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Shuffle Master Table Games

Slow Payoff from Acquisition of Stargame’s Australasian Business

Dec 12, 2007

Gambling with poker card games, clarita@MORGUEFILE.COM (37739)

A small cap headquartered in Las Vegas, this leader in advanced table game products has yet to hit the jackpot in rich Australian and Asian casinos.

Shuffle Master Inc. (SHFL on Nasdaq) specializes in gaming table equipment and technologies.

Shuffle Master’s largest business division Entertainment Products (60% of company revenues) offers proprietary casino game software with over 20 revenue-generating titles. These include industry-leading poker favourites like Four Card Poker, Let It Ride and Ultimate Texas Hold’Em.

The other division Utility Products (40% of revenues) sells, leases and services automatic card shufflers, casino table systems and automated roulette chip sorters.

Cost-Saving & Money-Making

Shuffle Master offerings enable operators to save money while improving casino productivity, profitability and security.

For example, Shuffle Master’s latest innovation iDeal is a single-deck, specialty shuffler with card recognition technology guaranteed to deliver a non-trackable, fully random shuffle. This protects casinos against significant losses from illegal card counting. iDeal is the latest addition to Shuffle Master’s patented suite of seven other single and multi-deck continuous card shufflers. Some 25,000 of the company’s shufflers are already installed in gaming establishments, with encouraging potential for future iDeal upgrades.

To defend against counterfeit casino chips, Shuffle Master has also incorporated radio-frequency identification technology into a portfolio of computerized roulette chip sorters.

Table Master

Shuffle Master’s showcase product is an electronic tabletop called Table Master that delivers the company’s branded gaming software on video. Table Master automates many of the manual tasks unique to table games like real-time result reporting, player tracking and bonus management. Featuring an animated dealer, the multi-terminal gaming product improves casino productivity since it nearly doubles the number of hands played each hour.

Stargame Acquisition Difficulties

Shuffle Master provides a case study for overly aggressive expansion into foreign markets.

In February 2006, Shuffle Master bought the large Australian company Stargame for US$108 million. Shuffle Master acquired a broad lineup of traditional video slot machines designed for the Australian and Asian gaming markets. The deal also gave Shuffle Master the Rapid series of live table games with electronic betting stations and the Vegas Star series of electronic table games.

Anticipating fervent growth on the heels of the Stargame acquisition, Shuffle Master has doubled its staff to about 600 employees over the past two years. During the same period, the company’s revenues increased by a more modest 55%. With expected revenues of about US$175 million in 2007, Shuffle Master’s one-year revenue increase has slowed to around 7%.

Prior to the Stargame buyout, Shuffle Master used to spend about 7.8% of its revenues on ongoing research and development. With Stargame now on board, R&D expenditures have swollen to 10%. Many of the increased expenses are driven by Shuffle Master’s struggle to integrate technologies from Stargame’s distinct Australian and Asian operations.

Shuffle Master International Gaming Sales

In 2005, North American gaming establishments accounted for 88% of Shuffle Master’s total revenues. For the three-month period ending July 31, 2007, customers outside North America now generate over 50% of company revenues.

United States … 45.5% of total revenues for third quarter 2007
Australia … 30.6%
Asia … 8.6%
Europe … 5.5%
Canada … 3.3%
Mexico … 1%
Other … 5.5%

Vegas Management Crisis

Management has yet to prove that it can transplant its profitable Las Vegas style of business into the international gaming arenas of Australasia. Net income has slipped over 75% during the past year.

Other warning signs have surfaced:

Senior Vice President and Chief Financial Officer Richard Baldwin resigned at the start of November.
On December 10, the company announced a search for a new Chief Executive Officer after the incumbent Dr. Yoseloff signed a short-term contract to October 31, 2008.

References

This article presents independent insights from data including the third quarter 2007 press release and the 2006 annual SEC filing presented under Investor Relations on shufflemaster.com.

The copyright of the article Shuffle Master Table Games in International Trade is owned by Daniel Workman. Permission to republish Shuffle Master Table Games in print or online must be granted by the author in writing.