Aristocrat Leisure CEO Trevor Croker’s plans to expand from pokies to virtual games
From pokie machine maker to developer of cutting edge games and technology, Aristocrat is one of the ASX’s biggest export stories and showing how it’s done in Las Vegas.
Whether it’s an ancient Chinese warrior, an Egyptian queen or a tacky space robot, you wouldn’t believe how global this collection of bright cartoon characters has gone.
Easily recognised, but rarely recalled, these animations and games have underpinned a $42bn giant that has recently overtaken Woolworths and long left Woodside behind. At the current rate of growth, Transurban ($45bn) is about to be overtaken and then Telstra – today at $52bn – is on the horizon in the next five years.
To many, Aristocrat Gaming is the uninspiring pokies maker born out of NSW’s leagues club culture of the 1970s. Most see it as the brand attached to the often gaudy or loud machines sitting in the corner of pubs, or in back rooms of big suburban clubs like Marconi or Canterbury.
Think again. Today, Aristocrat is one of the ASX’s biggest export stories outside mining, generating more income offshore than at home. It ranks as one of Australia’s biggest tech companies and cutting edge digital design studios. And it is a very serious business.
“We’ve gone from being traditional manufacturers to a technology business,” Aristocrat chief executive Trevor Croker tells The Australian. “In the future, more of our revenue will come from our digital environment.”
The business of building the right content for pokies is “part art and part science”, Croker says. It’s the artwork involved in the game, the writing, sound and themes (including those stylised Egyptian characters). Then there’s the science of the technology behind it. It’s highly regulated and involves a small army of mathematicians, coders and engineers to build Aristocrat’s own proprietary operating system that all the games sit on.
This puts the bulk of Aristocrat’s 7500 people around the world working on software and technology.
When Croker took charge of Aristocrat in 2017, one of his first decisions was to base himself in Las Vegas, putting him close to the mega-casinos which are among his biggest customers. Some 80 per cent of his poker machine sales and leases are generated in the US, with more than 71,000 units installed. Of the billions of dollars that are put through the Las Vegas slots, chances are it is using Australian-owned and developed technology.
However, since then and like all things in entertainment and content, more of Croker’s world is moving online. For Aristocrat, almost half of its nearly $6.6bn in annual revenue comes from digital gaming, businesses that barely existed a decade ago.
To meet the challenge, in recent years, Croker has been rebuilding Aristocrat around three pillars. There’s the traditional poker machine businesses, which is still by far the largest unit, generating more than 55 per cent of annual sales.
Second, Pixel United today is one of the biggest publishers of social casinos, action and role playing games marketed by third parties on mobile and web platforms. This business is 40 per cent of sales and allows users to buy online coins, but can’t take the cash out into the real world.
Finally, there’s the Interactive business. It’s still relatively small, but this is where Croker is betting on substantial future growth.
This designs and builds gaming content that is supplied to online casinos, sports betting and digital lotteries (including digital scratch tickets). Like pokies, these games allow consumers to take cash out into the real world. Digital lotteries, that like pokies are highly regulated, are starting to take off, particularly in Europe and North America, and Aristocrat has become the partner of choice for lottery operators around the world looking to move their physical business online.
This business got a big shot in the arm last year through the $1.5bn buyout of NeoGames, delivering it specialisation in iLotteries, and online sports betting.
Last year Aristocrat posted a profit of $1.6bn, this represents annualised growth of 12 per cent over the past five years. The company is scheduled to deliver its first half results on Wednesday.
“The reason why we’ve flown under the radar is I think that there’s been some perspective that this could be a cyclical business. You get a lot of growth, and then someone comes through and takes growth off us. This is something we just don’t agree to as a company. We get up every morning to take market share,” says Croker. “We’ll then use that share to then fund the next wave of growth, and then we’ll use M&A to smartly to accelerate that growth on top of that.”
Like all tech companies, the other secret to Aristocrat’s organic growth has been its aggressive spend on design and development.
It invests around 12 per cent and 13 per cent of its annual revenue on content and innovation. This rate of spend is as much as 60 per cent higher than rivals like US-headquartered Light and Wonder or the UK’s IGT.
It’s the level of R&D spend that puts Aristocrat as one of the biggest commercial filers of patents, up with names like pharma giant CSL and telco Telstra. It also builds a moat around the company.
Croker, who is regularly in Australia but rarely gives interviews outside investor briefings, says it is this intellectual property that creates value for shareholders and for Australia in the long run. This encourages people to be more creative and then take their IP to the world.
Being one of the biggest players in the pokies industry certainly keeps some investors away. Croker stands by his company’s record on ESG, including being at the front of safer play, while developing cashless gaming technology and other gaming limits both on machines and in the digital games. Aristocrat has been on a multi-decade journey around responsible gaming with operators, he says.
“I think our industry will always be not seen favourably by some, but we want to be seen as the best in the industry for what we do,” he says on safer gaming.
As more Australian state governments push casinos to move to cashless gaming, Croker says this was developed from 2023.
“We do have a solution, and we’re continuing to invest behind that solution.”
Australia’s biggest industry fund, AustralianSuper, which operates under a strong ESG framework, now ranks as Aristocrat’s biggest shareholder, according to recent filings. BlackRock is also a substantial shareholder, while several other industry funds sit on its register. Billionaire pokies king Len Ainsworth sold off his majority stake a decade ago.
Croker, a former Fosters Brewing executive who worked under the likes of Trevor O’Hoy and Terry Davis, says the industry funds have been “excellent partners in helping us understand what it means to be an investable company in Australia”. This means working with their ESG lens while building the company for the long term.
Aristocrat has seen its shares climb almost 70 per cent over the past year, although it is flat so far this year. Its five-year returns have delivered 165 per cent, outpacing the 50 per cent gains over the period from the benchmark S&P/ASX 200. In recent years, Aristocrat has also increasingly come onto the screens of big fund managers, given the loss of “quality” large cap ASX companies through buyouts or moves offshore.
After meeting with investors following the results later this week, Croker is scheduled to return to Vegas. Donald Trump’s tariffs and trade war talk have hurt confidence and Croker says while the malls and the casino strip are still full, there are signs tourist numbers have come off in the last month or so. Although there’s a bit of seasonality in that.
“The real test will be what will happen in the US summer. You’re either going to see two things: the US consumer will go nuts and think it’s the last summer of their life, or you’re going to see people demonstrate some conservatism and not travel as much.”
“My gut feeling is that it’s former,” Croker says.
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