Wednesday, March 11, 1998
Playing the odds in the gaming business
By CAROL HOWES
Calgary Bureau The Financial Post
Tom Nieman was there the night the slot machines went on at Casino de Montreal. A year later, on May 17, 1994, he showed up for the opening of Casino Windsor. All told, Nieman, a former vice-president of marketing for Bally Gaming in Las Vegas, has spent 25 years introducing technology into North American casinos.
Now, as the freshly minted chief executive officer of Vancouver's four-year-old Advanced Gaming Technology Inc., he's literally taking his game down a notch.
Nieman wants to take bingo electronic. His reasoning is clearer than a bingo caller's voice. It may be one of the lowest-tech games on earth, but in North America it generates roughly $5 billion in annual revenue, half of that in Canada.
"Bingo represents huge entertainment dollars," Nieman says, pointing to the 5,000-seat bingo barns that fill up every night in the U.S. "It's not so much big business as big revenue."
Advanced Gaming has developed electronic bingo products that enable players to handle up to three times more cards than they could playing with paper.
Experienced bingo players using Advanced Gaming's MAX (Lite) portable hand-held unit will be able to handle up to 60 cards. They will also be able to head to the bathroom or the snack bar without missing a marker.
That means bigger wins for players and triple the revenue for bingo organizers.
"I parallel bingo to casinos 15 years ago," says Nieman. "It's just beginning to embrace technology."
That's true in Canada and the U.S., where Advanced Gaming is hoping to get in on the ground floor. So far, B.C. Lottery Corp. has purchased 50 of the hand-held units to test, and the company expects other government-run organizations to follow suit. And earlier this month, it completed an agreement to have Dallas-based K&B Sales Inc. distribute its bingo systems in the lucrative Texas market. Now the company plans to move its head office to Las Vegas, the gaming industry's centre of gravity.
But the odds suggest Advanced Gaming is less than a sure thing. Aside from a foray into a Missouri resort property and a deal two years ago to install Sega horse-racing machines in Chinese slot parlors, the company has spent most of its brief history developing its MAX line of electronic bingo machines. To date, the company hasn't produced any earnings and its stock reflects the uncertainty. Lately, its shares (AGTI/Nasdaq) have been trading at US8«, near the bottom of their 52-week range of US23« to US4.7«.
If Nieman speaks with the zeal of the newly converted, that's because he is, having joined the company in February. He replaced company founder Robert Silzer Sr.
Still, says Silzer's son, executive vice-president and company co-founder Robert Silzer Jr.: "There's a huge opportunity in Canada." And the handful of small Canadian gaming companies that have quietly listed on stock exchanges in the past few years demonstrate he isn't alone in his belief.
Although few have made any money at it yet, they are content in the belief that what has become a cash cow for provincial governments is bound to benefit investors.
"If it's good enough for government, you'd think it would be good enough for private enterprise," says David Dvorchik, Toronto-based analyst with Taurus Capital Markets and one of the few Canadian analysts who cover the industry.
In Alberta, despite growing public demand to have controversial video lottery terminals pulled from Calgary and Edmonton, revenue from gambling this year will total $660 million, more than the province is likely to receive in royalties from conventional crude oil.
Ontario's Casino Corp. earned just more than $1 billion last year, pumping $393 million into the provincial treasury. And Ontario Lottery Corp. brought in $2.1 billion. But even that is penny ante compared with the hundreds of billions spent worldwide on gambling every year.
A piece of that action is what young companies such as Calgary's Applied Gaming Solutions hope to capture. Applied Gaming, which went public last June and trades on the Alberta Stock Exchange, sells specialty slot machines and other games, but it is also looking to set up national lotteries in developing countries.
The company, which as yet has little revenue, announced a deal in November to acquire Quantum Data Supplies, a Calgary firm that had $15.5 million in revenue last year from computer sales and the creation of computer networks.
As part of a mainly Canadian consortium, Applied Gaming has submitted a proposal to supply 20,000 lottery terminals to Vietnam.
"There are huge barriers to entry into this business," says president David Aftergood. "It's very regulated and very expensive to get into. But at the same time there are real opportunities for finding a niche."
Other small companies are chasing different aspects of the gaming business. B.C.-based Dion Entertainment Corp. and Great Canadian Casino Co. have carved a niche in managing charitable bingos. Calgary-based Yin 88 Gaming Corp. sells pull tickets for charities in Ontario. Still, it has bigger things in mind. It has a proposal to build a destination casino in tourist-town Invermere, B.C.
Dvorchik, however, is not putting a wager on land-based gaming companies so much as the Internet. "What attracts me to the Internet is there is 100 million people accessible from a couple hundred countries" with few costs and little overhead, he says.
He points to Toronto-based Cryptologic Inc., which licenses software to Internet casino licence holders in return for a share of the gambling action. It had revenue of $17.8 million last year, its first full year of operation, up from $213,000 in 1996. Profit was $8.7 million ($1.27 a share), compared with a loss of $600,000 (12«) a year earlier.
"How many companies do you know that go from a standing start to realize $8 million in their first year?" he asks.
Dvorchik is also keen on Gaming Lottery Corp., formerly a Mississauga, Ont.-based printing company, which now operates an Internet casino Web site from its head office on the Caribbean island of St. Kitts. Live wagering on Gaming Lottery's system is expected to begin in April.
He acknowledges Gaming Lottery has a checkered past, including lawsuits in the U.S. and Canada in which it was accused of fraud. "This isn't the first company to get sued. Besides, this is a frontier area. You might find some colorful people there," he says. "Nobody said this is low risk."
Investors, he says, should carefully scrutinize the balance sheets and financial resources of any company they invest in, especially in the gaming industry.
That same advice applies to gamblers, Dvorchik says. "If I was gambling on the Internet, I'd like to have a comfort level that if I won, I'd be paid off. Customers should be limiting their activity until they get a sense of whether a company is reputable." |
