Lewis Pek, Editor of the renowned international industry magazine G3, spoke with NOVOMATIC CEO Harald Neumann at G2E 2018 about the latest developments and current NOVOMATIC state of affairs in various segments of the industry giant’s global corporate business.
G3: How does NOVOMATIC capitalise on its dominant market position in Europe and success in Latin America to grow its international footprint in the US and Asia?
HN: NOVOMATIC enjoys a significant market share in Europe and we continue to increase this share by diversifying into new product segments, such as sports betting and online, depending upon the relevant market regulations. In Asia there are a number of interesting projects, for example, we are working on a significant project where we have sold several hundred machines and this is very interesting as there are opportunities to supply a lot of equipment to the large casino resorts. However, our focus is most definitely the US market at this time and, specifically, three distinct product segments.
The first segment of interest for NOVOMATIC is the large-scale casino slots sector in which, over the last few years, we have grown to understand this market, especially as it is so different from the
European model. The US is a more time-on-device market and we have a plan to release a series of market-specific game titles for US players. I think that this year the launch of our new MacGyver™ game could be one of the successful titles for the US and there will be more coming in the next six to twelve months.
We know that we have to adapt our games to appeal to the US player and our development team is working to accomplish this into 2019. The second area of interest is the VGT (Video Gaming Terminals) sector. We brought a range of new multi-games mixes for our VGTs to the G2E show 2018. The final product sector is sports betting. We recently hired Felipe Ludeña as International Sports Betting Director. Felipe has worked for several high-profile sports betting companies, including Grupo Codere, and has an incredible knowledge of the market both geographically and from a technology perspective. He has been tasked with evaluating the NOVOMATIC sports betting technology, both to assess how competitive it is for the US market and, as his top priority, European markets that could be interesting for NOVOMATIC – Spain, Italy, Germany – for example. NOVOMATIC has already partnered with Sportradar to codevelop products and services collaboratively. The first market we have implemented this strategy is in Italy, but there are also opportunities for the US market.
G3: How crucial is it to NOVOMATIC to achieve significant market share in the US, and what segment will see the breakout product? Slots, ETGs, sports-betting, online, mobile etc.?
HN: We have been successful with our ETG products in the US thus far, with a significant and successful installation at Foxwoods in Connecticut (NOVOMATIC installed 54 dealer-assisted electronic tables at Foxwoods in 2017) and another installation at Pechanga in California. Currently, there are strong opportunities for NOVOMATIC in the US, especially within the VGT market as well as the Octavian myACP system that we are planning to roll out into states such as Illinois this year. However, for the future, the scale of the opportunity in the Class III market means that this is the most important for NOVOMATIC moving forward.
G3: What are the biggest opportunities for NOVOMATIC in international markets and how is the company seizing these opportunities to build long-term growth?
HN: A big market opportunity outside of the US and Europe right now is Africa. We have an established business in South Africa and having a huge quantity of used machines, mainly from the German AWP market (NOVOMATIC had to exchange thousands of machines due to regulatory change in the street market), Africa could therefore be very interesting for the placement of refurbished machines. We can offer a competitive price and a good opportunity for operators, especially as the African machine product is very similar to its European counterpart.
G3: At ICE, NOVOMATIC stated there would be no further acquisitions going forward, but since then the company has added almost 700 employees, where is this growth and expansion concentrated within the company?
HN: We have scaled back our acquisitions, not halted them completely. At ICE, we indicated that we had acquired around 150 companies over the previous years, but slowing down does not mean that we have stopped all activity. In markets such as Spain, Germany, Netherlands, Eastern Europe, etc., we are still acquiring arcades and adding more operations to the division. At present, however, the focus is on consolidating the rapid growth of recent years, driven in particular by acquisitions of companies. At the same time, synergies were also started with the increase. The focus is on optimizing internal processes and structures across borders.
G3: This year you have stated that regulatory challenges are the greatest hurdles facing the business. How is NOVOMATIC dealing with these challenges, of which Germany is such a big pressure point right now, both for machine gaming and online?
HN: Yes, regulation is the most difficult challenge facing the company, but it is also helpful in the sense that it is ‘cleaning’ the market. Regulation has two affects – if you take the example of Austria, it was challenging for our business in Austria due to regulation changes, but regulation also means there are fewer rivals in the market too, whichis a competitive advantage. Regulatory environments both inflict damage and also protect us – it is a double-edged sword. I believe that at the end of the day, there will be some initial pain, but we will ultimately emerge the winner out of regulation as many of the small to medium-sized businesses will have to drop out of the market. In the last three years NOVOMATIC has not only invested over EUR 1 bn in acquisitions, but also a lot in the German market. The reason for this is that to meet the November regulatory deadline, we have had to change about 100,000 machines in the street gaming sector in the country based on the new regulatory rules. Germany is and remains a challenge. In mid-November we will gather the first feedback from our customers relating to the acceptance of our new games, since we have had to change the game mathematics. During this initial period, and while last generation machines remain in the arcades, gathering reliable feedback concerning the new games will be difficult. However, by 2019 we will have a better understanding of the performance of the arcades before we face the next challenge. In 2021, the existing German regulation expires and will need to be renegotiated – which will be a challenge. That said, there is the opportunity to work together within the new regulatory environment to establish a new online framework that will benefit the business.
G3: How important is the recent announcement that NOVOMATIC has opened its NOVO Zone with SBM in Monaco? How do you see this relationship evolving?
HN: It is a great opportunity for us. This is one of the most famous and most visited casinos in Europe and having a showroom in Monaco is a huge opportunity for NOVOMATIC. I congratulate Lawrence Levy, our VP of Global Sales, on this strong collaboration with operator Monte-Carlo Société des Bains de Mer. We can use the NOVO Zone at Sun Casino to showcase our latest products and technologies in order to understand player behaviour directly from the gaming floor in Monaco. For example, the first installation of our Enchanted Fortunes Linked Jackpot™ was made at the showroom and has allowed us to gather some very positive initial feedback.
G3: The casino license in Granada is the latest new casino announcement from NOVOMATIC – are we going to see further high profile operations added to the NOVOMATIC casino estate in the near future?
HN: In the last three years we have concentrated upon acquiring significant licenses for casino operations based on the regulatory environment in Europe becoming more interesting for NOVOMATIC. Machines are such a large part of the casino offer, which includes AWPs within that mix, and so the casino business is adding real value to the machines sector.
G3: Is the recent news from Casinos Austria AG relating to management changes and tensions with Sazka reason to believe there is an unsettled period ahead for the operator?
HN: As far as we know there will be no change in the shareholder structure of Casinos Austria AG. Neither Sazka nor NOVOMATIC plan to sell shares to change the current balance. Alexander Labak announced that he will not be available for another period as CEO, which means that he will step down from his position at the end of 2019. At this time, the advisory board, which consists of four members of which I am one, is set to deliberate over the management structure of Casino Austria. If the outcome of this meeting is that a new structure is desirable, we would ask a headhunter to find a new CEO.
G3: NOVOMATIC Gaming Industries has merged into parent company NOVOMATIC AG. Could you explain to our readers the reasons behind this change and what it means for the company?
HN: NOVOMATIC Gaming Industries GmbH was merged into its sole parent company, NOVOMATIC AG in order to bundle the core competencies of both companies in a single company, thereby significantly simplifying the Group structure and further strengthening the ‘NOVOMATIC’ brand.