Gaming: Aristocrat chief Croker sees growth in spending as Americans keep gambling

Aristocrat Leisure CEO Trevor Croker: “It’s going to be a big summer for North Americans to travel and spend.”

Aristocrat Leisure chief Trevor Croker runs a $24bn business from Las Vegas with over half of its sales from the US. So he has a good sense of American retail spending.

In sharp contrast to the panic last week triggered by US retailers Target and Walmart over inflation, Croker does not see wallets tightening just yet.

“The Strip is just there,” he points through the window.

“It had the NFL draft two weeks ago and I haven’t seen the Strip busier in all my years working in the industry.”

He sees pent-up demand after two years of lockdown. Foot traffic is back through the casinos.

“We see coin-in on a daily basis of what is going into our machines, and it is still at very high levels, compared to historical. From what I’m hearing and seeing over here, the domestic summer is going to be a big summer for North Americans to travel and spend.”

Aristocrat beat expectations with its half-year net profit on Thursday, up 46.5 per cent to $531m, and announced a $500m share buyback.

It was undoubtedly a difficult half for Croker after a $2.8bn bid for British gaming software company Playtech was spoiled. But the results demonstrate he has a business model that can straddle both lockdown and recovery.

Aristocrat is a giant content and technology business very different from the old Australian gaming manufacturer. The top 20 ASX player is a global manufacturer with strong growth in North America and ranks fifth in the Western world in digital.

“We have a mobile games business which isn’t just casino,” says Croker.

“It is casual games and strategy games (like Raid) which are made largely in Europe and North America and distributed around the world.”

Aristocrat’s digital businesses made up 48 per cent of total revenues in the half.

That meant the company could be largely cash-generative in the six months that land-based gaming was shut.

The next evolution is a move into real money gaming (RMG).

Plan B after Playtech is a ‘build and buy’ strategy, starting with the build. Croker has already appointed a CEO and stood up a team.

He says going into next year Aristocrat will be in three of the six legalised markets in North America, where it has a solid track record with regulators.

“It is the next logical extension for our business and creates a third business model,” he says.

“Our land-based customers have been talking about convergence, and where they are seeing the retail environment wanting to move online, we’ve been talking to them.

“And our content differentiates us because of the high quality.”

Games made first in the digital space can then be used in RMG as new games or themes.

Croker says the ‘‘meta layer’’ around the marketing will help grow organic skills in RMG.

Learning the lessons from Playtech, Aristocrat is sliding the ruler over other possible RMG acquisitions.

The market is falling back and Croker says everything is a little bit cheaper than six to 12 months ago, but that whatever market Aristocrat enters next, regulatory compliance is a priority.

“Anything that is deemed to be grey will be not of interest to us,” he says.

On Friday in Melbourne shareholders in Crown voted resoundingly to sell the company to private equity group Blackstone.

“Anyone in the regulated world, if you’re not watching that and not learning from it then it’s a lost opportunity,” says Croker.

“We want to operate in a regulated, highly respected gaming ­industry.

“We take that very seriously and we see it as a differentiator as the market starts to legalise as being a high quality, highly regulated and compliant organisation that can provide leadership.

“That is why we see North America being so attractive, because it’s only just starting to regulate. We see the opportunity to be part of that growth journey with the North American market.”

Had Aristocrat been successful with Playtech it would have taken it into online sports betting. Longer term, it is a business Croker also has an eye on.

“Within RMG, we see three key markets: i-gaming (slots, live tables and live casino); sports and i-lottery. We are interested in all of that. Sports is very hot, but a lot of money has been spent on sports and not a lot of profit is being made.

“Our priority is starting with our core skill set around slots and i-gaming,” he says.

One thing Trevor Croker is not doing is paying his designers in cryptocurrency, but Aristocrat has begun to explore the use of non-fungible tokens within gaming.

“I think there are options to move to an NFT-type product where some of the steps within the game can be monetised and owned. It’s early stages,” he says.

Aristocrat continues to spend a substantial 11 to 12 per cent of annual revenue on design and development, which Croker says allows games designers the canvas to develop new product.

“A big part of who we are is this talent. Continuing to invest consistently in D&D gives people confidence that we are serious about growing. We fund that every year out of cash, and we drive growth from it in the following years, whether it’s into new markets or new businesses.”

Aristocrat shares rose over 10 per cent last week as the market absorbed the buyback news and the organic growth strategy in RMG.

Australian investors hold 65 per cent of the register, and Trevor Croker sees no hurry for a US listing. Last month most of the company’s debt was repriced on favourable terms for five to seven years in the US and last year’s $1.3bn equity raising was smoothly executed.

“We feel comfortable we are sitting in a nice position and see that we can provide an alternative to other companies at the top end of the ASX,” he says.