Aristocrat Leisure Limited - Company Profile, Information, Business Description, History, Background Information on Aristocrat Leisure Limited

71 Longueville Road
Lane Cove
New South Wales 2088

Company Perspectives:

Mission: Aristocrat will build sustainable value for all stakeholders by providing innovative and entertaining gaming solutions to customers on a world-wide basis.

History of Aristocrat Leisure Limited

Aristocrat Leisure Limited, based in Australia, is the world's second largest manufacturer of casino gaming systems, behind the United States' International Game Technology, itself an offshoot of Aristocrat. The company is the leader in Australia, with some 60 percent of the market. That country also represents more than half of the company's sales. Yet, with the market tightening in Australia due to restrictions on new poker machine placements, the company has vowed to increase its international sales to 50 percent. The company moved closer to that goal after winning a license for the all-important Nevada market in 2001. The United States accounts for more than 26 percent of the company's sales. Aristocrat is also active in New Zealand, Japan, South Africa, and in Europe and South America. In addition to designing and manufacturing gaming systems, Aristocrat produces casino furniture, accessories, and signage. The company also provides technical support services and services including casino consulting and design services. Listed on the Australia stock exchange, Aristocrat remains controlled at some 40 percent by the founding Ainsworth family--although founder Len Ainsworth himself no longer has any interest in the company. In 2002, Aristocrat's sales reached A$976 million.

Founding the Australian Gaming Market in the 1950s

Leonard Ainsworth had just started medical school in the 1940s when he quit his university to join the dental equipment manufacturing business founded by his father, a dentist, in Sydney, Australia, in 1933. The company, Ainsworth Consolidated Industries, concentrated on producing large-scale, floor model-type equipment. In the early 1950s, however, one of Ainsworth's engineers realized that the machinery used by the company could easily be converted toward the production of something entirely different--poker machines.

Ainsworth began researching the market. While the country had begun importing slot machines as early as the late 1890s, there had never been an Australian manufacturer of gaming equipment. The passage of the Johnson Act of 1951, which restricted casino gambling in the United States to the state of Nevada, had the side effect of causing the collapse of most of the major slot machine manufacturers. The Australian market, already undersupplied, then represented a potentially vast market--indeed, that country was soon to become the world's second largest slot machine market, trailing only the United States.

Ainsworth was not content with producing machines based on existing designs. Instead, the company quickly proved itself to be an industry innovator. By 1956, the company was ready to launch its first poker machine--the Clubman, the first in the industry to offer multi-line and scattered payouts.

Ainsworth's timing was dead on: in that same year, the state of New South Wales voted to legalize poker machines, and Ainsworth's sales took off. The company quickly captured a leading share of the New South Wales market, before moving on to conquer most of Australia.

By the end of the 1950s, Ainsworth was ready to take on the world, and in 1960 the company entered Europe, setting up a subsidiary to introduce its machines to that market. Poker machines quickly became commonplace features in the bars and restaurants of most European countries. Ainsworth met the competition by emphasizing a commitment to research and development, and to innovative designs.

The company's rising sales led it to establish a new production facility in Roseberry, in Sydney, in 1961. That year also saw the launch of a new poker machine design, the Aristocrat Nevada. The success of that model was considered revolutionary for its time. It also remained a long-lasting brand for the company, forming the basis of its 1990s name change to Aristocrat Leisure.

Although the company's new machine contained Nevada in its name, the company remained absent from that all-important market. In 1964, however, the company began importing machines to the United States, using a sales agent to sidestep licensing requirements.

Until the mid-1960s, casino gaming machines were entirely mechanical in design. Ainsworth, however, had recognized the potential of the fast-growing electronics technologies and in 1965 Ainsworth introduced the world's first slot machine incorporating electronics technologies, called Moon Money. The launch of that machine helped the company head off a threat to its home market, which had grown to include more than 1,500 gaming clubs by the middle of the decade. Industry heavyweights Bally, based in the United States, and Cope Allman, of the United Kingdom, attempted to enter the Australian market in the mid-1960s, but were ultimately unable to impose themselves on a market increasingly dominated by Ainsworth.

Video Revolution in the 1980s

Toward the end of the 1970s, Ainsworth once again proved itself as an industry innovator. That decade had seen the rise of a new entertainment form, the video arcade machine, which had grown quickly to rival the mechanical pinball machine. Ainsworth recognized that the same video and computer technology could be applied to the slot machine, and by 1979 the company had launched "Wild West," claimed by the company as the world's first all-electronic game (a claim disputed by SIRCOMA, the predecessor to International Game Technology).

By 1981, Ainsworth's rising sales encouraged it to begin direct exports of its machines--releasing its U.S. sales agent, which was taken over by SIRCOMA, then in the process of changing its name to International Game Technology (IGT), which had already established its dominance in the Nevada and newly legalized Atlantic City markets. Ainsworth was to make its first attempt to enter those markets in the early 1980s, but withdrew its application in 1984 (the company later accused IGT of blocking its entry).

Ainsworth comforted itself, however, with its 80 percent share of the New South Wales market. Yet that position, boosted by the collapse of its chief Australian rival, Nutt and Muddle, brought the company into difficulties with the New South Wales police, which leveled charges against Ainsworth, accusing it of illegally attempting to establish a monopoly on the market. Ainsworth was in fact indicted on the charges, which were ultimately dropped.

Meanwhile, the company had continued to innovate. In 1982, the company released the first generation of its DACOM 5000 system, which enabled electronic accounting and player tracking. Meanwhile, the company continued to try to crack the Nevada market during the 1980s, filing licensing applications in 1984, only to withdraw it again two years later. The company filed once again in 1991, but withdrew that application as well.

Ainsworth found more luck in other markets. In 1988, the company was awarded an application to enter the New Zealand market, and quickly became the dominant player there. The company also entered several U.S. markets, as a number of states began legalizing gambling. Back home, the company successfully expanded into the state of Victoria, just then legalizing gambling, completing its coverage of Australia. The company received an even further boost when the gambling commission in New South Wales loosened gaming machine restrictions in the state, allowing clubs and hotels to apply for poker machine licenses, a move that vastly increased Ainsworth's market.

Change of Command in the 1990s

Ainsworth was approaching the end of an era, however. In 1994, Leonard Ainsworth was diagnosed with prostrate cancer. Ainsworth decided to turn the company over to his family, dividing it equally among his wife and their seven sons--with the condition that if anyone decided to sell their shares, Ainsworth himself would receive half the proceeds. All but one of the sons agreed to these conditions, leading to a protracted legal battle and public family feud that resulted in all but one of the younger Ainsworths resigning from active participation in the company. Six months later, however, new tests declared Ainsworth healthy and Ainsworth went on to found a new company, Ainsworth Gaming Technologies.

Ainsworth continued to develop new and innovative products, including the launch of the MK gaming system in 1995. The company also added new markets, including Peru, Colombia, and other South American countries, and South Africa, which the company entered in 1996. Ainsworth went public in that year, changing its name to Aristocrat Leisure Limited and listing on the Australia stock exchange.

Aristocrat faced a difficult year in 1997, after Colorado officials refused to renew the company's license to operate in that state, citing the company's history of "unsuitable business practices." The company was then confronted with similar difficulties in Missouri and Mississippi and, even worse, in New South Wales. At last, in October 1997, the company reached an agreement with the Colorado licensing board to pay a fine of $500,000. In addition, the company agreed to sever its remaining ties with the Ainsworth family.

Not all of 1997 held bad news for the company. That year the company launched its highly successful Hyperlink gaming system, which played a part in the company's rise to the number two spot worldwide. In 1998, also, the company acquired its South African distributor, Africa Leisure, in order to expand its sales to that market.

In 1999, Aristocrat stepped up its interest in another fast-growing gaming market, that for refurbished machines. In that year, the company created a dedicated refurbished machine division, Jubilee, in order to help its drive into less developed markets in Eastern Europe, South America, Africa, and elsewhere.

Aiming for the Jackpot in the New Century

Aristocrat turned to Japan in 2000, striking up a joint venture, Aristocrat Hanbai, with that country's Sammy Corp. In 2000, also, Aristocrat released the latest version of the MK system, the MKVI, starting with the New South Wales market. That year, the company renamed all of its subsidiaries under the Aristocrat Technologies name.

A far more important event came that same year, however, when Aristocrat at long last received its license to enter the all-important Nevada market. The company then moved its U.S. headquarters to Las Vegas and began making plans for its expansion in the United States--all the more important because of new restrictions on gaming machines being put into place in Australia.

Aristocrat chose to expand through acquisition, paying $180 million to acquire Casino Data Systems in 2001. Based in Las Vegas, CDS had developed the Oasis casino management system. Following the acquisition, Aristocrat renamed its subsidiary as Aristocrat Technologies Inc. Back home, the company bought TGS Systems that same year.

Aristocrat's acquisitions continued into 2002, as the company bought out Sammy Corp.'s 40 percent stake in the Aristocrat Hanbai joint venture, which had just released its first pachislo game for the Japanese market. In August of that year, the company announced that it had acquired its U.S. distributor, Hanson Distribution Company.

After striking a deal with the New York Lottery in October 2002, the company took steps to enter Russia, signing a distribution agreement for that country. The company expected to begin shipments to Russia in early 2003. At the beginning of that year, the company celebrated the strengthening of a strategic alliance relationship with the United States' Mikhon Gaming Corporation, begun in the late 1990s.

The year 2003 quickly turned sour for the company, however, after it revealed that a customer in Colombia had reneged on a purchase order for some 3,000 new MKV machines. The collapse of the sale wiped out nearly one third of the company's net profit, dropping it back to just A$80 million for the year, and saw the company's market value dive by more than A$800 million. Despite this slip, Aristocrat looked forward to celebrating its 50th anniversary as a leader in the worldwide gaming industry.

Principal Competitors: International Game Technology; GTECH Holdings Corporation; WMS Industries, Inc.


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