NEWS 12 July 2018
Harald Neumann: Focusing on the future
By Gambling Insider
Harald Neumann is the CEO of NOVOMATIC, one of the world’s largest gaming technology providers and casino operators. He explains how this duality differentiates the business, and shares his exciting plans for expansion in the US
How would you sum up 2017 in terms of performance for the group?
Overall, we took a big step forward. We continued our growth with revenues up more than 11% to over €1.2bn in the first half of 2017, largely thanks to a couple of European acquisitions. Furthermore, this development is primarily the result of a sharp increase in the number of electronic casinos operated by NOVOMATIC around the world. Compared to the same period last year, the number of self-operated locations – including casinos, sports betting outlets and bingo facilities – rose from around 1,800 to nearly 2,100. We also achieved a new all-time high for the number of gaming devices operated – an increase of around 9,000
to a total of around 70,700 devices was achieved in the reporting period compared to the first half of 2016.
You have mentioned in previous interviews your focus on the US. Will your acquisition of a 52% stake in Ainsworth play a part in your growth in this market? How is the merger and integration going?
The acquisition represents another milestone in the corporate history of NOVOMATIC and is of major strategic importance, as it paves the way to access the enormously important North American market, a region with almost one million operated gaming machines. The combination of being a manufacturer and operator, however, is only possible in Europe, South America and maybe Africa. Not in the US, where we must take local market legislation into account. In most of the US states, a developer of machines cannot be licensed as an operator at the same time. So we only sell or rent out technology there. But this is where Ainsworth comes in – our eventual goal is to push new products into the US market together.
It’s been reported that the plan is to keep the NOVOMATIC and Ainsworth brands separate, so what did the acquisition add to NOVOMATIC that you didn’t already have?
Just for clarification purposes: The transaction is not a full acquisition of Ainsworth Game Technology. NOVOMATIC AG purchased Len Ainsworth’s shares and become the majority shareholder of AGT. But even now the deal is not closed yet, there is an ongoing integration of both companies. A noticeable amount of teamwork has already happened, especially in the R&D space. Also, we are preparing distribution for when the deal is closed. This cooperation demonstrates our future.
Do you feel NOVOMATIC now has a good handle on the particular nuances or eccentricities of US gaming?
The European and US markets are completely different. You have an AWP market on the one hand and a casino market on the other. That is what makes Ainsworth so important to us, due to the company’s distribution network in the US as well as an R&D and production centre in Nevada. Ainsworth is licensed in all the states and understands US customers. We know that the right products for this market will not be developed overnight, but we have said all along that winning the race in the US is about patience and market expertise. Thanks to Ainsworth we now have both.
The US tribal gaming market has shown strong growth in 2017. What is NOVOMATIC’s strategy for fulfilling this customer group’s needs?
This customer set has especially high expectations regarding innovation and convenience, and that’s what we focus on. High levels of innovation continue to remain a central component of our strategy. We established ourselves as a trendsetter in the world of gaming equipment, in particular through investment in research and development that goes above and beyond the industry average. Our 27 R&D centers in 15 countries, and 14 production locations in ten countries, all play a crucial role in the development of innovative technologies, system solutions and promising products for the online, mobile and social gaming segments.
Do you have any plans to offer a US sportsbook product given the impending legalisation of sports betting there?
We are observing a major growth in sports betting through NOVOMATIC Sports Betting Solutions (NSBS). And obviously there is going to be a huge sports betting market in the US, once the legalisation of it is finalised. Clearly, we want to participate and will definitely consider all possibilities in this field.
The company is currently in private ownership, and the mooted IPO has been shelved for now. Given the acquisitive nature of NOVOMATIC, how do you plan to raise funds for acquisitions in the future? How far away is the business from an eventual IPO?
As we had already mentioned in the past, it is customary for the management board of a company of the size of Novomatic Group to regularly evaluate different financing alternatives and financing options - as we did in the past several weeks and months. We have completed more than 150 acquisitions during the past few years, and will continue to grow organically and through acquisitions in the coming years. Although from today's perspective our business activities are currently fully financed, we will continue to opportunistically monitor additional financing alternatives, including capital markets transactions and possibly also an IPO. Our decision will be based, among other things, on our financing needs, industry specific regulatory developments in our core markets, as well as the general capital markets environment.
How much cross-over is there in terms of the two sides of the business (game development and operations)? Would you say this is an advantage over other game developers?
The duality of our business as both producer and operator certainly provides synergistic relationships between operations and technology. We are following this so-called dual strategy as a full-service provider of all kinds of gaming technology – land-based and online – while operating more than 2,100 gaming locations, mainly in Europe, from large casinos to single-site operations. This is what makes us unique and is a strength of ours, as it provides a learning factor from both sides and offers lots of synergies.
What is he benefit of having your software developers spread over a number of geographies rather than a central resource?
We currently have more than 1,200 software developers in nearly thirty software centres. NOVOMATIC is a major international player with locations in 45 countries and more than 25,000 staff members worldwide. One of our principles is to expand, especially in North and Latin America. Accordingly, our target audience is rather broad and diverse. To meet their individual needs, it is important to have our experts on the ground. We have recently established a new headquarters in Illinois, and opened a product development studio at the facility alongside a recruitment drive for local developers. This has been a significant investment that will start to pay off this year as we begin to introduce our products to the market. It allows us to adapt NOVOMATIC games to meet US player tastes as well as create bespoke US games in line with player preferences.
Given the growth in online gaming across Europe, how important is the Greentube part of the business?
According to research by GBGC, global online gaming revenue had reached $40bn in 2016. This confirms the increasing importance of online gaming and so-called skill-games in particular. As a result, our current focus is on the expansion of server-based and server-supported gaming throughout Europe. More territories are deregulating online gaming and Greentube is poised to bring omni-channel solutions and leading interactive content to these markets. There are also new VLT opportunities on the horizon in the US and Canada, as well as growth in the B2B social casino space for Greentube to accelerate its drive into the pay-to-play social casino and apps market. The successful launch of Foxwoods’ social casino last year has made operators turn to the Greentube Pro social casino platform as a complete solution that features best-in-class NOVOMATIC content.
Do you feel that social gaming has risen in importance for online gaming operators?
Social gaming has definitely risen in importance. Greentube is spearheading our development of all online gaming solutions for the NOVOMATIC Group. AbZorba Games, a company specialising in social gaming apps, complements our already broad range of products. We also took over BlueBat, a social gaming specialist from Vancouver, in 2015. So we are constantly increasing our portfolio of more than 200 slot, AWP and casino game titles. We have developed one of the most sophisticated and truly social
private-label solutions for casinos in the US. This retention marketing tool allows any land-based retail operator, small- to large-scale, to compete with the ever-growing competition of social gaming apps offered by the likes of Apple and Google. We will be adding more features and functionality to our product, which has proven to be highly successful with our first customers, Foxwoods Casino Resort in Connecticut, Treasure Island in Minnesota, as well as with Mount Airy in Pennsylvania. Initial results have seen the player base pass 10,000 individuals in the first three months of operation with strong monthly revenue growth.
What are your predictions for the development of the European land-based market in 2018?
Our experience has shown so far that the player profile of a customer who frequents land-based gaming venues is quite different to that of the typical online player. Therefore, we are sure that there is room for both market segments in the future and that an innovative product offer will allow us to achieve interesting growth rates in the land-based segment as well. After all, online and land-based gaming can hardly be compared. A guest can spend a couple of hours in a casino, eat, drink and enjoy the company of others.
What would be the one piece of advice you would give to an up and coming CEO in the gaming industry?
Unfortunately, there is no magic formula. The main thing is to set and follow goals with lots of commitment and stamina. While it is impossible to be a specialist in every field, it is necessary to be able to understand or even discover relevant future trends. The secret of success is teamwork, communication and empowerment. The gaming business is very local, especially in Europe where it is a fragmented market with more than 100 technical requirements and so on. You need local people that understand the individual markets, and you have to empower them.