One year on…Novomatic

NovomaticIMG_4841Harald Neumann has completed his first year as CEO of Novomatic. Casino International caught up with him at the recent G2E show in Las Vegas to talk about that year – and of course, the future for the company.

Taking over the CEO position in a huge conglomerate of companies such as the Novomatic Group was never going to be an easy task for anyone, though with the company in robust health it was far from a poisoned chalice. Harald Neumann has enjoyed a year at the helm of the European gaming giant, and he took the time to talk with Casino International about his first 12 months.

Casino International: Harald, what is your working background?

Harald Neumann: I have an IT and telecommunications background, and before joining Novomatic I made an intermediate step into the security business, working for a very large security company. Novomatic is a technology provider in the B2B gaming business and we provide gaming and entertainment to our B2C customers, but the backbone of the company, in both fields, is technology – so it’s a move back to my historic profession, really.

CI:  Was it daunting, coming into casino gaming? It’s an unique sector in many ways.

HN: I participated in a discussion recently in Austria, in front of a student audience, where the question posed was: ‘Is it necessary that a CEO has a deep knowledge of the company he is working for?’ Yes and no. I think I don’t have to be the best software developer or gaming designer, for example.  I started four years ago at the company so I had three years to learn the business; I would say I may not have a deep knowledge of game design, but I know something about the market and the rest is teamwork. We have 23,000 people, 1,000 software developers, we are a team. As CEO, I manage the strategy for that team.

CI:  Looking back on your first year, what would you do differently?

HN: There is nothing I would do differently. I was lucky enough to become CEO of a very successful company so it was not necessary to make big changes. We had to adapt our strategy, where we decided to concentrate our activities as an operator in Europe to the rest of the world, we are distributing our gaming solutions. Another important step was acquiring Betware and the subsequent foundation of Novomatic Lottery Solutions, so we have entered the lottery business. We had to adapt the organisation, which was mainly the responsibility of Thomas Graf, our CTO, but we are now able to offer our worldwide clients a full suite of gaming solutions – from  slots through  online, mobile and social gaming to lotteries and sports betting,  a combination that makes Novomatic a full service provider.

We also have a strong distribution network, with one person responsible for the business in South America and North America respectively. South America and Africa have unstable political situations, and Asia is not yet a strong market for us, although that may change. I’m quite happy with the success of the last year and would not say there is something I would do differently.

CI:  In the short- to medium-term, are there any plans for change, or expansion for the group?

HN: I don’t believe it makes sense to look more than three years ahead because the world of today is so full of variables. Even three years is a long time. We have defined ourselves, we will focus our growth strategy on Europe and the USA; we have filled some geographical gaps in Europe. In Spain, for instance,  where we have made acquisitions both on the manufacturing and the operating sides. We have made acquisitions in the UK, with Playnation, who offer AWP and amusement machines in service stations and amusement parks. Our biggest acquisition is ongoing in Austria, where we have gained 24% of the lottery company ‘Österreichische Lotterien’ and we are currently negotiating 41% of Casinos Austria, which would give us influence in the Austrian lottery and casino business. The US is a 3-5 year project, because for us it does not make sense to make a big acquisition; in Europe you make a large purchase and it may be 50m Euro, but in the US it’s $500m, or even more. So we are working step by step in the US with our organization’s own power for innovation and the exhibitions are a good way to get noticed.

CI:  More frequently, lottery companies buy gaming interests, not the other way around. What is the strategy behind the acquisition of Betware / the foundation of Novomatic Lottery Solutions?

HN: Novomatic Lottery Solutions is a perfect fit to the rest of our business fields. It enriches and completes our portfolio of product but also the vast technological background of the NOVOMATIC in turn helps a lot to drive this new business segment forward. We have thus acquired a lottery systems company that has been brought to a new level through our own gaming solutions in all other sectors of the industry. While the business is still a small one it is one of the best in terms of technology for lottery systems. At the same time we are now acquiring shares of the Austrian Lotteries (Österreichische Lotterien) a well-known, well-established company that is providing B-to-C lottery solutions; this combination is quite interesting as being a lotteries operator gives our group a great reference when it comes to lottery tenders. Technology-wise and product-wise, we have the tools to do the job and are adding the operating competence with this shareholding. In general lotteries, together with VLTs, will be one of the most important future areas of the gaming business.

There are not so many new markets in the world, so why not expand your offering into existing ones?

In my opinion we are on the right track to prepare for the future, we have made the right acquisitions in the past and are preparing further ones in our home market Austria and beyond. Of course, on the other side, we are also observing what is happening with the big acquisitions in the US, for example with Scientific Games and IGT and how they will be able to merge these very big organizations. A big challenge, which we could avoid by selecting smaller companies in the market that are easier to  integrate as partners into an existing organization and which quickly bring their know-how into our product portfolio.

CI:  Does the Austrian Lotteries operate internationally or is it just in Austria?

HN: It is mainly active in Austria though they have a foreign license. As mentioned before  one advantage of being a major shareholder of a prestigious lotteries operator is having a strong reference for the B2B business while at the same time meaning we can bring our technology into the business.

CI:  There is a period of reorganisation for companies following acquisition, which can affect the market overall with smaller companies experiencing growth as a result; is it time for that now, with last summer’s market shifts?

HN: Some of the still independent, smaller manufacturers are seeing even more success at the moment. It is an interesting moment in the US with the bigger companies suffering and slightly smaller ones thriving. Also at Novomatic and especially at Novomatic Americas we see the current situation as an opportunity as in particular many US operators are looking for new partners in a market where the number of technology and solution providers has been dramatically reduced.

CI:  You don’t rely on licensed product, most of what you produce on the slot side is proprietary – that seems an advantage in many ways.

HN: The times have changed. If you remember last year, Avatar was the big game presented at G2E; I have no idea what it costs in terms of royalty fees but I am sure it was an expensive deal. Look around at the casinos in Las Vegas, how many Avatar machines do you see? Licensed games are ‘out’, which is good for us and there is a step back to the old-fashioned slot titles, simple slots that deliver value and entertainment.

It was interesting last year at G2E, I played a slot from a very big movie license. I played for a minute or two, then I was watching a five-minute video on a huge screen, mixed with some gaming content. After the five minutes I had won one dollar and change, so it’s not gaming – it’s watching movies.

We’ve never followed that track. We have a few licensed themes, but on the other hand we have always relied on the creativity of our game designers. Our creative studios are one of our great strengths.

When we do have licensed product it is more of a character or persona license, like Marilyn Monroe, Elvis and so on. The other problem with licensed games is that you have to replace those quite often. Depending on the market you could be talking about six to nine months. It’s a short period of time to turn your ROI positive.

CI:  Is being a European company an asset when working internationally? I ask this because you already have the mindset of producing very different products for smaller markets, rather than huge production for one.

HN: You are right, you can’t sell the same machine in Austria, Germany and Albania. Spain’s AWP market for example is totally different to others in Europe because it is a market that demands completely different machines and games. It is a strength of Novomatic; even if it makes life somehow more complicated  in terms of production on the one side because we are not producing 25,000 machines with exactly the same content. We have smaller production runs with fragmented markets, but on the other side we are used to this. It is a great advantage when we approach new regions and markets because we already have those processes and experience-based understanding..

CI:  The next 12 months will be fascinating as the world looks to changes on the gaming floors in Nevada with the new skill gaming legislation happening; what are your thoughts on that?

HN: I have seen some skill games and depending on your own skills, the payout rate is changed. In my opinion it is an interesting concept. If I look at my children, my son is 15 – I am 100% sure he probably won’t ever play what we know today as a ‘traditional’ slot machine, where you simply press a button to play. It’s not enough; you have to add something, and skill gaming is a very interesting approach to a new form of slot gaming.