Mikohn, Alliance say they must come up with new gaming products

John Wilen

Tuesday, April 7, 1998 | 10:01 a.m.

"Innovate to win" was the mantra of executives from two Las Vegas gaming hardware companies who spoke at a symposium hosted by Sunpoint Securities Inc.

Richard Irvine, president and chief operating officer of Mikohn Gaming Corp., and Morris Goldstein, president and chief operating officer of Alliance Gaming Corp., spoke at last week's symposium.

Irvine said his company's growth was being driven in large part by the desire of casinos to keep gaming machines fresh and new.

As the casino industry becomes more competitive, Goldstein explained, casinos are seeking to differentiate themselves by offering more unique games. Age is no longer the main reason a gaming machine is replaced, he said. "What happens is it gets tired."

In such an environment, suppliers that come up with new games will do well, the executives said.

This opinion seems to be shared by industry analysts. "The future leaders in the gaming equipment industry will be those companies that can create exciting new products that appeal to gaming patrons and drive operators to replace old machines," wrote Prudential Securities analysts Joseph V. Coccimiglio, Paul Patrick and Milton Sumption in a recent report.

Alliance owns a Bally's casino in Sparks and a riverboat casino in Vicksburg, Miss. But most of the company's revenues come from its equipment and systems businesses. In 1997 the company lost $6.2 million, or $0.19 per share, on revenues of $445.1 million. In 1996, the company lost $59.9 million, or $4.64 per share, on revenues of $172.4 million.

Evidence of dramatic growth in the gaming hardware industry can be seen in a breakdown of Alliance's revenues. In 1996, the company generated $123.9 million in revenues from its machine and systems businesses, compared to $48.5 million from its casino operations.

Last year, the ratio jumped to $393.7 million from machines and systems to $51.5 million from casinos.

Mikohn's financial statements also reflect the growth of the gaming industry's hardware segment. Mikohn makes progressive jackpot computer systems used to link gaming machines, allowing gamblers to compete for a single combined jackpot. The company also makes interior and exterior signs for casinos, including such stand-outs as the 19-story Sahara hotel-casino sign, the new lettering on the MGM Grand hotel-casino and the giant motorcycle atop the Harley-Davidson Las Vegas Cafe.

Mikohn made $2.4 million in 1997, or $0.24 per share, on revenues of $98.5 million. In 1996, the company made $612,000 or $0.06 per share, on revenues of $91.4 million.

Irvine said Mikohn's sign business is benefitting from a growing desire in the intensely competitive casino industry to alert players to new games and differentiate those games from other casinos.

"Interior signs are very important for the casino operator," Irvine said.

But it is Mikohn's new games and systems that have Irvine most excited. The company's new SafeJack system, which uses microelectronic chips to track players at blackjack tables, and new "niche" games like Caribbean Stud and Flip-It, have the most potential for dramatic growth in the future, he said.

Goldstein said Alliance also sees new games and systems as key to future revenue growth. He said new products like Gamblers Bonus -- networked gaming machines that pay out at a higher rate -- and company plans to enter the progressive poker market this year will dramatically increase revenue growth.

Both executives said their companies are pumping money into research and development.

John Futrell, vice president at Sunpoint, said the current concern over an oversupply of hotel rooms and casinos in Las Vegas is almost moot when it comes to casino suppliers like Alliance and Mikohn.

"The casinos are still going to have to buy these products," Futrell said.