. The fact is, there is a real need for integrity at the federal level. I think the politicians see that, but they have to find a way to get it done that does not upset certain constituents enough to disrupt an election year. And that means attaching it to other legislation or being able to vet it in a way that the obvious integrity and tax advantages are clear. I think 50-50 are the best odds we could say for now.

What strategies are Bally undertaking for Internet gaming on social media sites? Will we see gaming on Facebook someday?

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A player prepares to fire at space ships during a bonus game on the Total Blast video slot machine by Bally Technologies Thursday, March 29, 2012. The new slot machine incorporates many arcade game-type features.

We have full-time talent looking at how we become a better communicator through social networks. We already have a number of Bally games available for free play that players can participate with. We do expect to be more of a player in social gaming as that evolves over the next 18 to 24 months. I can’t say much more than that for competitive reasons.

How do you monetize that?

Good question. It comes down to can you extend your brand so that people play in the casino where it is wager-based? Can you attract fees for mobile devices for advertising dollars? Those are the ways that you can do it. It’s not perfectly clear how it’s going to be and how soon. We’re investing modestly, but reasonably for the upside that we see.

Is that what Chiligaming is for?

Chiligaming will allow us to do more in that arena. Three games are already available on our hand-held devices and on the Internet already, even before Chili. But Chili will enable that to be integrated for wagering when that happens.

Where can I find a free game to play online?

Our most popular online game is “Cash Spin.” You can go to the iTunes store and the play-for-free games are available for the iPad, the iPod Touch and the iPhone. It’s an app and they’re all interactive so you can interact with the game as if you were standing in a casino.

You were elected chairman of the American Gaming Association. What are your responsibilities in that capacity?

Well … my responsibilities are to cat-herd some really big cats, which are the casino executives and my fellow competitors. Because we have a terrific full-time staff in Washington D.C., time demands are typically modest and it’s more fun than it is a headache. It’s a good opportunity to network with others in the industry on the key issues in the industry and stay very current on what’s happening in gaming.

What issues are on the horizon for the AGA and the industry in the United States?

The three big issues are Internet gaming, social responsibility and regulatory reform.

Regulatory reform?

There’s an increasing awareness by those in gaming — regulators, suppliers and casino customers — that the cost and time delays of product approvals are a real hindrance to gaming being competitive with other forms of entertainment. Bally, for example, is licensed in 300 jurisdictions. When we develop a new product, we have to have it approved in many jurisdictions. If we add an officer or director, we have to have it approved in many jurisdictions. So it’s very expensive, and it slows the pace of innovation. So there’s attention being brought to bear on how can we help our patrons and casino customers by getting products to market faster and increasing the competitive environment?

Are the Nevada Gaming Commission’s efforts to amend its regulations to allow independent testing of new games and products going to help in that regard?

I absolutely believe so, and I think that’s one reason why they decided to do it — to help speed up the process and lower the cost. New Jersey also has adopted a fast-track product approval process that says if you’re introducing a new product in our state, we’ll try to get it through the regulatory approval process in a couple of weeks when it used to be months.

While most people view Bally as a slot-machine manufacturer, the company seems to be more in tune with the “Technologies” half of its name. Why?

We changed our name about six years ago to emphasize technology because our value proposition to casinos is really all about technology, based on hardware and software innovation.

What are those kinds of innovations?

If you look at the things we’ve done with the basic slot machine now, you have an iDeck instead of a button deck so that you can customize the player interface with the machine itself. We can create floorwide entertainment experiences using great system technology connected to all the gaming machines on the floor. The pace of technological change is going faster and faster and it creates a greater, more individualized player experience and greater opportunity for profitability for casinos.

Is that because there is more dwell time on the machine?

There’s more entertainment value. The sounds are greater, the bonusing capabilities are more intriguing and interesting and the casino can communicate directly with each individual patron based on what’s important to that patron, making a more customized experience. The value to the player is more. They would prefer to spend their entertainment dollar there than somewhere else with that level of entertainment.

What’s the outlook for manufacturing in 2012? Is most of the business in new venues or replacement machines?

The scheduled number of new venues will be higher in 2012 than 2011, but at the same time we expect probably 75 to 80 percent of our revenue to come from the replacement market and existing customers.

How often does a company change out machines? I know you also have the capability of changing out the look of the machine without having to change the box.

That’s right. You can keep the same cabinet and change the game inside for about 25 percent to 30 percent of the cost of a new box. Historically, casinos have changed out the boxes about every seven or eight years. Right after the downturn in 2008 and 2009, it extended to more like every 20 years. That’s been steadily shortening again, but not back to the historical norms. So we see that replacement marketing improving again in ’12 over ’11, but not getting back to the levels of 2004, ‘05, ’06 and ’07.

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