Good morning, and welcome to the Indy Gaming newsletter, a weekly look at gaming matters nationally and internationally and how the events tie back to Nevada.
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More than two decades ago, Nevada’s four largest slot machine developers put aside their differences to fight a potential tax issue brewing in Carson City.
The legislation never went anywhere. But the leadership of those companies – International Gaming Technology, Bally Gaming, Aristocrat Technologies and WMS Industries – decided it was the right time to form their own trade organization, the Association of Gaming Equipment Manufacturers (AGEM).
The Washington D.C.-based American Gaming Association was five years old at the time and was focused on preventing any possible federal oversight into gaming, which was just beginning to expand across the US.
Despite the presence of the late IGT CEO Chuck Mathewson as a founding member of the AGA, gaming equipment companies, who were involved in the casino expansion outside of Nevada, saw their own profile and amount of scrutiny increase. The need to form their own voice arose.
“The organization gave the suppliers a seat at the table with operators and regulators,” recalled Marcus Prater, who in the early days of AGEM was head of corporate communications for Bally’s and served as one of the slot machine company’s representatives to the trade group.
In 2008, Prater, who had left Bally’s a year earlier, became AGEM’s executive director.
At the time, the trade organization had 32 members, none headquartered outside the U.S.
When Prater, 57, departs this week after 14 years as AGEM’s executive director, the trade organization will have grown to 172 members from 22 countries. Notably, only 40 percent of the membership is made up of companies where gaming could be considered their principal business.
The rest of the associate members come from ancillary industries, such as law firms, marketing companies, product manufacturers and other providers, “all of whom want to get close to the industry,” Prater said in an interview last week.
“We’ve grown from those four slot companies to an industry that is now considered gaming technology providers, whose expertise includes FinTech (financial technology services) and sports betting, which has become a whole new growing area,” Prater said. “They make the engine that runs these platforms. It’s remarkable how the supplier side has grown and so many new players have entered the market.”
The issues have also grown beyond Nevada. Prater and AGEM have helped the supplier side navigate regulatory matters that differ from state-by-state and internationally. AGEM opened an international office in London, which is headed by former gaming executive Tracy Cohen, and brought on longtime responsible gaming policy expert Connie Jones to oversee the organization’s efforts in that field.
Meanwhile, Prater oversaw AGEM’s involvement in the on-again, off-again debate over the Federal Wire Act and its hindrance to the expansion of online gaming, as well as the effort to eliminate the use of unregulated “gray market” slot machines in several Midwest and southern states.
“We have done a very good job of putting a spotlight on (unregulated slots). We have made progress in certain markets,” Prater said.
Recently, AGEM had success convincing Pennsylvania gaming regulators to allow the state’s casinos to utilize “persistent state” slot machines, which refer to passive features on certain games. Those games are allowed in other states.
“I got a letter from the executive director thanking AGEM for showing (the state) how to be more flexible when it comes to new games and new concepts,” he said.
The organization’s overall goal, Prater said, has been focused on the growing legal gaming landscape, where games and technology produced by the membership “are considered primary drivers of the industry’s overall global health.”
He highlighted the effort to launch cashless gaming at Resorts World Las Vegas last summer, where five different vendors cooperated on creating the system with shared technology.
“It would have been hard to envision that kind of cooperation 20 years ago,” Prater said.
At the time AGEM was formed, the major slot machine companies had been suing each other over intellectual property issues and copyright infringement. Even as two of the companies, IGT and Bally, were still locked in several federal lawsuits shortly after he became executive director, Prater deftly organized a press briefing during the Global Gaming Expo where the IGT and Bally’s CEO posed for photographs together smiling like long-lost friends.
Earlier this month, Prater contacted an FBI agent from the unit that oversees integrity issues in gaming and sports whom he initially met during last year’s Global Gaming Expo. He introduced the agent to incoming AGEM Executive Director Daron Dorsey, who is leaving his role as general counsel for Ainsworth Game Technology.
“Before my departure, I wanted to make sure that the relationship continued to keep the lines of communication open,” Prater said.
AGEM members fund the organization through dues, and the trade group also has a revenue-sharing agreement with the AGA for proceeds from the annual Global Gaming Expo.
The growth of AGEM’s membership doesn’t ensure company representatives agree on each and every issue. But Prater kept the peace.
“I’ve done 168 consecutive board meetings, the second Tuesday of every month, and we have representatives from all these competitors sitting around the table working together. It’s fantastic,” he said.
Nevada gaming regulators give preliminary OK to cloud-based computing
In one of his final tasks as the head Association of Gaming Equipment Manufacturers, Marcus Prater helped shepherd initial approval for changes to two state gaming regulations that will allow the industry to use cloud-based computing services and host centers.
The Gaming Control Board last week unanimously voted to send the matter to the Nevada Gaming Commission for final approval, following a 90-minute workshop in Las Vegas. The board agreed with the requested changes sought by AGEM.
The trade organization said cloud computing would allow the gaming industry to move large amounts of data off-site to managed storage servers.
The regulation changes were supported by Caesars Entertainment and sports betting operator BetMGM.
“These proposed changes will allow gaming companies to modernize computer functions that will operate more efficiently and affordably, while preserving the integrity of the state’s regulatory oversight,” Caesars Assistant General Counsel Jeffrey Hendricks wrote in a letter filed with the control board.
He said cloud-based computing would also provide greater disaster protection. Atlantic City’s casino industry saw its on-site data centers compromised by power outages following Hurricane Sandy in 2012.
“A cloud computing solution would mitigate risk compared to a single data center,” Hendricks wrote.
Gaming attorney Scott Scherer, representing BetMGM – the sports betting arm of MGM Resorts International – wrote in a separate letter that cloud-based systems provide a more robust platform and better user service.
“As Nevada attracts even more visitors for live events, offering that better, more robust, more reliable user experience will keep visitors returning year after year,” Scherer wrote.
Dan Reaser, AGEM’s outside legal counsel, noted the U.S. Department of Defense uses cloud computing services in many jurisdictions that allow gaming. He said academia also uses cloud services.
“More use the cloud for virtually everything, and it is a part of the technology that is driving two things in particular – speed of processing and cost, because the cloud providers have ubiquitously available data centers,” Reaser told the control board.
The regulation changes would put Nevada on par with at least 15 other states where casinos use cloud-based technology.
Prater said Nevada regulators gave AGEM the green light in the fall to move forward on the regulation changes. He commended control board Chairman Brin Gibson with supporting the concept during one of his initial meetings with the AGEM board.
“This is definitely a collaborative effort that will move the industry forward,” Prater said at the hearing. “This petition and this new regulation prove that Nevada is on the leading edge, and there will be other technology issues to come.”
During the hearing, Gibson said he wanted to clear up a rumored misconception that the regulation was being done to expand online casino gaming in Nevada, which is currently restricted to just online poker.
“It doesn’t change any of the criteria or operating characteristics that are currently required,” Reaser told the control board in response to Gibson’s concern. However, cloud-based computing could be used “if you were to make changes in the interactive gaming space.”
Bally’s board and advisors to evaluate chairman’s buyout offer
Nearly a month after Bally’s Corp. Chairman Soo Kim offered to take the regional casino company private, a special board committee announced Tuesday that it has hired two advisory firms to evaluate the proposal, as well as any other potential strategic alternatives.
Macquarie Capital and the law firm of Potter Anderson & Corroon will assist Bally’s board committee in evaluating the $38 per share offer made by Kim on Jan. 25 through Standard General, a New York-based investment firm where he is founder, managing partner and chief investment officer.
Standard General owns 21 percent of Bally’s and is the company’s largest shareholder.
Bally’s, which is headquartered in Rhode Island, has 14 gaming properties in 10 states, including Bally’s Lake Tahoe, which was formerly known as MontBleu Resort. Bally’s is also acquiring the operations of Tropicana Las Vegas from Gaming and Leisure Properties.
In a brief statement, Bally’s board “cautioned” stockholders and other potential investors that “no decisions have been made with respect to the proposal.” The company added there is “no assurance that any definitive offer will be made or accepted, that any agreement will be executed or that any transaction will be consummated.”
Kim has driven much of Bally’s growth and transformation in the past two years. Standard General said if a deal did not materialize, the company would remain long-term shareholders.
“Our proposed transaction would allow the company’s stockholders to immediately realize an attractive value, in cash, for their investment and [provide] stockholders certainty of value for their shares,” Kim wrote in the letter that was filed with the Securities and Exchange Commission.
At the time, two gaming analysts, including one from Macquarie, thought the $38 per share offer from Kim was too low.
Wynn not selling Strip properties; Realty Income becomes the newest gaming REIT
Two things were clear following last week’s $1.7 billion sale and leaseback by Wynn Resorts of its hotel-casino outside Boston to a real estate investment trust.
One, a similar transaction will not happen with the company’s two Las Vegas Strip casinos, and two, a new REIT has entered the gaming space.
At the outset of Wynn’s fourth-quarter earnings conference call, CEO Craig Billings – answering the anticipated questions – said a similar deal involving Wynn Las Vegas and Encore Las Vegas didn’t make financial sense.
Unlike Encore Boston Harbor, Wynn Las Vegas and a holding company for the property have bond financing. Any sale of the real estate separate from the operations “would trigger an acceleration of that debt” and cost more than $600 million in fees.
“Las Vegas is a very different market when compared to regional markets,” Billings said. “For now, we believe we will deliver far more long-term shareholder value by continuing to own our real estate in Las Vegas.”
Wynn agreed to sell the 671-room Encore Boston Harbor, which is located in Everett, Massachusetts, to Realty Income. Wynn will lease back the operations of the hotel-casino, which opened in June 2019, for $100 million annually for 30 years.
Under the agreement, Wynn is keeping ownership of 13 acres near the resort, where the company plans to build a parking garage and other non-gaming amenities. After the site is developed, Wynn has an option to sell the land to Realty Income for a yet-to-be-determined price.
Analysts were quick to praise the sale-leaseback, saying it bolstered Wynn’s balance sheet and allows the company to address any near-term debt issues. The proceeds can also fund the expansion at Boston Harbor Wynn’s portion of a recently announced $2 billion integrated resort for the man-made Al Marjan Island in Ras Al Khaimah, in the United Arab Emirates.
“We don’t believe investors will really ascribe much value to this transaction given it’s really just a different form of raising capital,” Stifel Financial gaming analyst Steven Wieczynski wrote in a research note. “However, the valuation is compelling, in our view, given it is two turns higher than any previous regional gaming REIT transaction and should allow Wynn to meaningfully lower its overall cost of capital.”
Deutsche Bank gaming analyst Carlo Santarelli termed the transaction “as likely the most surprising event of the fourth-quarter reporting season to date.”
Meanwhile, Realty Income made its first venture into the gaming sphere through the acquisition. The San Diego-based company has more than 11,000 properties in 60 different industries throughout the U.S., including retail, fitness centers, theaters and other commercial businesses.
The company joins REITs in the gaming space that is dominated by Gaming and Leisure Properties, Blackstone and VICI Properties, which is in the process of acquiring rival REIT MGM Growth Properties in a $17.2 billion transaction.
“Our investment philosophy centers around generating favorable risk-adjusted returns by investing in strategically important properties with partners who are leaders in their respective industries,” Realty Income CEO Sumit Roy said in a statement. “We are pleased to cultivate a new relationship with Wynn Resorts as we expand our universe of net lease investments.”
Jefferies analyst Lisa Tsai, who follows the REIT market, said Realty Income is one of the industry’s 10 largest REITs with a size that allows it to acquire large portfolios and diversify its tenant base. She said the annual rent from Encore Boston Harbor will represent roughly 3.5 percent of the REIT’s annual base rent.
“The deal highlights Realty Income’s scale, its ability to quickly source deals based on the strength of its relationships and its openness to diversifying its revenue sources,” Tsai wrote in a research note.
Full House promotes Gulf Coast gaming executive to a corporate role
John Ferrucci knows something about rebuilding a casino. Now he’ll take that experience to Illinois as Las Vegas-based Full House Resorts moves forward on a temporary location ahead of its planned $500 million American Place project.
Full House named Ferrucci to a newly created corporate position as chief operating officer. He’ll continue to oversee the company’s Silver Slipper Casino in Bay St. Louis, Mississippi, but will spend much of the next few months creating The Temporary at American Place in Waukegan, Illinois, which will open this summer ahead of the permanent casino-hotel.
Ferrucci began his career in Atlantic City and the Bahamas, but eventually moved to Biloxi, Mississippi in 1996. He was with the Silver Slipper in August 2005 when Hurricane Katrina nearly wiped out the Gulf Coast gaming industry.
Two days before the storm hit, he was attempting to determine the best way to slip the moorings of the President Casino barge and float it 35 miles west, where it would replace the older Silver Slipper’s casino barge.
A few days after the storm, he instead found the casino barge sitting on the north side of U.S. Highway 90 atop a demolished Holiday Inn, three-quarters of a mile from its previous location.
“I had been through this several times,” Ferrucci said in a 2015 interview on the 10th anniversary of Katrina. He had experienced his share of hurricanes in his years as a Biloxi casino operator.
“You could tell that this one was different,” Ferrucci added.
He has since worked with the Silver Slipper’s development team over the years to create a resort-casino on the site, which includes a 129-room hotel tower that opened in 2015.
Full House CEO Dan Lee credited Ferrucci with “acting as a mentor” for the company’s general managers at its Colorado and Indiana casinos.
“Under his leadership, the Silver Slipper has reached new levels of profitability,” Lee said. “His hands-on management style, as well as his experience in opening four casinos, will serve us well as we prepare for new levels of growth.”
Full House is acquiring a tent facility from Sprung, which develops all-weather, tension fabric buildings, to serve as the temporary casino. The tent is expected to arrive by the end of March or early April and open with the casino by the summer.
In a statement, Full House said the temporary casino will cover a space the size of approximately one-and-a-half football fields and house 1,000 slot machines, 50 table games, three restaurants and a center bar.
The temporary casino will operate until American Place opens in 2024. Full House received approval from Illinois gaming regulators for the casino in December. Waukegan is 40 miles north of downtown Chicago.
Last month, Full House said it would purchase 10 acres adjoining the 30-acre casino site that will provide additional parking space and access to the casino site from a major road.
Other items of interest:
It hasn’t been a good few days for DraftKings. The Boston-based sports betting operator was downgraded by several gaming analysts after it told investors Friday it expects its annual cash flow will decline between $825 million to $925 million in 2022.
The company blamed rising costs for customer acquisition in new markets, which includes advertising and promotional efforts. DraftKings said revenue jumped 41 percent in the fourth and the number of unique players increased by 32 percent to more than 2 million.
DraftKings handled roughly 32 percent of online sports wagers in the U.S. in the last quarter. Sports betting is operating legally in 30 states and Washington, D.C.
But that didn’t stop Wells Fargo gaming analyst Daniel Politzer from downgrading his view of the company. He said the path to profitability for all sports betting operators is reducing the “excessive promotions and marketing” costs, which he believes will moderate over time.
DraftKings does not operate sports betting in Nevada, but is building a 90,000-square-foot “technology hub” in southwest Las Vegas that will employ more than 1,000 workers. The facility is expected to open early this year.
International Game Technology extended its longtime contract with the Missouri Lottery for three years until June 30, 2025. Under the agreement, IGT will provide 175 new cashless and self-service vending machines, which will expand the lottery’s retailer base.
IGT, which has sales and marketing headquarters in Las Vegas and a manufacturing center in Reno, will provide Missouri with the technology to manage its game portfolio.
Formerly known as GTech, IGT has provided Missouri the technology for its state-run lottery since 1991. Revenues from the Missouri Lottery are used to fund public education in the state.
Central systems provided by IGT process approximately 75 percent of all U.S. lottery sales.
