Monday, June 15, 1998 | 11:11 a.m.
United Coin Machine Co. says its Gambler's Bonus system is luring gamblers away from locals casinos and into the bars and convenience stores where it operates slot machines.
But the player tracking and award system also appears to be attracting the attention of company analysts and competitors.
"We all have watched with great interest United's experiment in this area," said Michael Rumbolz, president and chief operating officer of Anchor Gaming, a United Coin competitor. "And each of us is probably taking our own course of action with respect to whether we think it's valuable now."
Rumbolz would not say what steps, if any, Anchor is taking to compete with Gambler's Bonus, but it's clear that Anchor and other route slot operators -- companies which operate slot machines in bars, convenience and grocery stores -- are paying close attention to the system.
Gambler's Bonus works like a casino slot club, but allows players to gamble at multiple locations. After setting up an account on a slot machine in one location, players are recognized when they play Gambler's Bonus machines in any of the system's 180 other locations.
Cash isn't always needed; registered players can gamble with money they have previously deposited into the Gambler's Bonus system. Gamblers earn bonuses for frequent play, and under a current promotion -- Log-On-Lotto -- win amounts ranging from $1.25 to $100 simply for logging onto the system.
United, a subsidiary of Alliance Gaming Corp., operates 6,400 gaming machines at more than 640 locations, including more than 2,000 Gambler's Bonus machines. Two-thirds of its machines are located in bars, one-third in convenience stores.
Gambler's Bonus is the only system that tracks frequent players of route slot machines.
United introduced Gambler's Bonus in 1995 as a way to keep the company competitive with locals casinos.
"Gambler's Bonus was devised to compete with the local slot clubs," said Jay Nelson, marketing manager at United.
United had been losing players to the locals casinos, Nelson said. So the company ran focus groups to find out what they needed to do to retain their customers. One result wasn't surprising: players want bonuses and prizes for frequent play. The other was unexpected: players don't like using plastic cards to access their slot club accounts, as required by most casino slot clubs.
To address these concerns, United devised a system that gives bonuses to frequent gamblers, much like casino slot clubs, but avoids cards by letting players access their accounts through a key pad.
The result, Nelson said, has been a very popular system.
"This gives us a sustained competitive advantage over bars and convenience stores that don't have Gambler's Bonus," Nelson said.
Gambler's Bonus gives United and its bar and convenience store partners the ability to track and selectively market to gamblers. Using its database of Gambler's Bonus players, United Coin mails coupons that can be redeemed for game credits system-wide. But like casino slot clubs, bars and stores can selectively send mailings to gamblers who play primarily at their locations.
"That is where we really pulled up neck and neck with the locals casinos," Nelson said.
Bars and stores pay United a percentage of the weekly take from their Gambler's Bonus machines. Nelson declined to disclose the percentage.
Joseph Coccimiglio, an analyst at Prudential Securities in New York, said Alliance is benefitting financially from the Gambler's Bonus system. Revenues and EBITDA (operating earnings) from Alliance's route operations will jump from $127 million and $20.2 million, respectively, in 1997, to $148 million and $25 million, respectively, in 1998, he said.
"It is working," Coccimiglio said of Gambler's Bonus. "It's not a huge increase, but ... you have to attribute some growth to the Gambler's Bonus."
In comparison, Coccimiglio is predicting relatively flat growth for Anchor's route operations. Anchor's route revenues will grow from $33.5 million in 1997 to $34.1 million, while gross profits from route operations will fall from $13.6 million to $13.1 million, according to Coccimiglio's projections.
Operating earnings are a common yardstick used by financial analysts to compare gaming companies. Alliance uses EBITDA -- earnings before interest, taxes, depreciation and amortization -- to measure performance. Anchor does not break its EBITDA figures down by business sector, instead using gross operating profit as a measure of performance.
Jackpot Enterprises Inc., another slot route operator, posted slightly higher route revenues of $88.9 million in 1997, up from $83.5 million in 1996. Jackpot did not break profit figures down by business sector, but the majority of the company's income comes from route operations. In 1997, Jackpot's overall operating income -- income before interest expense and income taxes -- increased slightly from $7.1 million in 1996 to $9.8 million last year.
Coccimiglio does not follow Jackpot, and the company did not return a call for comment.
Anchor's Rumbolz does not doubt that Gambler's Bonus is working for Alliance and United Coin.
"The key to successful route operations is making certain that you provide the customer with the total experience that the customer is seeking," including new machines, systems and bonuses, Rumbolz said.
Anchor cannot say whether it is developing a similar system, Rumbolz said.
But Coccimiglio said the fact that Anchor's route numbers are flat does not necessarily mean the company has to introduce a Gambler's Bonus-style system. For one thing, Anchor's gross profits from route operations -- just 8 percent of the company's projected 1997 total gross profits -- are a much smaller portion of the company's overall profits than those of Alliance. Alliance's EBITDA from route operations is more than a third of the company's total gross profit, Coccimiglio said.
"I think it may be less of a concern to Anchor because it's not as important to their overall results," Coccimiglio said. "The route business is a bigger part of Alliance's overall profit."
Despite increasing play at United route slot machines, experts doubt the trend will have any effect on an issue near and dear to Las Vegas Mayor Jan Jones, or of interest to the Nevada Gaming Commission: the proliferation of gambling into neighborhoods.
"I doubt that (Gambler's Bonus) would have any effect on the types of businesses that are allowed to have slot machines," Rumbolz said.
Coccimiglio agreed, noting that though Gambler's Bonus may increase play slightly, it does not increase it dramatically enough to drive an increase in the total number of neighborhood slot machines.
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