Hilton casino designing own slots in feud with game makers

It's not exactly a line in the sand, but Arthur Goldberg is signaling he's gearing up for at least a skirmish.

Goldberg is the president of Las Vegas-based Park Place Entertainment, owner of Hilton hotel-casinos.

He has hired a well-known slot-machine designer to develop proprietary slot and video games and reduce the giant casino company's exposure to the spread of "revenue participation."

The move could raise the temperature a few degrees in the long-simmering feud between casino companies and their slot suppliers over sharing the win from such highly popular games as Megabucks, Wheel of Fortune and Monopoly.

Ray Heidel, who spent 12 years with Alliance Gaming Corp.'s Bally Gaming unit as a vice president of engineering, has joined Park Place to develop a line of games for the company's 18 domestic casinos.

The new games will include wide-area progressive systems (WAPS) that link machines in different locales and pay larger jackpots than those available on standalone games.

One of the first moves will be the expansion of a linked game offering larger jackpots that's now available at Bally's Las Vegas and the Reno Hilton to other Park Place casinos in Nevada.

Heidel says the game is similar to International Game Technology's Megabucks but offers a much lower top award and a much higher hit frequency.

"Arthur Goldberg said he wants to provide the best of everything at each Park Place property, and that includes a unique gaming experience," Heidel says.

"Casinos everywhere put a lot of money into their physical plants, but the gaming experience is pretty much the same. He wants to create new experiences you can only get at Park Place resorts."

Heidel says the company has hired another former Alliance game designer, Bob Manz, on a contract basis to work on a variety of game designs. He's also put together a team of slot managers and players from Bally's Las Vegas and the Las Vegas Hilton and Bally's Park Place and the Hilton Grand in Atlantic City to come up with new ideas.

But Heidel doesn't expect Park Place to get into the game-making business through the costly process of setting up its own manufacturing facility. Nor does he see it acquiring one of several equipment makers such as Alliance, Casino Data Systems or Silicon Gaming, all often mentioned as takeover candidates.

An acquisition "doesn't make sense economically," he says. "You're paying for top dollar for an assembly line and software that may not be what you want. And if you turn over just 10 percent of your slot floor every year, the cost per machine is just too high."

Instead, he says, the company will develop specs for new games, then solicit bids from existing manufacturers to build them.

Potential disruptions to their existing assembly lines and a desire to avoid helping anyone cutting into their businesses probably will keep big suppliers such as IGT from bidding on such work.

But smaller suppliers such as WMS Industries, Casino Data Systems, Powerhouse Technologies and privately held Sigma Gaming could be interested in bidding for the farmed-out manufacturing business as a way of boosting their own revenue, sources say.

Whoever ultimately builds the games, Park Place will own them outright. And depending on the costs, that could prove lucrative. A casino operator can buy a machine from a manufacturer today for $6,000 to $12,000 or more, or lease the most popular games and share in the revenues.

Casino operators would much rather buy than lease. A game that wins $100 a day -- a bit below the Strip average and a bit higher than in off-Strip casinos -- can pay for itself in 60 to 120 days.

Every day thereafter, a casino gets all the win for the life of the machine. If a casino has 2,000 machines earning $100 a day, the numbers add up quickly. And a big casino operator such as Park Place, with more than 30,000 slots around the country, is looking at hundreds of millions of dollars a year.

The economic factors are prompting other operators with multiple casinos to consider moves similar to that of Park Place. Among those studying the issue are Mirage Resorts, Circus Circus Enterprises and Harrah's Entertainment, and the latter two get a high percentage of their gaming revenue from slots.

Executives from those companies speaking on condition of anonymity say they aren't interested in putting any slot manufacturers out of business, especially because the two biggest -- IGT and Anchor -- are wielding increasing power in the industry.

"We don't want to kill the small players," one casino executive says. "Yet with the exception of IGT and Anchor, nobody's making any money. If we end up with just two suppliers, they'll be able to dictate to the operators.

"We'll always be big buyers. But we're the ones doing the harder work and taking the greater risk, and we think some of the manufacturers are getting too much for some of their revenue-participation games.

"We just want to shift the balance of power a little and get our fair share."

Game manufacturers, however, argue that casinos should be willing to share revenue from the most popular games because that would help offset the high costs of developing successful new products.

During his years with Bally Gaming, Heidel learned first-hand how costly that can be.

"It's very hard to define this thing called 'entertainment,' " he says. "It can be very expensive to come up with a winner. It's kind of like the television business: You see 30 or 40 new shows each fall, but by springtime there's only a few of them left."

Heidel says he's still working on a budget for the Park Place design effort, but the casino company -- spun off from Hilton Hotels Corp.'s lodging business this week -- doesn't lack money. Analysts expect it to generate $700 million of cash flow this year, more than any other gaming company.

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