Introduction

What do you do when you have just 48 hours in Texas? Barbeque seems like the obvious answer, but we were travelling for business not brisket so we opted for meetings. Over the course of two days we met with industry consultants, competitors, CEOs, CFOs, COOs and a handful of general managers. What we came away with were some interesting insights into the world of the US leisure and entertainment industry.

Ardent Leisure Group (ALG)

We started our whistle stop tour by spending two hours with the CFO and COO of ALG. We also spoke with ex-Main Event employees, industry consultants, and a diverse range of entertainment competitors, including those that offered go-karting and video gaming.

From what we observed, there is still room for improvement in terms of how Main Event is run. That being said, they have already introduced a number of improvements:

  1. new food & beverage menu introduced in October 2018
  2. concierge at the front of the centre to enhance the customer experience
  3. new digital food & beverage ordering system rolled out in January 2019
  4. refreshed game offering delivered in February 2019
  5. a range of new initiatives, such as gift cards, that have been rolled out to 5,000 retail outlets throughout February.

Despite their efforts, there is still so much more to do. Management acknowledged that the company is still a long way from industry best practice. Standard KPIs, minimum service requirements, labour policies to ensure a deep pool of talent, and proper formal training procedures to ensure every centre delivers the same standard are all lacking. Further, management confirmed they are still in the process of implementing systems that can accurately track customer spend, which will allow them to implement effective loyalty and marketing tools, and new gaming formats and gaming systems (which they are currently trialling).

While the market can be impatient at times, the Main Event’s CEO has only been in the role for nine months and perhaps should be afforded more time. It is quite clear to us that management has a lot on their plate from an operational execution perspective. We first purchased our position in Ardent on the turnaround of the Main Event business, and this trip confirmed that they are only at the beginning of this journey. That said, the trip gave us some comfort that they are doing the right things to put in place the platform to support sustainable earnings growth.

Aristocrat (ALL)

After visiting Texas, we travelled to Los Angeles, Seattle, and San Francisco where we spent three days in meetings. We met with Big Fish’s management team (Aristocrat’s digital acquisition), as well as industry competitors and consultants within the digital/mobile gaming industry. In our spare time, we also managed to visit a couple of casinos in Washington — a market where Aristocrat has only recently entered.

The takeaway from our trip was that Aristocrat’s approach to digital is spot on, despite acquiring two businesses that require work: Plarium and Big Fish.

In the past six months, Aristocrat’s share price has been soft on the back of concerns around its digital business. Investors are grappling with a new industry where there are very few comparisons or alternative offerings (we sit in this camp).

Initial perceptions are that digital gaming is a hit and miss industry (no one accurately knows what game will succeed), with few barriers to entry (we have all heard of tech start-ups from two guys or girls working out of their garage), and earnings can evaporate as new games cannabilise older games.

Our trip highlighted that these initial perceptions aren’t correct. This is an industry with huge barriers to entry, as player acquisition is just as important as great game content. This is a market that is driven by data analysis, and spend to acquire players is linked to profitability — but only if you have the right analytical tools. Given the cost to acquire players is a scale game, it will be dominated by a few players that understand the power of data-driven investment.

Thus, to succeed in digital gaming, a company needs great game content, user acquisition skills, meta-gaming skills (interacting with players to extract more payments), live operations skills (to understand customer spending and playing behavior in real time), and scale.

A common theme we discovered was that Plarium has very good systems to optimise monetisation, while Big Fish has great meta gaming capabilities. The key for Aristocrat is to combine Plarium’s optimisation tools with Big Fish’s meta gaming capabilities and overlay Aristocrat’s discipline and creative excellence to build a platform that will deliver great games that can be optimised. Whether they’re successful is yet to be seen. The key takeaway is that they have the right strategy and have the right tools, which increases the probability of success.

Conclusion

So, what does this all mean for Aristocrat? We were impressed with Plarium’s technology platforms and ability to optimise monetisation, and Big Fish’s meta gaming capabilities are far superior to Product Madness (but not quite in the same league as the leaders Zynga and Playtikka). At the end of the day, this is a highly sophisticated data driven business, and the ability to do turnarounds and understand whether games will succeed needs to be highly efficient. To do this, you need the right tools and it looks like Aristocrat has them in spades.