PHOENIX -- Perhaps the best-attended meeting yet of the Council of Affiliated States took place here at the Renaissance Phoenix Downtown Hotel from Feb. 9 to 11, under the auspices of the Amusement and Music Operators Association. The Arizona meeting drew more than 70 industry members, representing two national trade associations and at least 28 state operator associations. I represented New Jersey. Representatives packed the conference room to the gills, and excellent information circulated. Here are some highlights.
First, the spirit of the gathering was encouraging and optimistic. The industry's wisest and most progressive members attend the AMOA States Council. This event was almost a "Who's Who" of industry leaders. AMOA president Donovan Fremin of Delta Music Inc. (Thibodaux, LA) was joined by incoming president Andy Shaffer of Shaffer Services (Columbus, OH).
PHOTO: Frank Seninsky (left) and Andy Shaffer of Shaffer Services (Columbus) exchange notes at AMOA's Affiliated States Council in Arizona. Shaffer, who represented Ohio at the meeting, was installed as AMOA president this month. Seninsky is a past-president of AMOA.
Also on hand were AMOA past-presidents. Among them was Jim Stansfield of Stansfield Music (Lacross, WI), who launched the very first States Council and was the first chairman of the organization. Additional members of the past-presidents club at the Council meeting were two of my favorite Tennesseeans: Gary Brewer of Brewer Amusement (McMinneville) and Marion Paul of Fannie Farkle's (Gatlinburg).
State associations were represented by executive directors, or by elected operators who serve as presidents of their organizations.
"Let's-go-around-the-table" reports from each of the state associations included fun icebreakers such as revelations about the most ridiculous laws on the books in every state. I especially like the jurisdiction that says you need a chaperone if you put a sheep in a truck cab, or the Indiana law that declares the mathematical value of pi to be 3.0, not 3.14, because it's easier.
I also noted the Ohio law banning five or more women from living together in one house (they must be afraid of too much choir practice). In Louisiana, biting someone with real teeth can result in a regular assault charge ... but biting them with false teeth gets you an aggravated assault charge, which is worse. Remember that the next time you get into a barroom brawl.
Nevada law calls for a tie in any governor's election race to be settled by a high card draw, while Wisconsin calls itself the "toilet paper capital of the world." In South Carolina, if you propose to an unmarried woman, you must marry her.
DOWN TO BUSINESS
Today's largest state organizations are the Illinois Coin Machine Operators Association with 122 members and the Wisconsin Amusement & Music Operators with 128 members. Florida, my new home state, has no amusement operator association today despite the hotbed of sweepstakes videogame activity there (up to 1,000 sweeps cafés are reportedly doing business). Two states away, the South Carolina association was founded in 1957; it may win the contest for the longest-serving body of its kind.
Participants shared the most successful revenue-generating strategies employed by state associations. Common tactics include holding auctions of used equipment, sponsoring technical schools, and honoring individual or corporate achievements with fundraising banquets. The Ohio Coin Machine Association saw membership climb significantly after it negotiated a 3% fuel discount at certain gas stations for its members.
There seemed to be general agreement that the coin machine industry is fragmented (as usual) and still consolidating. Operators who ran legalized video pokers, along with jukes, pool and countertops, said risk-reward entertainment drives 80% of their businesses; music and amusement only represent 20% of the revenue in markets that allow small-stakes gaming in public locations.
Gray-area gaming has witnessed sharp declines in many regions as states increase enforcement efforts. This shrinking tolerance for gray equipment is forcing some poker operators to pay more attention to old-fashioned amusements like pool, darts and music. At the States Council, these business leaders advised fellow operators to keep strong when it comes to covering the basics, including leagues and association membership.
The Council heard negative reports about amusement taxation from several states. In July, Georgia will sharply hike fees on the industry, mandating a $5,000 master license and operator and location licenses -- 125 apiece -- per game for Class B games (redemption, prize venders and cranes). Class A machines, which include pins and jukes, will require a $3,500 master license for a business operating more than five machines per site ($500 for five or fewer), plus $25 each per machine from the operator and another $25 from the location. The state is also imposing a $5 limit on the value of prizes that can be won on a single play.
All states agreed that smoking bans are up, and bar traffic and amusement revenues are down as a result, which has been ongoing over the past decade. Louisiana's trade members said total game revenues dropped 54% following the imposition of their smoking ban. Missouri claims the lowest state taxes on cigarettes at 17¢ per pack.
VLTs PRICK EARS UP
Video lottery continues to be the big topic among the states councils. South Dakota, now celebrating its 23rd year of operator-run video lottery terminals, contributes $55 million a year (50% of total VLT revenues) to the state. This makes amusement operators the second-largest revenue contributor to the state's public coffers. But VLT revenues have dropped around 15% or worse since the smoking ban was instituted there. So far 1,000 slot-style line games (individual machines) have been introduced under a new regulatory scheme, but South Dakota operators said these new machines have had a very modest impact on VLT revenues.
Illinois operators said they remain confident that their state's VLT market will go online this year. The industry is rooting for them, but the example of South Dakota demonstrates that once an operator-friendly gaming market is established, defending its profitability is a never-ending battle.
One lesson I learned: the most powerful state operator associations have large pool and dart tournaments, which require operator-owned equipment as a condition of participation. This tactic works in any state, regardless of the size of operator membership rolls and regardless of whether the association in question is run by operators or by association pros. Why does it work? Because locations know they "must" participate in the state association's popular league system in order to get customer traffic.
The meeting's stream of information included contributions from distributors and manufacturers. Valley-Dynamo's Dave Courington, past chairman of AAMA, made perhaps the most notable statement: "A successful operator has never had a failure, just a series of learning experiences."
His observation, which I now count among my top 10 industry quotes, is on the order of AMOA past-president Dick Hawkins' immortal line, "We all eat out of the same cashbox." Courington might have added, "very expensive learning experiences."
Manufacturers previewed some new products in the pipeline. AMI Entertainment Network's John Margold said it's easier to sell new products for lower prices up front if the manufacturer knows they will participate in revenues downstream. AMI's ML-1 touchscreen videogame system is now operating on a revenue-share basis like its digital jukeboxes. He said AMI's V3 jukebox software has already boosted revenues 9% on music. Separately, AMI's skill with prize system, Prize Farm, is now legal in 26 states.
Mark Struhs of Raw Thrills says the videogame firm has sold more than 75,000 games so far, a very respectable number in today's industry. Big Buck HD will be shown with new technology at Amusement Expo.
We learned that some sweepstakes games manufacturers will be exhibiting equipment at Amusement Expo, too. Sweeps video equipment may be legal in some states. But in some states, if the customer can't actually use the paid-for vended product (in most cases, this is a phonecard that a majority of customers throw away), then this type of device is regarded as illegitimate.
Some businesses are getting around this restriction by letting customers make a donation to a charity. Will that work? The answer will play out differently in court cases from district to district, and from state to state, in the coming months and years.
Turning from state issues to national politics and this fall's elections, AMOA's legislative counsel Mike Zolandz provided a briefing (over a speakerphone from his office in Washington). He predicted that Republicans will maintain their House majority and gain a slight majority in the Senate. He also said the few moderates who remain in both parties are leaving public service. This will cause Congress to become even more polarized than it is today -- and will make bipartisan cooperation that much more difficult to achieve.
As for the 2012 White House race, Zolandz reminded everyone of the considerable advantages of incumbency before giving the current occupant a 60% to 65% edge in winning reelection this fall.
I have always said that our industry has the most upbeat outlook, and the fewest suicides, of any business in America. Operators, distributors and manufacturers are always looking forward eagerly to the next game, the next hit, the next "gotta have" title that could make us a fortune overnight. The positive vibe at the States Council -- especially in the face of a troubled industry and a frightful economy -- simply shows that this optimism is still alive among America's leading operators.
So what is next? Manufacturers have shifted their focus from the next hit game to the "next big new technology" and the "next big new market." Some manufacturers remain frustrated by U.S. operator sales resistance (what else is new?). It's true that American operators don't buy huge numbers of new machines, but that is largely because they don't have an easy time finding new locations these days. And adding a new game to a location frequently does not increase the weekly gross revenues; money just shifts away from the current games to the new game (for a while).
Realistic factories are refocusing. U.S. amusement machine factories now make 60% of their sales overseas, where the growth markets are, for the time being.
WHY GO? LEARN THE RISKS
Operators come to meetings like States Council hoping to find out the real lay of the land and to find niches in which they can prosper. I came away from the 2012 meeting encouraged by all the professionalism and positive attitudes, but also with a keen sense of the risks that lie ahead.
Many of those risks come directly from state governments. Smoking bans, devastating though they have been, are only part of the story. Taxation and regulation are the rest of the story, and it's a thriller at best. At worst, we're talking about a horror story.
Some state association leaders said that, in past years, they agreed to higher license fees in lieu of a gross receipts tax. For a few years, this trade-off worked in their favor. But as some states find themselves deeper in red ink, they are looking for easy targets ... and our industry has a big bull's-eye painted on its back. Result: amusement machine license fees are climbing, and taxes are being imposed. Some operators who agreed to pay licensing fees are now regretting the deal. Our business (in its current operating format) obviously can't pass on a gross receipts tax to the customer.
(On the other hand, as one state reported, if you win a gross receipts tax exemption one year, it can live on and protect you from tax hikes for years to come.)
The battles over crippling state taxes and burdensome regulations have the potential to become an outright horror story because state governments can kill our entire industry even without intending to do so. In states like Georgia, with the above-mentioned license fees on the way, the struggle is to stay in business despite the potentially lethal intervention of government.
That means operators must form state associations and make friends with their state lawmakers, before a dangerous bill or tax or license is proposed.
If you wait until a potential problem arises to take action, to band together, and to start romancing your legislators, then you have waited too long. The law you fear will be passed before you can round up a dozen fellow operators and vote on a name for your new association or hire a lobbyist to press your case. What's more, the old pros agreed, once a law is passed, there is nothing harder than getting it amended.
BACK TO BASICS
Attending the 2012 States Council also confirmed my view of an important trend among big operators today. The best are going back to basics. Even the largest route owners are getting back on the street in person, wearing out shoe leather and reintroducing themselves to their location customers face to face, shaking hands and renegotiating location contracts, while shoring up leagues and tournaments.
These seasoned operators are dusting off tactics that were fundamental 25 years ago but that have been allowed to languish. The old-fashioned tactics of "personal retailing" are new to many members of this generation ... but hard times have a way of bringing the classics back into style. Even the old "Frank the Crank" is going back 35 years and using original tried and true operating concepts to impress the new generation.
FRANK SENINSKY is president of Alpha-Omega Amusements (East Brunswick, NJ), parent company of Amusement Entertainment Management, a consulting agency; Alpha-BET Entertainment, a nationwide revenue sharing equipment provider; and Alpha-Omega Sales, a distributor of new and reconditioned games. During his 40 years in coin-op, Seninsky has presented nearly 300 seminars and penned more than 1,300 articles. He served as president of the Amusement and Music Operators Association and the International Association for the Leisure & Entertainment Industry. He is editor of The Redemption Report and an instructor at Foundations Entertainment University. Seninsky can be reached at (732) 254-3773 or by emailing firstname.lastname@example.org.