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Stay Optimistic: AMOA President-Elect Takes His Own Advice, Despite Challenging Market

Posted On: 8/25/2002

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EDITOR'S NOTE: AMOA President Rich Holley was killed in a plane crash on Friday, Feb. 28.

TAMPA, FL - Rich Holley of Southeast Game Brokers will become the 2002-2003 president of the Amusement and Music Operators Association at the close of this month's AMOA International Expo (Sept. 19-21, Las Vegas). Outgoing and good-humored, this 22-year industry veteran is also passionate and outspoken. In addition, Holley possesses a varied and colorful background that may be perfect for the hi-tech amusements industry.

Holley spent nine years as a professional rock musician in New York, playing guitar and keyboard, before becoming an electronics engineer and moving to Florida in the late 1970s. When his engineering company wanted to transfer him to the Midwest, he resigned from the firm and did a stint as a Florida high school and junior college teacher, teaching advanced math and science courses.

In 1980, Holley bought a 30-piece gameroom. "I paid it off in nine months while teaching school , and it's a good thing I did, because you know what followed," he laughs. He teamed up with a fellow teacher, Paul Virgadamo. As fulltime operators, they soon closed their gamerooms and began buying used equipment to serve street locations or to resell. The two partners went their separate ways in the late 1980s but remain friendly today. "We talk almost every day and share many of the same views and concerns," Holley says.

Holley describes himself as a mid-sized operator. Bev, his wife of 35 years, and Michael, his 33 year old son, both work at SGB. The staff ranges from eight to 10 full-time employees, with up to four part-timers as needed. Southeast Game Brokers covers the west coast of Florida from Springhill in the north to Naples in the south, and as far east as midstate. (Holley sold his East Coast operations several years ago.) Major accounts include bowling centers, skating centers, laser tag sites, FECs, pizza chains, theme parks, military bases (although that's dwindling), taverns, and special events rentals.

Today SGB operates a full range of equipment including music and pool, but Holley says cranes are his most important type of machine. Meanwhile, taverns are becoming an increasingly important class of location for SGB. "All the high-tech equipment is made for bars," Holley points out. "The good old IT golf games are still going strong; it's on double-overtime now and this industry has never seen that happen before with hi-tech equipment. It's truly incredible, no pun intended. Music and countertops are also going online; it's got to plug in. That is where the industry is going. I still remember we landed our first tavern location 20 years ago by offering a game that was then new technology: ICE's 'Chexx.'"

Holley describes SGB's trademark as "reliability." Anybody can purchase games but only a few offer service that is second to none, Holley says. SGB is also very active in its community, particularly with charity support including donations of everything from plush and games to money.

"Business can always be better but we are paying our bills and making a decent living," Holley says. "I have a lot to be thankful for from this industry. I'm glad I went the direction I did 22 years ago."

Rich, congratulations on your upcoming move to the AMOA presidency. What major goals or policies will you pursue during your term?

I would like to continue the work that was started during AMOA president Don Hesch's tenure, building bridges with other associations and particularly to our sister association, the American Amusement Machine Association. I want to expand what we do together, especially through the Joint Industry Council where we sit down together, talk together, eat and drink together, and hash things out.

Right from the get-go, I would like it to be publicly known that even though we have our differences, AMOA and AAMA are not moving apart. That is a misperception. We can prevent any differences from fouling all the good work that has gone before, through a continuous flow of dialog, and through a continuous flow of information that is provided to the rest of industry, so that rumors don't start over nothing.

For example?

For several years AAMA and AMOA were in the same building, and practically the same room. AAMA was also kind enough to let us use their conference room during that period. I for one will never be able to thank people like former AAMA president Bob Fay enough for what they did to assist AMOA during difficult times, not so long ago.

But there came a time when AMOA had outgrown its one little room with four people trying to work, talk on the phone, and file all the documents that an association maintains. Our lease was up and we needed to move. We invited AAMA to move with us, but their lease was not up. Why did we move to our new site in Itasca? We needed space.

Perhaps when AAMA's current lease expires, they will join us in Itasca. So it's important that people don't attribute any deep, dark motives to this development, when that is simply not the case.

You've said one reason you're confident about AMOA's future is the depth and breadth of leadership.

Absolutely. Currently the AMOA board is extremely strong and talented. This did not happen overnight; it began many years ago with the vigilance of our New Directors Task Force to recruit new blood, screen individual candidates, and get us the most diverse and able members possible. As president of AMOA, I will stand guard over that committee to ensure that this process continues! The result will be a strong board that propels us to continue to achieve and succeed, even at a time when this industry faces many challenges.

My fellow AMOA officers , the "cabinet" if you will , will be first vice-president Chris Warren, treasurer Marion Paul, and secretary Jim Pietrangelo. All are well-prepared AMOAers. I have every confidence in each of them to make me look good , that's their job! (laughs) I can also say we have a well seasoned staff that's been in the business several years under our executive director, Jack Kelleher, in whom I have all the confidence in the world, and his superbly able assistant, Nancy Gigac, who is a true team player. They keep the place moving like a top. They're fantastic.

What are AMOA's top priorities now?

Our jukebox negotiation subcommittee, of which I'm a member, will continue to work hard, attempting to negotiate a license to help operators pay certain copyright fees for downloaded music from third parties. We'll continue to recruit more manufacturers to sign our Information Privacy and Security Policy agreement. The strength of AMOA comes from our membership, so lots of effort goes into maintaining our numbers and recruiting more.

How has AMOA prepared you for the job of president?

Unlike the procedure in many associations, including AAMA, becoming president of AMOA is a long process with many stepping stones along the way. One is scrutinized, but also helped, as they proceed on the journey. Preparation in fact is intense. It takes at least nine years! That's a lot of training. My final part of the preparation process was a two day transitional meeting in Adrian, Michigan, with current president Mike Leonard in early August.

Four weeks from now, as I become president, it doesn't mean the learning and growing stops. The immediate past presidents stay involved in guiding the assocation for five years, and for good reason. They are a wealth of information, experience, and strength. We also have something we call "the heart and soul of AMOA" and that is our catalog of people who have served on the AMOA board from Day One, if they are still alive and in the business. All these folks are welcome in Mike's suite at the show.

I want to specifically mention AMOA past president Jim Stansfield (Stansfield Vending, LaCross, WI). I consider him to be my mentor. Through this journey he has been a tremendous example to me and the whole board. I only hope I can be half the president he was.

What is your assessment of Mike Leonard's term?

Mike has done a very good job. Fortunately, for once no crisis erupted that sidetracked or distracted us. That gave him an opportunity to focus on keeping AMOA on track with our basic work. I only hope I'm as lucky!

As chairman of the AMOA Expo planning committee, what can you tell us about plans for this year's show?

I don't have today's pre-registration figures from show organizer Glasgow and company at hand, but we expect a great show. The latest numbers I have are slightly below last year's at this same time, but in today's industry that is excellent. We'll give out our usual awards, including the new Innovator Awards to spotlight the best new games and services. Hopefully this kind of encouragement and recognition will help the industry create the next "Pac-Man."

You're a longtime rock 'n' roll man'and we hear there will also be some unusual musical entertainment at AMOA Expo 2002.

At the president's Expo party, get ready to rock 'n' roll! Music will be provided by the industry's first-ever rock group, The Coin Drops, featuring operators , manufacturers , and distributors! At one point on stage will be the outgoing and incoming AMOA presidents, and the president of AAMA, performing as a rock trio! This is how we will kickstart our 2002-2003 relationships with the other associations in the industry. The Coin Drops will be in demand and after Expo is over, there is no telling where we show up around the country! Be there at 7:00PM at the Hilton , the exact ballroom is to be announced!

We wouldn't miss it. AMOA's membership was approaching 1,700 firms as we went into Expo 2001; where does it stand today? Do you think there is more growth potential or has it topped out?

Are you sitting down? As of one hour ago, AMOA membership stood at 1,695. Yes, we think we can break the record. For anyone who doubts this , and there are doubters , go get last year's AMOA directory and check for yourself. That is again thanks to another hardworking committee, chaired in this case by Bob Young. He's not just determined, he's ruthless. I certainly think he will go over last year, because we haven't had the show yet and typically many companies sign up at showtime. We'll have a platoon of people directing visitors to the sign-up booth.

What is AMOA's current financial status , in the red, breaking even, or seriously in the black?

Seriously in the black! AMOA's finances are solid as a rock. Our revenue mainly comes from dues and the trade show. The budget is just over $1 million per year and our expenses are proportional. Government relations spending is less than it used to be, while membership spending is greater. We also spend a lot to produce and promote the trade show.

Has AMOA restored its "rainy day fund" to the levels it was at before paying for the National Amusement Network and the Indianapolis lawsuit?

The answer is a strong "yes" , we are fast approaching that number. Honestly, even I am surprised we've been able to go this far, this quickly. It has not occurred during booming times, so it's a credit to our hardworking board and past leaders. Most of our money is in safe harbor. Interest rates being what they are, we'd like to see those funds grow faster , but we prefer safety to adventure. It's not our money; it's AMOA members' money. These funds are SAFE and you can spell that in capital letters.

In the last four years we have been able to make six-figure contributions to our contingency fund and AMOA will do so again this year. We won the Indianapolis suit, as you know, and both AMOA and AAMA got back every penny we spent thanks to our legal counsel, Mr. Elliott Portnoy. It's not often that a lawyer gives you money! By the way, don't forget that we also have other savings funds, such as our Wayne E. Hesch memorial scholarship program.

What's the most important thing you've learned about the business or about AMOA in the last two years?

I've learned to be flexible. And to be willing to change in a different direction at a moment's notice. Even more than that, although this has been said so often by so many, I really realize deep down, more than ever, that every one of us does "eat out of the same cashbox." If the cashbox goes down, we all suffer. This may sound like a cliché, but when you live it, this is reality. That's what we're all experiencing today.

That leads directly to our next question: what is the economic environment for today's amusements operators? Has the last year been one of stability, contraction, or growth opportunity for most operators?

I talk to many people and the responses some would give differ from my views. I can only answer based on my experience and not for everyone. We all know there has been consolidation in this industry at all levels, and there are fewer locations in which to place games. But I have an optimistic outlook. In fact, I predict that those operators who are most diverse , in terms of both equipment and locations , will see some growth, or at least remain stable in the coming year.

Please explain.

Sure. The operators who have their foot in every door are poised to say: "Wait a minute! I used to make all my money over here, but now I see money is coming from another niche. Let me focus on that." Flexibility is the key. If you've got operators who are focused solely on a single niche, if that niche slows down they become almost like industry newcomers when they shift to a new niche. Because if you haven't been doing it before, it is almost like starting all over again to enter and learn that market. The guy who's already there can just switch his effort and attention.

Do you see this happening already?

Oh, yes indeed. The well-rounded operators are in the best position to exploit the opportunities that arise. Those who have focused only on a single segment, are not doing too well right now. To give you one specific example, I've been operating bulk vending equipment for over 12 years. I'm a member of the National Bulk Vendors Association. Now more and more traditional amusement operators are "discovering" this market. It will help them; it has certainly helped me.

In 2001 this industry lost Midway, SNK, and a couple of longtime distributors. This year we're reportedly about to lose Konami, at least as a self-marketed equipment supplier. Routes and fun centers are steadily consolidating into the hands of fewer and fewer operators. Do you expect to see continued shrinkage of this industry?

Yes. It's going to happen. We haven't turned the corner.

Should operators be worried about losing the manufacturing base and access to good new equipment?

In my opinion, there is still money to be made in this industry. In a free market, someone will jump in to fill the need. While I feel there's not enough good equipment to buy right now, I also feel I'm making a decent living by working a little harder and a little smarter. Operators simply need to be vigilant. There is always going to be equipment'perhaps not the way we once knew it.

Remember this , many times during the course of the current cycle, the last five or six years, there has been too much equipment and too much mediocre equipment. Many veterans believe this industry runs in a seven-year cycle. If so then after a couple more years of contraction, we could be due for a rebound.

I'd also like to remind everyone that before electronic technology boomed with computers and video games, this was a much smaller industry, yet nobody was worried. Some of those companies that operated successfully then are still around today. Many others of us entered the amusements business 20 years ago because of new technology; I'm one of them. The multi-generational operating companies have survived and continue to survive. There's a lot of them. So I'm not worried. Things will be different; we just have to adjust. You gotta stay optimistic.

Please tell us what approaches are most operators taking to improve profitability today , diversifying, cutting overhead, or just buying routes of former competitors?

All of the above. At least that much! Operators are taking in less money. And not only is there less money to spend, there is less product to buy, so you've got to cut corners somewhere: lifestyle, office expenses, warehouse overhead. To do nothing would certainly number your days.

With all the factory direct sales and distributor trans-shipping, is there any real order and coherence to this marketplace anymore, or is it pretty much a free for all?

(chuckles) In my area I've heard stories about these irregularities. There is still some semblance of order; I have not experienced total chaos. I still get good service from my two distributors. They have less product for me to choose from, but I can still pick up the phone and order equipment. Yes, we'll have more direct selling. We've always had a certain amount of it; now we will have more.

I don't know how smart it is for distributors to chase direct sales to locations really is, because distributors are in the service business, including financing for those who can't obtain their own. Without those services, if the distributor is just a middleman, there would be absolutely no need for them. I assure you, any route operator will tell you that it's just a natural fact: the quality of service is directly proportional to mileage from your shop! The lure of a lower price, better terms, or what have you, may cause people on both sides to change from the traditional way of doing business. Sometimes that's called survival; sometimes it's short-sightedness.

What kind of reading do you get from operators today? When operators talk turkey, are they confident, scared, happy, blasé?

I'd prefer to use the word "concerned." I think it's a more appropriate word than "scared." There is a need to be concerned and vigilant. If you really analyze it, we are in a fragile situation. One factor that makes it more fragile than many people realize is the potential to be legislated out of business. The government will never stop targeting our industry, either on the tax side or the regulation side, as seen most recently with the video violence issue. Whatever method they use, the government is probably our biggest enemy right now.

That's a strong statement, but one clear example is the series of state governments that have attacked video poker. With the fallout from South Carolina's ban on video pokers a few years ago, there seems to be a slow-motion domino effect happening across the South: West Virginia, Alabama, Georgia, and now North Carolina are seeing the demise of adult redemption and gray area pokers. Why is this happening? Is it good or bad for the industry, and what should be done about it?

It is a regional trend, as you describe. Operators in most of the continental U.S., and I assume Alaska and Hawaii as well, did not have that privilege of operating so-called adult redemption games. The Southern states should be grateful they had this opportunity for so long! Now that this type of equipment is being outlawed, operators there should simply say "thank you" and go back to operating traditional amusements.

You want to know why this is happening? Simple: because government is positioning itself, not only in those states but in all states, to be in the coin machine business , particularly in the arena of gambling. The government maintains double standards to suit itself. Out of one side of their mouth, they say gambling is bad for society and will lead to our moral destruction. Out of the other side, they say it's okay if gambling happens on a boat or on government-owned land, or if government taxes the heck out of it.

For the few states that do allow operators to participate in legalized gambling, it's not a free market. They are only allowed to make so much. If the state feels they are too profitable, they'll raise the state's share. Even if you can get on the train, they're going to be driving.

This is why I say government is our biggest enemy. They are positioning themselves to go into our business. AMOA leaders who travel from state to state see that gambling is eating the operator alive. The money is just being sucked away! I recently visited a national gambling industry show and it looked like a 1985 AMOA show , not only in terms of heavy attendance, but also many familiar exhibitors!

What can this industry do to combat this trend? Many states from coast to coast now face huge budget deficits. To make up the shortfall, they are not only hiking cigarette taxes, but as you say, many are thinking of expanding gambling in one form or another.

Right. This is a freight train bearing down on our industry. The U.S. National Gambling Impact Commission conducted a study, and found that gambling is out of control and harmful to society. That is what operators should be scared of.

One way we can combat this trend is to point out that government can never do business efficiently. For example, I've seen statistics showing that my state, Florida, spends $6.08 billion per year to incarcerate people who get hooked on gambling and turn to crime to support their habit. So Florida actually spends more money on this problem than it earns from legalized gambling revenue!

Beyond that, let me come back to my earlier point. Those operators who do learn the real amusements business, who diversify, and who are nimble enough to respond quickly to shifting market trends, can do all right. Many people outside our industry seem to have the perception that operators are wealthy. Well, I drive my little boat up and down the Florida coast, and I don't see a single mansion owned by an operator! But if you work hard, you can make a good, solid living in this industry.

Is there any other issue you would like to cover, or any message you would like to communicate to the industry at this point?

In general, I really am looking forward to the coming year and to tackling whatever challenges it will present. I invite anyone visiting sunny Florida to visit my office in Tampa. We're in the phone book!

Thanks, Rich, and best of luck during your year as AMOA president.