Thursday, May 13, 1999 | 11:16 a.m.
Poring through the stack of patents, the rock star found a gem.
"It was a spectacularly beautiful piece of work," recalls Gregg Giuffria. "To me, it was the key to entertainment."
Okay, so the patent's words and their implication might not exactly jump off the page at most of us. Then again, most of us don't spend our spare time reading patents.
But Giuffria, a songwriter and performer with 23 albums and four movie scores to his credit, understood the value of protecting creativity. "I knew copyrights and patents were behind a lot of money-making projects, and would read and study them all the time," he says.
Giuffria had started looking for something different to do when popular music began shifting away from album-oriented rock and toward more stridency and anarchism in the early 1990s.
And he found a curious order in the dry, stilted language of patents, something comforting to a creative artist in a profession that, at its core, uses mathematics to make order out of chaos. As a composer and pianist who'd studied music since he was 5, Giuffria was accustomed to assembling random notes into an entertaining package, then performing it before millions.
So when he stumbled across the document nestled in the the 6-foot-high pile of patents describing various inventions, concepts and other esoterica, Giuffria was struck by the elegant simplicity underlying the words penned by Reno's Inge Telnaes more than 17 years ago.
"I saw this as a turning point in gaming history, because it created the pathway to change gaming from hard-core gambling, where people try to grind out small wins, to entertainment, where they can have fun while pursuing big windfalls," Giuffria says.
"I was swept away with visions of making my own slot machines and conquering the world."
What swept Giuffria away was the Telnaes patent's ability to allow compact slot machines to create huge jackpots without adding additional reels, which could make a big-payoff game's sheer physical size too imposing to attract players.
Giuffria saw order as the Telnaes patent described "a plurality of reels rotatable about a common axis and on which are carried at the periphery a plurality of indicia..."
He saw opportunity as the patent noted, "Large physical machines and a large number of reels develop an attitude in a player which affects the play and acceptance of the machine ... It is important to make a machine that is perceived to present greater chances of payoff than it actually has within the legal limitations that games of chance must operate."
Yet with the typical three-reel slots of the time, jackpot sizes were limited by the machines' size. Each reel contained a certain number of "stops" -- blank spaces or symbols such as cherries, lemons and 7s.
The top jackpots on such machines were limited by their physical nature. Consider, for example, a machine with three reels each containing 19 blank stops and one stop with a cherry. The odds against lining up three cherries would be 20 cubed, or 1 in 8,000.
Theoretically, the top jackpot for a $1 play could be $8,000. But that would give no edge to a casino and fail to allow for the smaller jackpots needed to sustain player interest.
Therefore, the old slot machines would contain reels with symbols alternating with blank stops, allowing frequent smaller payoffs but limiting the potential top jackpot to an amount that generated relatively little excitement.
Progressive ideaThe Telnaes patent, however, used a random number generator to compute stop positions far in excess of the number available from mechanical slots.
The potential stops "exceeds the number of physical reel positions such that one physical reel position is represented by one or several positions on the virtual or electronically generated reel which is, in effect, randomly stopped by the random number generator."
"In this invention, the physical reels are only used as a display of the random-number-generated result and are not the game itself as in standard slot machines," the patent said.
Thus, a three-reel slot the same size as a 20-stop, three-reel machine could have 256 stops per reel, or a 1 in 16,777,216 chance of hitting a top jackpot with just one winning symbol per reel.
That difference -- 1 in 8,000 versus 1 in 16.8 million -- allowed slots to offer huge jackpots that would attract more players, Giuffria saw. "It makes wide-area-progressive jackpots such as Megabucks possible," he says.
What's more, he says, the patent's use of a random-number generator to create outcomes would "allow games of the future to provide the illusion of a decision," a factor gaining increasing importance to a generation of new casino visitors raised on computer games.
"Since skill and dexterity aren't allowed, the only thing you have left is the illusion of a decision," Giuffria says. "That's the fun and excitement of it."
As he studied the patent further, Giuffria says he found that slot maker International Game Technology had "sub-license rights," but the parent rights were held by a company called Summit Systems. And while Summit held what Giuffria considered "the single most important patent in gaming," the company was in dire financial straits.
A new careerAfter touring the world with bands such as Foreigner and House of Lords, Giuffria was looking for something else to do. "In fact," he recalls, "I retired from the music business before I was asked to leave. And I acquired an option to buy Summit."
His wife April, who acted in shows like "Dallas" and "T.J. Hooker," had introduced Giuffria to such successful businessmen as investor William McComas, insurance magnate Ronald Richey, IGT Chairman Chuck Mathewson, entrepreneur Allen Paulson and former Chrysler Corp. Chairman Lee Iacocca.
McComas is a California real estate developer with resort hotels around the country. Mathewson was heading the world's largest slot maker, while Paulson had sold Gulfstream Aerospace Corp. to Iacocca's Chrysler for $636 million and ultimately bred six thoroughbred national champions, including Cigar, the 1995 horse of the year.
"Once you're around people like that, you almost can't look back," he says. "They inspired me to step out of music and try something different.
"Bill and Allen were looking at the possibilities of gambling, and I started looking for an entry-level way to get involved in what I thought was a very exciting industry."
Giuffria says he paid "a couple hundred thousand dollars for an option to acquire the company for $2.2 million, and made monthly payments for attorney fees and expenses to keep Summit solvent while it was going through reorganization."
With the Summit option, Giuffria controlled certain Telnaes rights. After a brief try at starting up a slot-making company in his home state of Mississippi, he wound up selling the option and rights to Casino Data Systems, a then-new Las Vegas-based slot manufacturer founded by Steve Weiss. As part of the deal, Giuffria joined the company for a short time as a vice president and director and worked on the subsequent resale of some Telnaes rights to IGT.
As a result, the big Reno-based slot maker began incorporating Telnaes technology into its reel games such as Megabucks, while Casino Data Systems used the rights to manufacture its wide-area-progressive game Cool Millions.
The deals attracted the attention of McComas and the other business executives Giuffria had befriended. "To have those guys say, 'Good job' was a turning point in my life, a real boost to my confidence," he recalls.
Set financially, Giuffria could have spent the rest of his life playing golf. But he'd caught "green-felt fever -- I wanted to own a casino," he says. "I'm an entertainer, and this is the entertainment business."
Biloxi ventureGiuffria and architect Paul Steelman, who has done design work on scores of hotel-casino projects, noted the success of the Hard Rock here and thought a similar venture in Mississippi would work equally well.
"I'm sitting in Paul's office one day in August 1997 and we were talking about how Southerners love music and how the Rank Group, which had acquired the Hard Rock trademark for $450 million, was looking to expand the franchise," Giuffria says.
"We thought if we could get a Hard Rock for Biloxi, we could go to any gaming company. And it dawned on me that Lee Iacocca was the second-biggest shareholder of Full House Resorts."
Full House was a relatively new public company developing casinos, resorts and commercial centers. Iacocca owns about 1.3 million, or 12.3 percent, of its outstanding common shares. Paulson is the majority owner with 2.6 million, or 24.5 percent, of the shares, while McComas owns about 1.4 million, or 13.3 percent.
Full House sold its Deadwood Gulch Resort in South Dakota last May for about $6 million, is developing a casino project on Indian land in Battle Creek, Mich., and has joint ventures at a Delaware racetrack (whose slots rank in the top 3 percent in the nation in win per day per unit) and an Oregon casino.
Iacocca "said he'd come back on the board and support me if I could deliver the Hard Rock," Giuffria says. "So Paul Steelman, Bill McComas and I went to London to see the Rank people.
"They liked the idea of a small company that could make decisions quickly in a fast-paced industry and gave us the deal. Lee came back on the board, Bill became the chairman and I became the president."
As president, Giuffria was working out of the company's headquarters in Del Mar, Calif., a locale beloved by Paulson for its proximity to a beautiful racetrack, but still living in Las Vegas. He suggested the company move its main offices to Las Vegas, "the Mecca of gaming," he recalls.
Full House had also optioned about 7 acres next to Beau Rivage, the new Mirage Resorts Inc. project under construction in Biloxi.
"I went down there to give the land owners an obscene amount of money, and a year and three months later, we closed the deal. That was tougher than putting together the Telnaes deal," he says.
SEC probeEarlier this year, Giuffria faced another challenge when the Securities & Exchange Commission said it was conducting an inquiry into trading of Full House stock by him before his association with the company and for several weeks after he began consulting with it.
Giuffria said he and Full House have voluntarily provided all information requested to the SEC, which said its inquiry "is not to be construed as an indication that any violations of federal securities laws have occurred," according to the company's annual report to the SEC.
Meanwhile, Giuffria is concentrating on development of the $270 million Hard Rock hotel-casino in Biloxi, a joint venture between Full House and Paulson that will have more than 400 rooms and a 60,000-square-foot casino, as well as a golf course owned by the company on nearby acreage. The hotel-casino is due to open late next year.
Thinking aheadIn addition to overseeing the Mississippi project and the Battle Creek casino -- "That could be huge, with up to 3,000 slots," he says -- Giuffria is working to develop a theme and brand name that will carry through future Full House projects.
"Ultimately, we'd like to have a project here in Las Vegas," he says, "but it has to be the right type of niche product. Meanwhile, we're going to concentrate on creating an identify for Full House.
"It's a lot like writing a song," he says. "When you get it right, everyone knows it's a hit. A hit song is a hit song in any format."
These are heady times for a one-time rock star who swapped 36-inch-long hair and performing before rock fans for a corporate coiffure and performing for an all-star board of directors.
"When you have the chance to deal with people like Allen Paulson and Lee Iacocca -- cornerstones of American industry -- you're a very lucky guy," Giuffria says.
"Allen can make money in an empty room. He wanted a jet, and built Gulfstream. He wanted a race horse, and bred Cigar. And I remember telling Lee about all my ideas and he said, 'Cut one of 'em out of the herd and do it.' These are things you just don't forget."
"It's a lot like writing a song. When you get it
right, everyone knows it's a hit. A hit song is a
hit song in any format."Gregg Giuffria