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AMOA President Sees Industry Renewal In Progress

Posted On: 11/7/2012

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TAGS: jukebox operator, amusement business, vending, coin-op business, coin machine, Amusement and Music Operators Association, Andy Shaffer, Shaffer Services, vending machine cashbox, coin-op route, Vending Times, machine operators, Amusement Expo, direct jukebox sales, video lottery terminals, VLT, video poker, redemption machine, smoking ban, bar business, tavern entertainment, pool league, dart league, sweepstakes video game

EDITOR'S NOTE: Marcus Webb's interview with Andy Shaffer was published in Vending Times a few weeks before Hurricane Sandy made landfall on Monday, Oct. 29, near Atlantic City, NJ. Devastation from the historic storm was widespread and initial estimates say insured losses will be about $20 billion and the economic damages at up to $50 billion, with almost two-thirds of those losses in New York and New Jersey. On top of that, FEMA is expected to face up to 80,000 flood insurance claims from Sandy. Assuming those claims cost about as much as they did last year for Hurricane Irene, that would represent roughly $2.4 billion in additional losses. Losses among vending and amusement businesses are expected to be in the millions of dollars. Combined, Sandy could easily become the second-most expensive catastrophe of any kind in American history, behind only Hurricane Katrina. AMOA president Andy Shaffer is spearheading an industry fundraising effort to aid the American Red Cross.

COLUMBUS, OH -- Seven months into his one-year term as president of the Amusement and Music Operators Association, Andy Shaffer said he has good reason to believe the music and games industry is enjoying a perceptible renewal. Shaffer, who runs Columbus, OH-based Shaffer Services, cites operators in various states who report that their local economies are beginning to rebound, and cashboxes along with them.

The AMOA president believes that several years of route consolidation may be tapering off. He asserted that operators are finding ways to offset losses resulting from smoking bans. In this and past interviews with Vending Times, he voiced enthusiasm about a new generation of operators entering the industry.

"I'm excited about this renewal that is going on," said Shaffer, who recently discussed his views with VT, along with video lottery, gray-area games, direct jukebox sales and Amusement Expo, among other hot-button trade topics.

"I have not seen much negativity on the ground as I've attended seven or eight state operator meets, as well as the AAMA Distributor Gala, the AMOA Midyear Board Meeting and everything else," the AMOA president said. "Instead, I am finding a lot of optimism out there. I consistently see that operators, distributors and manufacturers all seem focused on their businesses. They care deeply about the longevity and health of their companies."

Andy Shaffer

This higher level of confidence is based on several factors, according to Shaffer. Improving local economies are driving fuller cashboxes in many regions, he reported, and operators are seeing success with available strategies that allow them to cope with widespread smoking bans.

photo | ANDY SHAFFER addresses AMOA members and guests at the operators association's midyear board meeting in September at Beaver Creek Mountain in Colorado.

One of these strategies is to increase diversity of machines and locations. Routes that were once solely comprised of, or largely dominated by, mom-and-pop bars are increasingly expanding into bowling center gamerooms, movie theaters, restaurants and other types of venues where smoking bans had minimal impacts.

Additionally, the growing base of merchandisers with high-end prizes is driving stronger revenues for operators in all kinds of locations, including taverns.

Shaffer said there is strong evidence that consolidation among operators, which was a strong trend in recent years, might be leveling off. Consolidation intensified noticeably during the past five years and reached peak levels in 2009 through early 2012, when the Great Recession, combined with a growing number of statewide smoking bans cut 30% to 40% from cashbox revenues in several states.

The best-positioned operators, Shaffer noted, have weathered this phase of "economic Darwinism" in which "only the strong survive." A strong operating company headed into a smoking ban came out unharmed on the other end, he explained.

"I think a small amount of attrition will continue," he said. "On the other hand, while we are seeing older coin-op companies from a generation or two getting out, we are seeing new, younger, smaller operators getting into the business. The average age of these entrepreneurs is 30 to 35, and they may have just one to three employees, but they are energetic and upbeat."

According to Shaffer, the hottest issues confronting the amusement industry today are a trio of topics relating to risk-reward gaming. "Illinois' new video lottery program is on everyone's radar," he said. "The success of this market may depend on how operators and distributors work together."

Shaffer praised the professionalism of industry members and associations in Illinois, but warned that they're not home free just yet. "As those who have video gaming in other states will tell you, the battle isn't over," he said. "Now, it shifts to keeping this newly won market, tweaking it and hopefully growing it."

Asked if the launch of an Illinois VLT sector would lead to similar programs for operator-run, location-based gambling in additional states, Shaffer replied: "I wish I knew the answer." He said he has seen interest among many state trade groups, and manufacturers and locations, looking at ways to make a run at VLT programs.

Of the widespread interest in operator-run VLTs, Shaffer said: "I don't see it abating any time soon. The folks in Louisiana, Montana, South Dakota and now Illinois are in great demand as a source of information and education for those who are trying to bring it to their states."

Market conditions will play a key role in whether or not other industry members in other states succeed in following the Illinois example, the AMOA president said. More and more states are strapped for cash and are exploring new revenue sources they previously would not have considered during better times -- a dynamic that proved decisive in Illinois.

Shaffer admitted that on his travels around the country he was sometimes surprised by the extent of gray-area gaming occurring in some states, including video poker, eight-liners or sweepstakes games.

"In some states you get a bigger ticket for jaywalking than for operating a gray game," he said.

Like many AMOA presidents before him, Shaffer has seen first-hand how operator dependence on gray equipment revenue can depress sales of jukeboxes and amusement machines.

"Unfortunately, this impact of gray games can be disastrous not only to music and games operators, but also to manufacturers," he said. "Manufacturers that I have enormous respect for, companies that design and build family arcade games or street pieces, sell surprisingly few units of equipment in states where gray gaming is prominent. It is the elephant in the room in many states. It's there; we all know it; but nobody talks about it."

Shaffer praised AMOA's immediate past-president, Donovan Fremin of Delta Music Inc. (Thibodaux, LA), for his role in keeping the AMOA Gaming Committee functioning.

"AMOA's executive team and its board have agreed to keep the Gaming Committee going with a largely educational mission," Shaffer said. "We have to keep an eye on this important issue and educate ourselves about the latest developments in the gambling sector."

To that end, AMOA will continue to look for forums to exchange ideas and information on evolving gaming issues. The annual Council of Affiliated States meeting in February and Amusement Expo in March present two opportunities.

"AMOA is not in a position to make a blanket decision to welcome or ban sweepstakes game manufacturers to exhibit at the March exposition," he said. Amusement Expo exhibitor policies are determined in concert with AMOA's trade show partners, the American Amusement Machine Association and National Bulk Vendors Association.

According to Shaffer, AMOA has been documenting claims by and about certain companies' direct sales activities on behalf of operators and the association itself. Concern among operators reached new highs in December 2010 when NSM Music revealed its plan to sell a jukebox line directly to locations.

"It's an emotional issue, and sometimes it's difficult to separate fact from fiction," Shaffer said. "In the face of such threats, operators need to focus on and emphasize the value we bring to our customers. If locations understand and appreciate what we deliver, the direct approach is rendered irrelevant."

AMOA has issued pubic statements regarding NSM's sales policy since February 2011. That's when Donovan Fremin, who was then incoming president, said the association "strenuously opposed" any such business on the grounds that it weakened the operator.

Shaffer, too, has put himself and AMOA on record opposing direct sales, but has stated that AMOA was not created as an industry police force. He also has been careful not to wag fingers at any specific company. "It's obvious that AMOA opposes any model that goes around operators and directly to their customers," he reiterated to VT for this interview.

He predicted, "The list [of manufacturers that engage in direct sales] is going to keep getting bigger. Desperate times call for desperate measures, and for some firms, the direct sales approach is the last bullet in the gun."

Last spring, CEC Entertainment Inc., parent of Chuck E. Cheese's, reportedly agreed to work with California state lawmakers to amend the state's amusement industry regulations, forcing a $10 prize-value limit on redemption outcomes. AMOA and AAMA have been monitoring the issue.

Shaffer told VT that he is unaware of any new developments on the part of the state Legislatures to enact lower prize value limits for redemption arcades and merchandising games.

"No news is good news," he said. "We have not heard anything at all on this front in several months."

The 2013 Amusement Expo will be held from March 20 to 22, Wednesday through Friday, again at the Las Vegas Convention Center. This year's show tallied moderate increases over the prior year.  Shaffer said he expects the event to continue its pattern of year-over-year growth. AMOA and AAMA own the Amusement Expo, which is managed by William T. Glasgow, and the National Bulk Vendors Association now collocates its annual trade show inside the exhibit.

Exhibitors continue to voice concerns common to many trade shows, well beyond the amusements trade: conflict between seminars and exhibit floor hours and weak attendance on the show's final day.

Shaffer said there have been discussions about scheduling all seminars the day before the show, and possibly adding educational events immediately after the close of exhibits on the final day.

To attempt to boost turnout on the last day, Amusement Expo management is considering offering a lower-cost, one-day pass for those who wish to attend on that day only. This incentive could attract West Coast operators.

The new games on display at AAMA's Distributor Gala in August were promising, Shaffer claims. However, he continues to urge manufacturers and suppliers to time new product releases for Amusement Expo whenever possible.

"New technology, product and procedures for collection and security are the things that will attract mom-and-pop operators to attend our national exposition in greater numbers," he said.

In February, the operators association is planning to dispatch a small delegation to Washington on a political goodwill trip, perhaps joining AAMA, which has made several visits to the nation's capital to advocate its positions on healthcare and taxes.

AAMA has made dollar coins (by advocating for the elimination of $1 bill) a top priority and has assembled research showing the positive impact on the amusement and jukebox industries in other countries where low-currency banknotes are replaced with coins. That argument is not new.

However, the $1 coin vs. the $1 bill is one issue that will not be on AMOA's lobbying agenda. "Ever since the underwhelming release of the Sacagawea golden dollar several years ago, AMOA has sensed its members -- at least some of them -- have lost interest in the coin," Shaffer explained.

Two other factors have furthered that view, he said. One has been the widely held belief that the paper U.S. dollar will not be eliminated, and that "unless or until it is eliminated, there will be no substantial use of a dollar coin." A second is practical application of cashless vending systems for jukeboxes and amusements, and interest in emerging mobile payments technology.

AMOA recently surveyed its operator members for their opinion on the dollar coin. About 70% of respondents said they believed the wholesale adoption of dollar coins would hurt their businesses. Respondents were split on whether AMOA should lobby the issue, with 49% opposed and 41% in favor.

"AMOA spent a ton of time and money advocating the dollar coin in the 1980s and '90s, and now, I think some operators have grown tired of the battle," Shaffer said. "And that's even in the wake of reports from Washington that indicate there is growing momentum for eliminating the paper bill."

As of early October, Shaffer had completed about two-thirds of his planned visits to coin-op state associations. His itinerary so far has included trips to operator groups in  Illinois, Minnesota, Missouri, Oregon, Texas and Wisconsin, among others, where he represented AMOA. As VT goes to press, he's planning and packing for meetings in West Virginia and South Dakota, as well as the IAAPA Attractions Expo in Orlando, FL.

When touring is finished, Shaffer believes he will have matched, or quite possibly established a record, for visiting more state operator meetings than any previous AMOA president.

One traditional president's trip that Shaffer probably won't be making, he said, is the 11-hour roundtrip drive from his native Columbus, OH, to South Bend, IN, to visit the new class of AMOA's Notre Dame Executive Development Program (Oct. 26-29).

With gas prices at record highs, he said he expects to conserve his travel budget by making a virtual appearance at Notre Dame by streaming video.

"As amusement and music operators," he said, "we're in the entertainment field, so we should be pushing the latest technology. Unfortunately we're behind on videoconferencing. I think it's the prudent thing to do in this case, and we can still accomplish AMOA's goals of thanking the students for taking personal and company time and money and devoting it to learning at Notre Dame."

On a personal note, Shaffer has been named president of Shaffer Services, effective Oct. 1, moving up from vice-president. He praised the work of his predecessors, including Tom Baldwin who died of cancer 10 years ago, and Rick Murray who has helmed the company for the past decade.

As for the balance of his presidency at the Amusement and Music Operators Association, Shaffer said: "I've got another five months to go and I am going to enjoy every minute of this ride. I asked for this job and was lucky enough to be voted into it. When I took on this role, I promised to give AMOA and the industry everything I can in passion and energy. That's what I'm doing now and all the operators, distributors and manufacturers that I've met meet in my travels have reciprocated it. They energize me every day. I can't wait for Amusement Expo."