AGS becoming a public company presents another option for investors who want to play in the gaming supplier space.
It also does something else. In a sense, it culminates an entire era in the history of the American gaming industry.
When Congress passed the Indian Gaming Regulatory Act in 1988, allowing tribes to have bingo and pull tabs by right on tribal lands, few envisioned that an apparent restriction of gaming would instead lead to an explosion of gaming.
Bingo and pulltabs were designated as Class II gaming (Class I being traditional contests such as foot races and Class III being everything else or, as it soon was called, Las Vegas style gaming).
Limiting tribes to Class I and Class II by right pretty much restricted Indian gaming. Anything beyond that would require a compact with the surrounding state, unless gambling was legal in that state, which appeared to have little effect outside of Nevada.
But two words—mechanically aided—changed everything.
Once bingo could be mechanically aided, entrepreneurs popped up with slot machines that ran on a bingo sequence.
Suddenly, Indian tribes had real casinos. They might not have had table games and the Class II slots were clunky compared to their Class III cousins, but they were good enough to birth the Indian casino industry, and those casinos grew big enough that many surrounding states like California decided to negotiate compacts leading to full-fledged casinos.
The companies that supplied Class II slots were led by colorful men such as Gordon Graves at Multimedia Games and the companies had colorful names like Cadillac Jack. One of those companies was American Gaming Systems or, today, AGS.
The Class II pioneers are largely gone as the big slot machine companies now operate in both Class II and Class III markets.
And AGS itself is a much broader company having moved into Class III and table games.
AGS, or more formally, Play AGS as is the name going public, will have an initial market cap of around $600 million compared to IGT’s $5.5 billion, Scientific Games’ $4.8 billion and Aristocrat’s $12 billion.
AGS had $154 million in sales during the first nine months of last year making it the smallest of the publicly traded suppliers.
AGS was profitable through that period, generating $83.4 million in EBITDA for a whopping 52 percent margin and an operating profit of $13.6 million
AGS is also close to a pure gaming supplier play, unlike IGT and Sci Games with their lottery operations and Everi with its payments business.
The company has grown rapidly under ownership of Apollo Global Management, which supplied the funds to grow through acquisitions and to enter table games. A company that a few years ago had something over 5,000 slot machines today has more than 23,000.
Apollo will continue as the controlling interest, owning around 66 percent of the stock.
AGS’ growth also has come under the leadership of CEO David Lopez, a veteran of table game company Shuffle Master, now part of Scientific Games. Lopez has built a management team replete with Shuffle Master colleagues, and has made AGS into a significant table game player, challenging his former employer.
In a way, AGS has become a fresh Shuffle Master. It will be interesting to see if Lopez achieves the same success.
