AGEM

AGEM MEMBER PROFILE

Philadelphia-based Sparks Marketing is a total solution experiential marketing partner. As a live + digital brand experience agency, Sparks specializes in creating connections on-site and online. Regardless of the delivery, the company creates powerful brand experiences that resonate on a deeply human level.

Sparks assists clients on navigating a new normal. Live, virtual, or somewhere in-between, Sparks’ humancentered solutions build brands, businesses and bottom lines: • Digital interactives and virtual events • Trade show exhibits and expos • Conferences and events • Road shows and mobile tours • Brand activations and sponsorships • Executive briefing centers, customer experience centers, and corporate environments • Retail fixtures and experiences

Virtual

Virtu is a robust, customizable, virtual event platform with three unique engagement offerings to meet all of a client’s virtual program needs. • Virtu - Full-featured event platform that emulates a live experience with dedicated event spaces, sponsorship integration, sessions, breakouts, engagement tools, etc. • Virtu3D - Customized website experience that leverages a static environment backdrop overlaid with interactive content hotspots. • Virtu 360 - An immersive real-time 360-degree experience that allows attendees to explore various content offerings in self-guided or client-guided tours.

Content

The right content connects people to the world’s top brands. As an agency that values connection over everything, Sparks believes that great content isn’t just powerful, it’s totally necessary—no matter the platform.

Sparks develops core messaging that’s audience-appropriate, extends the customer’s brand strategy, and carries it through the entire experience. Its content teams work with the customer to make sure content creates maximum attendee engagement. Sparks helps with the entire content creation process—concept development, creative direction, storyboarding, scripting, location sourcing, video production and editing.

Sparks recently acquired two leaders in the industry, Group Delphi and 3D Exhibits. These acquisitions reinforce the company’s financial strength and advance its strategic goal of emerging a stronger, more complete company than it was pre-pandemic.

For more information, visit wearesparks.com or contact Vice President New Business Development Dale Beyer, 847-636-8498 or dbeyer@wearesparks.com. • Activity in Mexico continues to be positive for AGEM members and the industry. The recent three-day virtual Gaming Symposium hosted by Olga Sánchez Cordero, the Mexican government secretary for the interior, along with SEGOB Director Alma Itzec De Lira Castillo, was a great success. Olga Sánchez Cordero spoke of the need for a new federal law and the importance that its evolution reflects today’s technology, economics and culture and that bad practices of old be eradicated. She also called for the cancellation of the proposed Norma Oficial Mexicana (NOM) certification that would add a further layer of certification to gaming machines. AGEM Mexico Committee Chair Carlos Carrión of Aristocrat represented all suppliers at the event and also spoke and adjudicated on some panels. The event, along with the positive discussions, signals a new change for Mexico and is welcomed by AGEM as it continues to work with all the parties involved to ensure its members get the best representation. • AGEM’s unregulated gaming machine campaign received some good news recently when Virginia Governor Ralph Northam confirmed that the one-year provision he granted for unregulated machines to operate would not be extended past July when it expires. Last year, even though the Virginia legislature passed a bill to ban the machines, Northam vetoed the bill due to Covid-19 so a $1,200-per-machine monthly fee could be used for a pandemic relief fund. There was concern the operators were lobbying for an extension, but the governor has kept to his word and plans to enforce the one-year-only timeline. • Fifteen months after it was first established, the Japan Regulatory Gaming Commission has recently issued its framework for both operators and suppliers and opened up a public comment period, which AGEM is very pleased about, having previously suggested to the commission that comment be allowed on the draft regulations. AGEM is working with GLI on reviewing the wording and will make a decision whether to submit comments if there are any red flags, although early indications are promising. • The new date for this year’s AGEM/AGA 22nd Annual Golf Classic presented by JCM Global was recently confirmed as September 28, and will be held at Cascata, Boulder City, Nevada. The event usually takes place in April or May but has been postponed due to the pandemic. AGEM members approved a $10,000 contribution request that will provide joint title sponsorship with the AGA. The event provides a fundraiser for the International Center for Responsible Gaming (ICRG) and it is hoped, this year as all others, AGEM members will ensure it is well supported. • The AGEM Board approved the application of High 5 Games as a Bronze member. Founded in 1995 and based in Mahwah, New Jersey, High 5 Games is one of the industry’s largest independent casino games providers, developing content for the land-based, mobile, online and social markets, both B2B and B2C.

Forthcoming Events

• AGEM members approved a $5,000 sponsorship request for the National Indian Gaming Association (NIGA) Indian Gaming Tradeshow & Convention, which is now taking place in in Las Vegas at the new Caesars Forum July 19-22. Clarion, the event organizer, has reported 306 exhibitors are planning to return to the show this year, compared to 325 exhibitors that were going to exhibit at the 2020 event in San Diego before it was canceled due to the pandemic. In addition, seven new companies have contracted to exhibit. Registration to the show opened April 15, and all indications are the show is being supported well and attendance will be positive.

AGEMindex

The AGEM Index increased by 12.33 points to 764.13 points in March 2021, a 1.6 percent gain from February 2021. Over the month, the majority of AGEM Index companies reported decreases in stock price, with five trending positively and eight moving negatively. The AGEM Index’s March 2021 growth was driven by a 13.1 percent increase in the stock price of Aristocrat Leisure Limited (ASX: ALL), which rose from $30.36 to $34.35. The stock was responsible for 35.77 points of the AGEM Index’s monthly growth. The other significant index contributor was Crane Co. (NYSE: CR), which added 12.21 points due to a 12 percent stock price gain from $83.86 to $93.91. The major stock indices also performed strongly over the month as the Dow Jones Industrial Average and the S&P 500 experienced monthly gains of 6.6 percent and 4.2 percent, respectively, while the NASDAQ grew by 0.4 percent.

Making Slots ‘Sticky’

Slot developers and consultants look into the psychology of slot play to see what makes a player stick with—and return to—a game

BY FRANK LEGATO

For nearly four decades, slot machines have maintained their role as the most important revenue-generator for casinos. From when microprocessors were first applied to simple three-reel steppers through all the various incarnations and styles of slot machines, operators and suppliers alike have endeavored to understand what it is that makes a particular slot game successful.

ReelMetrics, a data analytics firm that has helped slot operators and manufacturers solve the game puzzle, calls the effort a quest to create “sticky” slots—programs that cause players to stick with a particular game over others.

“Sticky slots are inherently productive assets with the proven ability to capture and captivate players,” says Nick Hogan, co-founder and CEO of ReelMetrics, which is the world’s largest aggregator of gaming data.

ReelMetrics uses data to show operators how game configurations can lead to slots being sticky as opposed to “slippery,” and to minimize what the company calls the “ricochet effect.”

“Slippery slots are inherently unproductive assets that discourage and deflect players,” Hogan says. “And ricochet is a footfall effect where players spend an inordinate amount of time pinballing from slippery slot to slippery slot until something sticky snags them.”

The quest to solve the puzzle of what makes games stick is ongoing, and confounding to many. New features and game mechanics have rolled out from manufacturers for decades, but according to ReelMetrics chairman and co-founder John Boushy, the number of those innovations that have translated into hit games is relatively small. “One of the biggest problems we’ve had in our industry is that a lot of development in product has really been performed without a great deal of empirical data on the people and behaviors,” Boushy says. “So, we are really trying to change that.

“When you look at the results of what is actually succeeding that’s come out, it’s somewhere in the neighborhood of 25 percent or less... These are failure rates that are way too high.”

The major slot manufacturers have responded by increasingly turning to research

“Sticky slots are inherently productive assets with the proven ability to capture and captivate players.”

—Nick Hogan, co-founder and CEO, ReelMetrics

and data collection to cull the most from those features and games that do succeed, and use that information to replicate the success.

“The prior behavioral trends of slot players are something that our game designers constantly track,” says Michael Mastropietro, senior vice president of game development for Scientific Games. “Like any form of entertainment, what appeals to players is constantly changing and evolving.

“When making decisions on what mechanics to leverage, we look at what is gaining traction on casino floors regarding our own games and competitors. We leverage proven performers, such as Quick Hit, Dancing Drums, and Lock It Link, as well as evolve ideas that have resonated with players.”

Research into player preferences also involves hands-on experience playing the actual games, says Ian Arrowsmith, senior director of game development for Konami Gaming, Inc.

“I lead a team of game designers at Konami who are all students of the slot industry,” Arrowsmith says. “There isn’t a game in the field our team hasn’t played. They pore over game performance reports, track trends, visit casino sites, and observe what and how players play. Konami also utilizes data gathered from player focus group testing and test banks. In addition, we consider trends and observation from adjacent industries where our parent company actively participates, including amusement, online gaming, and mobile gaming.”

Cody Herrick, director of game design for Ainsworth Game Technology, says scrutiny of games already in the field is among the best ways to discern what features are making players stay at games longer.

“We do conduct player focus groups and internal reviews as well, but a lot of our information about new product development comes from previous product,” Herrick says. “A lot of our research is done on games in the field, how they’re performing now, and trying to learn from that. A lot of our development goes into the behaviors, good or bad, with past products, and researching competitors’ products as well.” Whether or not the player returns to a specific game, Herrick says, often involves the simplicity of the game. “How easy is it for the player to understand that game?” he says. “We want to learn from that.” While perhaps not digging as deep as a firm like ReelMetrics, slot developers are leaning on data more and more in determining what makes a successful game. “Data analytics have been something that game designers have been craving since the beginning,” says Mastropietro at Scientific Games. “Historically, it has been challenging to get a good read on how games are performing. The gaming industry is unusual because the product designers do not interact with the end user but depend on an intermediary, casinos, for feedback. Game designers love any data we can get our hands on, and things are getting better.” SG just launched SG Connect, a new reporting system that will provide the supplier and its operator customers with valuable player behavioral insights. “These insights will aid us in creating superior games, resulting in increased casino profitability,” says Mastropietro.

“The industry as a whole is now employing more data analytics as well. Casinos want to know not only what is going on in their market but industrywide so they can spot player trends.”

POPULAR TRENDS

Game designers and analysts agree that making games simple to understand is one of the most important trends shown to draw players to games.

“There has been a trend which has been occurring for a while now towards increasing immediacy and simplifying wins,” says Mastropietro. “That’s not to say games are simpler. There are numerous ways to present wins to players, but what they won and how they won is much more obvious.”

“Konami designers have a holistic approach to game design, where every component of the game is deemed important to the performance of the game,” says Arrowsmith. “A solid game mechanic with a well-balanced math model provides the bedrock to the game, coupled with stunning graphics and fine-tuned audio to communicate a path to riches for the player. This creates a thrill and anticipation, even when they don’t win big.

“These games communicate some consistent expectations on how the reward experience is delivered, and give repeat players the chance to relive it, or even gain something greater.”

As far as individual slot mechanics, none is more ubiquitous these days than the “hold-and-re-spin” feature first created by Aristocrat for the Light-

“Progressives, and specifically progressive machines with the cashon-reels and hold-and-re-spin game mechanics, have taken over the premium leased market on casino floors.”

—Rick Eckert, Managing Director, Slot Performance & Analytics, Eilers & Krejcic Gaming

ning Link series, but emulated by just about every other manufacturer. Herrick at Ainsworth, which has created several popular persistent-state titles like Lucky Empress, says players respond to such persistent games because they create a sense of goal-chasing and, when successful, accomplishment.

“The common aspect is anticipation of that big win,” Herrick says. “We’re making sure we’re conveying to the player that anticipation, that moment, that buildup, to when they’re going to get it. Whether we talk about that being a high-volatility game or a low-volatility game, you still want to have that anticipation. That gives the player that feel, that big accomplishment when they win—they earned it.”

“Progressives, and specifically progressive machines with the cash-on-reels and hold-and-re-spin game mechanics, have taken over the premium leased market on casino floors,” comments Rick Eckert, managing director, slot performance & analytics for Eilers & Krejcic Gaming. “This is the popular combination of mechanics that Aristocrat’s Lightning Link skyrocketed into the U.S. market with and continues with Dragon Link and many competitor titles.

“I believe it comes down to the clarity between the games’ payout, or potential payout, to a customer with a simple-to-see-and-follow game mechanic. Persistent play features let the player know that there is an exciting bonus or more wilds waiting for them if they can just play a bit longer, often leading to players digging deeper into their wallet share on that specific game, rather than bouncing around with their gambling budget.”

“These mechanics have become so popular with players because it is very clear what needs to be achieved to win, and what will be won,” says SG’s Mastropietro. “Persistent play,” adds Konami’s Arrowsmith, “suggests a personal investment into an increasing pool of jackpot cash or prizes. This is popular because it allows players to experience and observe some graphic representation of the jackpot cycle, and their part in it.

“Credit collect bonuses like hold-and-spin and stay-and-spin are often easy to understand, with credit amounts displayed directly on the symbols. It’s also common for the prizes to be tallied one-by-one, allowing players to really experience the weight of what they’ve won.”

PLAYING THE CROWD

As slot game mechanics have evolved, game designers have become cognizant of which features appeal to a universal audience, and which appeal to certain groups of players.

“There are certain demographics that like certain kinds of games,” says Ainsworth’s Herrick. “The persistent state-style games coming on maybe draw a different type of player, somebody looking for an advantage. And that goes back to the simplicity of the games, too. You could have a really complicated persistent-state game, and no one’s going to sit there and do math to figure out what state it’s in.

“At the end if the day, it’s good math that’s going to make a good game. And when you have a good game, it works in pretty much all markets across all player segments.”

“The success of a game is ultimately measured by the amount of money a game makes,” says SG’s Mastropietro. “Therefore, high-stakes and core gamblers have more influence on trends than any other demographic by driving performance on casino floors. As a result, the industry is mainly focused on the types of games these repeat players like to play.

“Casual players are drawn to games featuring familiar licensed brands that tend to be less volatile and more geared towards entertainment, such as The Wizard of Oz and Willy Wonka games. Great success is achieved if you can find that sweet spot where the game appeals to both types of players.”

“The best games are the ones that are configured properly with the right line counts, the right hold percentages, put in the right spots.”

—Don Retzlaf, Head of Professional Services, ReelMetrics

“All of these play mechanics go in a cycle,” comments Mike Trask, director of product marketing and strategy for Ainsworth. “Everyone remembers when different styles of games were the hottest thing in gaming. And here we are, and they’re not. But I’ll bet you go to the casino floor or the trade show later this year, and you’ll start to see that people will find a new twist on them.

“Most stuff in our industry goes in a cycle, and different things get hot for different reasons.”

“It’s like fashion,” says Herrick. “It all comes back around again and gets reinvented for the market today. You could have done a pick feature five years ago and it was low volatility, and maybe it worked then but the players’ tastes have changed. You can still do a pick feature, but you’re going to have to add more volatility now.”

Volatility, in fact, is one of the key factors appealing to another important slot demographic, the traditional slot player—the classic gambler looking for high denominations and high volatility.

“Traditional games will be a steady staple on the casino floor for many years to come,” says Konami’s Arrowsmith. “They may not get as much talk or attention, but there is an enduring appeal.”

Herrick notes that a big portion of Ainsworth’s success has come from the high-denomination, high-volatility game style. “Especially out of our Sydney studio, we have a lot of these game mechanics that are well-known to the player,” he says. “Even though it’s a new game, it still has that feel, that higher volatility, simpler math styles, the free games, concepts like sticky wilds... That player segment is still a big part of the market, and obviously a big part of our game portfolio.”

THE COMMON DENOMINATOR

The variety of game styles, game mechanics and appealing slot features may not be as important in creating a “sticky” game as how the game—whatever the style—is configured, and located, according to Don Retzlaf, head of professional services for ReelMetrics.

“The best games are the ones that are configured properly with the right line counts, the right hold percentages, put in the right spots,” Retzlaf says. “Even for the games featuring the top play mechanics, the games have a wide range of performance due to these controllable variables.

“The operator can place some games on the floor that they’re expecting to do two and three times house average, and they have no shot just because of how they’re being set up. These games have a very narrow band for success. And I think the manufacturers are starting to realize that, and they’re starting to want to make configuration recommendations. They just don’t have the data yet, but fortunately, we’ve been able to come up with some configuration options for our clients that take these low-performing games and turn them around, for no cost. “It’s not as much on the features, whether it’s persistent or hold-and-respin. A lot of it is how the games are set up.” Adds ReelMetrics co-founder and Chairman John Boushy, “There’s been a huge amount of discussion throughout the industry of, ‘should I have a higher hold percentage, lower hold percentage, higher return to player, lower return to player...’ At the end of the day, what the answer is depends upon the overall way the game plays. Because in some situations the best setting is a lower return to player; in other situations, it’s a higher return to player.” “I just looked at one of the most popular leased games on the floor, where every casino has it,” says Retzlaf. “And the range of outcomes was from less than house average to four times house average. For this one, it was all location-based. A lot of people put these games into poor locations trying to drive traffic, but in this case, the leased game, if you put it in a location that was average or below average, it was barely doing house average.”

Besides configuration and location, the biggest factor in making a game sticky is its winning percentage—not RTP, but the percentage of all play that results in a winning play session. According to Retzlaf, 20 percent is the sweet spot.

“I just finished looking at over 43 million player sessions, taken over a one-year period, and a couple of things jumped out,” Retzlaf says. “Volatility and configuration are the key components of success, and the best games have a player winning session of around 20 percent.

“If they get much higher, then they become a time-on-device game, and it doesn’t resonate very well with the customers.

If they get below 12 percent, the games just have too much volatility, and that leads to multiple poor experiences, and the game loses traction with all those high-frequency players the casinos thrive on. There are some really good games out there, but with a win percentage of 10-12 percent, it just creates a lot of negative experiences. If you lose on that game nine times out of 10,

seven times out of eight, you have a lot of negative experiences on those games.”

ReelMetrics has cited research in the past it says demonstrates that most slot floors have too much variety—too many choices equals too many slippery games, the research says.

“We’ve yet to see a single slot floor anywhere in the industry that we would not describe as grossly over-diversified,” says ReelMetrics’ Hogan. “There’s simply too much variety out on the floors, and then to make matters worse, the floors are ridiculously slippery with unproductive assets, outnumbering productive games... What’s happening is that players are spending far too much time transitioning from lousy experience to lousy experience.”

Hogan points to the fact that many casinos have already equaled pre-pandemic slot revenues despite reduced capacity. “Despite the 30-to-50 percent reduction in the total number of active units, we saw unit level revenue gains that were wildly disproportionate—200 to 400 percent lift was by no means unusual.”

He says the company’s research shows “dramatic increases in session duration and far fewer game samplings per trip. Effectively, players found those sticky games very quickly, and they stayed put.”

Slot manufacturers agree that there may be too much variety for players, but some disagree that this fact is causing players to “ricochet” from game to game.

“I do agree that players are being bombarded with too much variety,” says SG’s Mastropietro. “Currently, several hundred games are released each year, with a new game released almost daily. In my first year working at WMS, we released five games a year. Now we are releasing 60-plus, just in Class III.

“I disagree that too much variety is causing players to drift from game to game. I feel the opposite is true. It used to be that five new games would release, and players would play all five. Now, in this game-saturated environment, players are drawn to and focusing on what they know and what is familiar. Because of this, slot brands are becoming more important and powerful. Slot brands, such as 88 Fortunes, Dancing Drums, Lock It Link and Zeus, have huge, loyal followings. Players know what to expect when they play a new title in the Dancing Drums family.”

“The options to the player are vast, but the communication from the game to the player has greatly evolved from five years ago,” says EKG’s Eckert. “Progressives and game mechanics are basically yelling at players from across the casino floor, and once they sit down, the LED button decks have now even evolved to letting players know what they might be getting in return for placing a higher bet, or inversely, what features they lose when betting down.”

“One of the benefits of this new, highly competitive market is that quality is incredibly high, and players’ expectations are rising,” says Mastropietro. “Game hardware, graphics and signage have to be superior to the competition to get noticed.”

“More manufacturers than ever before making more games than ever before,” says Ainsworth’s Trask. “At the same time, though, our 10-year-old high-denom games continue to be the most popular in the country, month after month, year after year. Certainly there’s a competitive market, but when a game sticks, it has its audience.

“Because of the variety and the amount of product being released, and the limited capacity in casinos over the last year, it’s even harder to make something that sticks out. But when you do, I believe the results remain the same. It’s a more competitive market than ever, and it’s hard to get your game played on a casino floor. The sticky games will be there.”

We are a gaming company, we’re a technology company, we’re a media company. We’re actually all three. And I think you can make the assumption that we’re going to continue to expand our expertise, our breadth, our offerings, on all three.”

—Soo Kim, Managing Director, Standard General

This Year’s Model

Why the restoration of Bally’s as a brand spells out a new way to build a gaming company

By Roger Gros

Virtually all casino companies now have a digital arm. Whether it’s social casinos, mobile sports betting or realmoney online gaming, a casino company would have to be operating with blinders on to ignore the potential for these digital tools. But so far, these tools have just been an add-on to a land-based casino, whether the company has one or more than 100.

But the connections are tenuous at best. A truly expansive experience connecting all channels of delivery has yet to be established by any traditional gaming company. That may change now that Soo Kim has added a brand name to his vision.

Bally Blockbuster

The Bally’s brand has been around for almost 90 years, dating back to when, as Bally Manufacturing, it launched a pinball game known as Ballyhoo in 1932. The company soon began to manufacture slot machines and later got into casino operations.

But the company that represents the brand today has only been around since 2004, when a group that included Sol Kerzner and Len Wolman, two of the principals behind the original Mohegan Sun in Connecticut, paid more than $400 million for a small Rhode Island racetrack, Lincoln Park, which it renovated for an additional $200 million and renamed Twin River Casino. But the 2007-08 recession forced that group to default to a group of lenders that included Bank of America and Wells Fargo, and Twin River Worldwide Holdings was born, now majority-owned by Standard General, a New York-based hedge fund.

Kim, the managing director of Standard General, had been a director of Twin River since 2016 and was named chairman in November 2020. He had help to cement decisions made by Twin River for several years, starting with the purchase of Rhode Island’s only other casino, the Newport Grand. The license was moved to Tiverton on the Massachusetts border and a new $140 million casino hotel was built.

In 2019, Twin River purchased Dover Downs Gaming & Entertainment, whose main asset was a racetrack and casino in Delaware, but the real attraction was a reverse merger where Twin River went public under the Dover Downs shell.

Kim says it was a defining moment for the company. In addition to being the vehicle for the company to go public, he talks about improved cash flow, upgraded facilities and added marketing capabilities. And the addition of former Dover Downs controlling shareholder Jeff Rollins has been a big benefit to the Bally’s board.

“When you do one good deal, it helps you do future deals,” says Kim, “because it gives you more capacity and more confidence. So actually Dover was a very important deal, even though it was a small deal, because it worked out so well in such a short period of time, that it allowed that snowball effect to keep rolling down the hill.”

In early 2020, Twin River bought three Colorado casinos from Affinity Gaming and then in April took advantage of the Caesars-Eldorado merger, picking up Bally’s Atlantic City for a mere $25 million, plus Eldorado Shreveport and Montbleu in Lake Tahoe, Nevada. In July, another Eldorado casualty was scooped up, the Isle of Capri in Kansas City.

But Kim says the true identity of the company was cemented when it bought the Bally’s brand from Caesars in November, a thought that germinated when Twin River bought the Atlantic City property.

“We asked the Caesars folks that were selling it at the time, then in the middle of the merger with Eldorado, if they were willing to sell it, they said ‘no.’ But when Eldorado ultimately closed on the purchase of Caesars, they agreed to sell it. So, we’re really thankful to Eldorado for entrusting us with what I believe is one of the iconic names in gaming.”

Practically, it saved the company the money from having to rebrand Atlantic City, but Kim says it was bigger than that. It tied into his vision for the future of the company. “We have a plan,” he explains. “We’ve been operating with a plan to figure out what do we do in this world of online gaming. It’s massively disruptive to the industry as a whole, so how do we choose to face this disruption? We’ve chosen to face it in a positive way and embrace it, embrace the change, and not be scared of it. We needed to decide what we need to do to be relevant in an online future—an omnichannel future. We frankly wanted a unified identity because regional identity makes sense in the physical world, but online, across the nation, having one brand makes a lot more sense.” Kim says the brand was once very important in gaming and he hopes to extend that reach, and recounts its history that extended far beyond gaming. “It’s an iconic name that’s been around for almost 100 years,” he says. “Actually, I loved the roots as a pinball company—the Midway games. I love that entertainment, and engaging audience roots, because frankly as gambling goes online, in some ways it becomes more ever-present. You can’t hit people with gambling all the time. We want to position ourselves as the interactive entertainment brand. Bally’s started as an entertainment brand. At one point, (Bally) owned amusement parks and sports clubs and gyms. I love the history of the name.”

Bally’s announced that it is buying the operations of the Tropicana in Las Vegas from the REIT Gaming and Leisure Properties Inc.

Even when it comes to gaming, Bally’s holds a special place, according to Kim.

“It was the center of East Coast gaming for years,” he says. “Can you get more exclusive than Boardwalk and Park Place (the Monopoly location of Bally’s AC)?”

More exclusive could be the intersection of the Las Vegas Strip and Flamingo, where the current Bally’s Las Vegas stands. When Kim reached the deal to acquire the Bally’s brand from Caesars, he gave them rights to the Bally’s name on this building as long as they wanted it. Even with Caesars previously stating that the company would sell one of its Las Vegas Strip properties following the Eldorado merger, Kim doesn’t believe that property will be Bally’s, simply because of its location.

“It’s at the heart of the action,” he says.

Right before press time, however, Bally’s announced that it is buying the operations of the Tropicana in Las Vegas from the gaming REIT Gaming and Leisure Properties Inc. (GLPI) for $150 million plus a yearly lease of $10.5 million for 50 years. In addition, Bally’s would sell the properties occupied by the Bally’s Black Hawk and Bally’s Rock Island (formerly Jumer’s) to GLPI for $150 million, with a $12 million annual lease payment for Bally’s to operate both properties. Therefore, when the deal closes in early 2022, no cash will change hands.

Kim says his company needed to be in Las Vegas.

“If we have aspirations of being a national brand, we had to have a presence on the Strip,” he explains. “Now we have a place to send our customers who want to make that annual trip to Vegas.”

He believes Bally’s got in at a reasonable price, but time was of the essence.

“The Tropicana is 36 acres at the beginning of the Strip,” he says. “It only has 600 slots and in some instances it feels like it hasn’t been touched since 1960. We truly believe that Las Vegas is going to recover quickly, and this gives us a chance to be there, invest a little money, and decide later what would be the best fit as a real attraction.”

Kim didn’t comment about whether the Tropicana would be rebranded as a Bally’s. But with Bally’s Las Vegas being the only Bally’s brand left in the Caesars’ portfolio, one has to wonder whether it would make more sense for that property to be rebranded a “Horseshoe” casino, the third powerful mark behind Caesars and Harrah’s, a valuable asset for the company. Judging by how quickly Bally’s has been making deals, and given the good relationship Bally’s has with the management team at Caesars Entertainment, Tropicana may be Bally’s by the time this article is published.

Sports Focus

Following 2020’s property buys, Kim’s next step was to arrange a deal with Sinclair Broadcasting to brand the sports channels in Sinclair’s network of channels as Bally Sports. In a previous business dealing, Kim had built a broadcasting company featuring 77 television stations making $450 million a year and then sold it to Sinclair’s main competitor. So his familiarity with the company was apparent, and his interest in working with them was piqued. “There was a lot of mutual respect,” says Kim.

In sports, Sinclair has the largest portfolio of “local rights” versus ESPN, which has the largest national rights. Kim says the local rights were more important than the national rights because sports betting is a localized action, rather than national. As a result, Bally Sports is now branded in 19 different regional sports networks (RSNs), serving some of the most densely populated regions of the nation, many of them with legal sports betting.

The Sinclair sports channels were branded as Fox Sports, and Kim convinced them to rebrand.

Then the next purchase was a technology company called Bet.Works, which he believes has superior sports betting technology compared to some of the other national brands, and he says it was proven during the Super Bowl, when several of the platforms of the national brands went down, but the Bet.Works technology stood up.

“It was our access footprint, it was our technical capacity, our branding, all coming together to work with Sinclair’s amazing footprint of rights,” he says. “If we can bring this together in the right way, it’s going to be huge.”

In April, Kim announced that Bally’s would collaborate with Sinclair to facilitate the production and broadcast of Bally’s-produced content during the current non-game windows on Sinclair’s 19 RSNs recently rebranded Bally Sports.

“We continue to seek innovative ways to allow fans to further engage with the Bally’s brand, and are confident that the engagement opportunities we will create will elevate the live viewing experience in a manner not seen before,” he says. “The gamification of live sports is the next phase of interactive gaming, and we look forward to continuing to create lean-inexperiences for sports fans across the nation as our content strategycontinues to expand.”

The company’s sports betting app, Bally Bet, will play a huge role in the development of the Bally’s-Sinclair content, says Kim.

Other Bally’s acquisitions include SportCaller, a B2B free-to-play (F2P) game provider for sports betting and media companies across North America, the U.K., Europe, Asia, Australia, LATAM and Africa, and Monkey Knife Fight, the fastest-growing gaming platform and third-largest daily fantasy sports (DFS) operator in North America.

These deals, says Kim, will broaden the appeal of the Bally’s experience.

“They know who their customers are, and they bring them through a journey,” he explains. “In a physical world, I think that might be less important, because it’s about who owns what and on what corner. But online, everyone is equal, so it’s important that you offer a better software, a better product, and then also to keep better control over who your customers are, and keep them loyal. So with Sinclair’s media rights, our technology access footprint, and brand, we really have the potential to put together a very differentiated product that really can not only give a customer a great experience at a physical casino, but also pull them along online, and give them products that are really important to them.”

In some ways, Kim believes a change of how viewers consume sports is already under way, and he believes that the direction he’s leading Bally’s will de-emphasize betting.

“What we’re trying to do is deliver more entertainment,” he says. “We think that watching a game should be more interactive, should be more engaging, should be more entertaining. As the audience starts to fragment, they’re disengaging from traditional media, because meanwhile there’s millions of people that watch other people play video games on the internet.

“Is it really that much more engaging to watch some video feeds, versus an actual player hitting a ball or running, something like that? I think that’s pretty clear that’s not the advantage. The advantage is it’s more interactive. Kids are watching video games, playing video games, talking to others about playing video games, talking to the people playing video games.”

iGaming Future

Another acquisition by Bally’s recently was the purchase of the British-based iGaming company Gamesys, an early entry into the U.S. market in New Jersey. The platform has been used by the Tropicana and Virgin Games in New Jersey and other B2C companies in the U.S.

“As you know, iGaming is where the money really is,” says Kim. “And in Gamesys, we found the company that has been doing it for a long time, has built a really unique product set, and owns it. They’re very profitable. They operate in relatively mature markets. We decided we can pay mature market prices, and then bring them to the growth market, which is the U.S.

“Gamesys has very good market share in Europe, leading with bingo versus leading with sports, which gives them a really interesting, differentiated skill set. We can add our sports on top of that, and so to essentially hit both demographics, and bring all that knowledge and expertise. I’ve always told people that we want to be a tech company. And with the merger with Gamesys, we will be a tech company.”

Kim is cagey about the future for Bally’s Corp., but clearly he’s not done yet. He admits that he’s doing things differently than other casino companies have done them. Most companies hire technology partners to provide their products to generate business, but Kim wants Bally’s to own the technology so the company can control the journey of the player from the land-based casino, to viewing sports, to playing online for real money. But how’s he going to get there? Well, he’s keeping those cards close to his vest.

“I don’t want to read from the framework, because we have it and we’re still executing parts of it,” he says. “I’m happy to tell you about the parts that we’ve executed, but the parts we haven’t, not quite yet. But it’s common sense. Once you see the whiteboard, it won’t be a mystery.”

Being considered a technology and an operating company is tricky, something few have been able to accomplish. Kim outlines the challenge.

“Some of the tech is not profitable, right? So you must be careful about that,” he says. “With a company like Gamesys, it is a profitable tech company, and so we’re trying to balance the ability to fund and grow. Look, we are a gaming company, we’re a technology company, we’re a media company. We’re actually all three. And I think you can make the assumption that we’re going to continue to expand our expertise, our breadth, our offerings, on all three. On the gaming side, it’s obvious we are bidding on new projects. I’m sure we’ll participate in additional M&A activities. That stuff will continually happen.

“On the technology side, I would say that Gamesys is a very important anchor, and it helps us complete the major pillars of what we think we need to own. But there are many other interesting technologies and businesses that we believe will fit really well into an online future, and especially the engaging and entertaining online future that we’ve talked about. So we’ll continue to make acquisitions there. And stay tuned on the media side. We think the integration to media is our competitive advantage.”

With the rapid growth and development of Bally’s, competitors wouldn’t be wise to dismiss Kim’s plan. And for new entries into the business, well, now you’ve got a new blueprint for success.

What the SPAC!?

Understanding the emergence of a new route to going public in the gaming industry

BY ADAM STEINBERG, CFA

Since around 2019, there has been an increasing number of gaming companies combining with special-purpose acquisition companies (SPACs) to expeditiously go public and acquire an additional form of currency— public equities—to fund new growth opportunities.

It is important to note that SPACs have existed since the early 1990s, but for a variety of reasons, they did not gain favor within the gaming industry until recently. SPAC issuance thus far in 2021 exceeds the prior year, as privately held, high-growth industries appreciate the SPAC as a more cost-effective and less time-intensive process to go public than the traditional initial public offering (IPO) route.

Since the end of 2019, there have been several examples of gaming companies using SPACs to go public instead of doing an IPO. The most notable of these was DraftKings, which went public roughly a year ago and has been one of the best-performing stocks during this time period. Other reported SPACs that appear on the horizon include Sportradar, reportedly valued as high as $10 billion.

While most of the focus has been on sports betting and online gaming and their associated suppliers, SPACs have been used for land-based opportunities as well. One of the most recent of these transactions was the creation of Gaming & Hospitality Acquisition Company (GHAC), which was sponsored by Affinity Gaming.

For those unfamiliar, a SPAC has raised proceeds through a public offering, but does not have current operations of its own. Instead, the SPAC has 18 months to agree to acquire a company and 24 months to complete the acquisition. Based on available information, there are believed to currently be approximately 430 SPACs that have completed their IPO but have not yet announced an acquisition. In other words, there are 430 SPACs searching for a target to acquire.

For the year to date ended March 31, 2021, approximately 297 SPACs have completed their IPO, raising over $97 billion in proceeds. For comparative purposes, there was a record 248 SPAC IPOs with $83 billion in proceeds for the entire year 2020. Thus, through one quarter of 2021, the number of SPAC IPOs and proceeds has exceeded all of 2020. In fact, the 2021 YTD SPAC issuance has exceeded the number of IPOs and proceeds for the 11 years from 2009 through 2019 combined.

Figure 1: SPAC IPO Transactions by Year (2009-2021 YTD)

Source: SPAC Insider

Strict Rules

In a gaming blog post on SPACs in August, we highlighted that a SPAC has not identified, or begun discussions with, its acquisition target at the time of its IPO. If it had done so, the SPAC must disclose the target in its Form S-1 initial registration form. Other items to consider during the IPO process include the following: 100 percent of the IPO proceeds are placed into a trust account. The trust funds cannot be disbursed until either i) an M&A transaction is completed; or ii) the SPAC is dissolved and the public shares are redeemed if the SPAC does not complete a transaction in the appropriate time frame. The fair value of the target must be equal to at least 80 percent of the cash in the SPAC trust fund. • More typically, the target is acquired for three to four times the initial SPAC proceeds with the additional capital raised by issuing either debt or equity. SPACs offer units, which consist of shares and rights or warrants to purchase additional common stock.

• The SPAC units become separable after the IPO and both the shares and warrants freely trade.

The SPAC sponsors acquire “founder” shares. • With some variation, the founder shares will ensure the sponsors own approximately 20 percent of the outstanding common stock of the post-transaction company. • Similar to a post-IPO lockup in a typical initial public offering, the founder shares are usually subject to a one-year lockup, but in this case, it is for one year after the M&A transaction.

At the time of the IPO the sponsor commits to voting its founder shares, as well as subsequent purchases of public shares, in favor of the transaction. • Thus, at the time of announcement at least 20 percent of the

SPAC’s shares are committed to voting for the transaction. • To achieve shareholder approval from 50 percent of the

SPACs shareholders, it is only necessary to get approval from less than 38 percent of the remaining shareholders.

As noted above, the SPAC must announce and complete a transaction within a specified time frame, typically 24 months. If no transaction is identified and consummated, one of two things will occur: all public shares are redeemed on a pro rata basis for the cash remaining in the trust fund; or, the sponsors can request a shareholders’ vote to extend the deadline.

In terms of process, after an acquisition has been announced, the SPAC will file the required information disclosures, including three years of audited financial statements plus unaudited interim financial statements. After the SEC has completed its review and signed off on the documents, the SPAC sets a date for a mandatory shareholder vote to approve the transaction or redeem the shares for a pro rata portion of the trust proceeds.

New to Gaming

While SPACs have been around since the early 1990s, they have typically not been active in the gaming industry. This is true for myriad reasons, but two reasons, in particular, are highlighted, because they are the most important reasons SPACs have not acquired gaming companies. Further, these reasons stress why SPACs have become increasingly more interested in the gaming industry in the present times due to certain structural changes to the industry.

Primarily, the regulatory requirements of the gaming industry, notably the investigation and obtaining of gaming licenses in each jurisdiction in which the company operates, has kept many SPACs away from the industry. This is especially true for some of the slot machine manufacturers and large casino operators that are licensed in a large number of jurisdictions. As it relates to the slot machine manufacturers, some of the larger companies have over 300 international, domestic and Native American gaming licenses.

Likewise, some of the smaller, privately held slot manufacturers with a niche focus or capacity constraints can have over 100 gaming licenses. This total includes each Native American tribe as they investigate and license the company, its executives and large shareholders. These investigations can take significant time to complete; it would be longer when there are a large number of jurisdictions conducting the investigations.

For example, Penn National Gaming agreed to acquire Argosy Gaming in November 2004 with the acquisition closing nearly one year later in October 2005. Even more recently, Twin River Holdings announced the acquisition of two casinos (Isle Kansas City and Lady Luck Vicksburg) from Eldorado Resorts in July 2019 and completed the transaction in July 2020. This time frame necessary to obtain the regulatory approvals would have been inconsistent with the time frame to complete a SPAC transaction, and would have necessitated the additional expense and risk of a shareholder vote to approve the delay.

Additionally, the brick-and-mortar legacy gaming industry is in the mature phase of its industry life cycle with declining margins and consolidation. Thus, this segment is, in our opinion, unattractive to most SPAC issuers and investors. However, there have been two significant changes to the gaming industry that have created a new vertical in the U.S. with substantial growth potential and, by extension, returns for investors.

In 2018, the Supreme Court of the United States (SCOTUS) overturned the Professional and Amateur Sports Protection Act. This was in addition to the 2011 reinterpretation of the Wire Act by the Justice Department under President Barack Obama. The 2018 SCOTUS opinion enabled sports betting to become legal in all 50 states. The Obama-era Wire Act interpretation made it possible to create the intrastate real-money gaming industry, i.e. online casinos, poker and/or lottery.

The importance of these two decisions has been the evolution of a highgrowth industry in the infancy stage of its development. But, because online gaming and sports betting have been legalized in only a handful of states, it substantially reduced the number of jurisdictions in which the new owners need to get licensed, thereby reducing the friction cost for a SPAC to make an acquisition in the gaming industry. This has led to several companies going public via the SPAC route.

Figure 2: Recent SPAC Transactions in the Gaming Industry

Figure 3: Relative Performance of SPAC – Gaming Company Combinations Since Transaction Announcement

Equity Ownership

One aspect of an acquisition of a company by a SPAC relative to pursuing the tradiThe combination of realmoney, online gaming shares with 10 votes per share. Far less frequently, because it affects the return decision of the SPAC owntional IPO route is in terms of control or influence. As noted above, the SPAC “founders” own around 20 percent of the companies and SPACs has been effective, thus ers, some owners have agreed to forfeit some of the founder shares. Many of the SPAC-gaming industry combinapublic company and are usually the largest shareholder of the new company. Meanwhile, in an IPO, the company founder far, in realizing the goal of creating a publicly tions, from a stock market performance perspective, have outperformed the S&P 500 benchmark index. Notably, each of the combinations involving reallikely, but not always, remains the largest shareholder of the company. Thus, some company founders are reluctant to sell to a traded gaming company. In turn, this money online gaming or sports betting companies has exceeded the benchmark. Meanwhile, the two combinations that have underperformed the benchSPAC because of a fear of losing control of operational and strategic decisions, and the SPAC, recognizing the importance of retainhas been delivering economic returns to mark were involved in brick-and-mortar retail gaming or free-to-play social casinos. Arguably, the combination of real-money, online gaming companies and ing the founder’s vision and drive, seeks to incentivize the owner’s continued involvement and motivation. SPAC and company founders, as well as the SPACs has been effective, thus far, in realizing the goal of creating a publicly traded gaming company. In turn, this has been delivering economic returns to As has been seen in the gaming industry, SPACs employ certain strategies to mitigate public shareholders. SPAC and company founders, as well as the public shareholders. the concerns of the company founder as it re- This is likely only the beginning of SPACs being lates to loss of control. In particular, many used in the gaming sector. With rumors of additional company founders have negotiated a dual- SPACs on the horizon to take other online, sports class equity structure with Class B—super- betting, land-based and other affiliated companies to voting—shares issued to the company founder. These Class B shares are the market space, it provides a vehicle to raise additional capital, raise the proexchangeable on a one-for-one basis into Class A shares of the company file of the entity, and deliver returns to those involved. with forced conversions based on achieving certain benchmarks. Gaming is just beginning to see the rewards of this vehicle, while other in-

For example, Skillz CEO Andrew Paradise received Class B shares as dustries have been using it for some time. It highlights how gaming has beconsideration in that company’s merger with Flying Eagle Acquisition come both more Main Street and Wall Street in our economy. Corp., entitling him to 20 votes per share, effectively giving Paradise over 80 percent of the voting power of Skillz shareholders. It should be noted, the Adam Steinberg is founder and CEO of AM Steinberg Advisors, an international super-voting dual-class structure previously existed at Skillz. However, under consultancy with experience in Asia, Europe and North America. During his over the previous structure, the Class B shares entitled Paradise to 10 votes per 20-year career in the gaming industry, Steinberg has analyzed and opined on over share. Additionally, Jason Robins, CEO of DraftKings, was issued Class B 70 M&A transactions valued at over $100 billion.