It has been nearly four years since Apollo Global Management acquired AGS with the intention of making the firm, whose roots were in the Class II tribal market, into a global diversified gaming supplier.
What may have seemed like a bit of a long shot at the time became less so with the follow-up acquisition of Cadillac Jack two years later. At the company’s second annual GameON 2017 – AGS Customer Summit in June, Apollo’s original goal seemed well on track, for both the quantitative growth AGS has realized after spending over $450 million on acquisitions since 2013 and the evident quality of the strategies it is deploying.
Start with some numbers: Pre-Apollo acquisition, AGS had about 9,000 slots in the field; now it’s at 21,000 and counting. Its table games division started in August of 2014 and now has over 1,500 games. Over the past 4.5 years, AGS has gone from 127 licenses to 243 as of the conference. AGS Interactive, which was created in 2015 with the purchase of Rocket Play, now boasts over three million lifetime installs of its interactive product and is considering going from exclusively b-to-c social gaming to doing some white label b-to-b business. Along the way, AGS has also made convincing statements about R&D and the culture it intends to embrace as a company.
“The commitment has to be from AGS that we’re not going to be around for just a couple of years, but pretty much every penny of our levered free cash flow goes right back into the company to make it stronger, more robust,” said David Lopez, president and CEO. “Most of the growth in our expense goes right back into R&D. No matter how much we grow, we always want to be small, we want to be nimble and move quickly; there will be no decisions-by-committee.”
AGS has parked its R&D operation in Atlanta, a top-five technology market “which has been great for us,” said Lopez. “We’re investing in there because it’s where we can find the talent we need. We’re going to continue to build that team. We have also recently opened up an Australian studio and we’re going to start developing games out of Australia which is where many of the great slot games are developed today.”
All told, AGS has hired 25 new R&D employees in the past year, and now has 177 total, compared with under 100 when Lopez joined the company in early 2014. “We introduce 35 new slot titles per year; we don’t do 60 or 70 titles just to do the titles,” he said. “We focus on high-quality output. Our R&D guys actually measure and try to determine what percentage of our output is a hit. Our hit rate is very competitive in the industry and probably in the top two or three.”
Citing the Eilers-Fantini Slot Survey, Lopez noted that AGS is number one in leased game performance for non-Big Four companies. Hits include Orion and Icon on the hardware side and games such as Big Red, Colossal Diamonds and Golden Wins, the number one owned casino game, performing at 1.79X house average. Big Red is one of the top performing premium leased titles. Fu Nan Fu Nu and Trade Winds are in the top 30 for game sales. “We do have an Oklahoma customer in the room that has had the Orion cabinet and specifically Fu Nan Fu Nu, performing at 5X house average since G2E of last year, and that was our first install of Orion,” said Lopez.
A key theme on the game development side, be it slots or tables, that comes through from AGS is to consistently produce games that offer loyal players what they consider, as gamblers, to be a reasonable deal.
“If we could come back to one thing, it’s what is the value for the player and how are we focused on them and not just entirely on profit, even though it’s as important as it is for us,” said John Hemberger, senior vice president – table products. “As we look forward, what we’re trying to do is extend engagement and extend winning opportunities. Progressives are a great vehicle to do that because they allow you in one way or another to continue to participate when the base hand is over because there’s a second experience/opportunity to win.”
Using the example of pai gow progressives, Hemberger said “you don’t have to be a mathematician” to know that a straight flush is a very rare hand. “Typically, by the time I’m drawing my second or third card, I’m drawing dead to that particular prize,” he said. “If you played our pai gow game, which has a wheel on it and the same progressive jackpot, what you’ll have is some hand, could be a full house or better, or a bad hand, say king-high pai gow or worse; there’s something that going to enable you to trigger a wheel spin. We’re taking an attainable hand and giving you a shot to win the big award on the wheel. You’re going to have the near-miss that you have on Wheel of Fortune. Players feel like they’re driving the result and there’s something to be said for that.”
Andrew Burke, senior vice president – slot products, pointed to the higher hit frequencies of AGS’ progressive products and the core gambler appeal of games such as Colossal Diamonds, aka Big Red. “It’s another game that has no bonus round, there is no free spin, the top award happens one-in-a-million spins so it’s not even very frequent,” said Burke. ”But I think the most successful thing about this game is that players learned if they buy in with this, they can win 20X or 50X their bet. One customer told us awhile back that this is the first dollar game where penny players will bring their bankroll to the game and play it because they know they have a shot. That’s really what made this game successful up to today.”
Burke also pointed to the key role progressives have played and continue to play on the slot side of the business. AGS’ core titles have always had a progressive level linked across each game and a different progressive level for each denom. “The progressive is super-achievable; once in 80,000 spins approximately, or twice as frequent as a royal flush in video poker,” said Burke. “But when you install lots of games at properties as we have in Oklahoma, that thing hits more frequently. That has been the success of that product for these many years; players know success is achievable.”
Going forward, AGS will build on its success with linked progressives with a product called Extreme Jackpots which will link lots of progressives together. “We feel very strongly that having progressives linked across themes and hardware platforms can be an advantage and is something that players want,” said Burke. “It drives up the frequency of hitting those jackpots which leads to achievability; players really believe that they can achieve that prize. We’ve gone back and looked at some of the most successful games in our library and are rolling our Extreme Jackpots versions of those games which we hope to show more of at G2E and start installing around that timeframe.”
Other developments will come in the areas of high-limit games and sign packages. “We believe firmly that signs contribute anywhere from a 15 to 30 percent lift when you put a sign package on top of a game, so we set about to build an affordable sign package with a road map that consisted of more than just putting progressive levels up top,” said Burke. “We have a robust road map for signs that are easy-to-install and affordable signs that do things like show demo states of the game as well as add the progressive value. We can do a lot of different configurations of our sign packages as well, which prior to the launch of Orion we didn’t have.” On the high-limit side, the success of Colossal Diamonds in its Big Red cabinet has operators asking for more. “The feedback I got was you need to take that math model and put it into a regular box because it has done tremendously well,” said Burke. “So we listened and we have three new high-limit titles that we are launching, all based on the successful math of Colossal Diamonds.”