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Ed Koch

Bally banking on new-fangled slots

4 June 2007

and Liz Benston

LAS VEGAS, Nevada -- With the production of new-generation slot machines, 75-year-old game maker Bally hopes to strengthen its position in a market that it once dominated but in which it more recently languished.

Indeed, through its history Bally has endured a ride similar to the small silver ball in the pinball machines it revolutionized.

The company, like that ball, sharply caromed off posts and bumpers and rang up big points with diverse acquisitions and creative inventions. But then its stock plummeted into the abyss like the little orb frustratingly slipping past an extended flipper and out of play.

A turning point came in the late 1980s when it was collapsing under its own weight, company spokesman Marcus Prater said. By then the distinctive Bally logo adorned pinball machines, slots, video games, casinos, fitness centers, wax museums, theme parks, restaurants, arcades, exercise equipment, a chartered airline and even a yacht-manufacturing company.

Bally had bought Six Flags Corp., Great American Theme Parks and the U.S. interests of video game pioneer Sega, and operated 450 Aladdin's Castle arcades across the country.

The company also brought us "Space Invaders," "Pac-Man" and "Ms. Pac-Man," among its lineup of arcade games.

After 10 years of acquisitions and diversifying into different businesses, the company had to divest, Prater said. "We grew too big, too fast; gobbling up so many companies along the way. We tried to run all the businesses at the same time, but what was good for a theme park may not have been good for a fitness center.

The various businesses promoted the brand, but the company was about to short circuit on overload.

The company was worth $2 billion with $2 billion in debt. "It was mind-boggling," said Christian Marfels, professor of economics at Dalhousie University in Nova Scotia and author of the book "Bally: The World's Game Maker."

"So much of what they were doing had nothing to do with gaming."

The company refocused its efforts, unloading the amusement parks and a host of other businesses in 1988, and returned to its roots - making games. This time, however, it zeroed in on gambling devices.

By 1999 the company's stock was still trading low, at about $5 a share. But the changes were taking hold, and Bally resurrected. After two stock splits, the stock peaked in spring 2004 at $34, or $136 on a split-adjusted basis. Then the stock went into a freefall, closing at a low of $9.40 in March 2005. It's been climbing ever since. Friday it hit a 52-week high of $27.82.

Much of the company's turnaround is because of divestments and innovative creations that included Game Maker, the first multigame, touch-screen slot machine.

There was also consumer confidence in the company thanks to its historical core product, the pinball machine.

Tim Arnold, curator of the Pinball Hall of Fame, says Bally pinball machines helped sustain the company because those of the late 1970s and early '80s had it all.

"They had great sounds, great art and great flow," Arnold said. "Bally had a certain feel that other brands did not have."

Arnold said the popularity of pinball machines - and in particular Bally's, which introduced its first device in 1932 - grew out of a need to provide entertainment in the myriad bars and mom-and-pop diners that popped up in the 1930s and '40s, long before television.

Bally manufactured about 200 types of pinball machines on its own or, in later years with Williams. The last machine rolled off the assembly line in February 1999.

Although Bally was a leader in pinball machines in the 1970s and '80s, it was dominating the slot world with upward of 90 percent of the market.

Today Bally has just 10 percent of the slot market along with WMS (formerly Williams), while International Game Technology has about 70 percent, said Bill Lerner, gaming analyst with Deutsche Bank in Las Vegas.

"Bally certainly has had a lot of ups and downs but has been on the upswing in recent years," Lerner said. "Casino managers are excited about Bally's new games. Certainly the technology has done it for them."

The past few years have been among the most momentous in Bally's history.

In accomplishing the equivalent of gutting and remodeling a major resort, the company installed a new management team, bought the slot technology company Sierra Design Group and overhauled all of its machines with Sierra software.

The turnaround has been dramatic. Bally's stock has risen more than 80 percent from its lowest point in the past year. That vote of confidence from Wall Street comes as the company still lingers in the red - burdened by investments in new technology, write-downs of old machines dumped for new ones and expenses related to new accounting rules that have forced Bally to restate earnings and delay the filing of its financial statements for the past couple of years.

"It's remarkable that because of all the good vibes circulating in the industry, we are getting credit from Wall Street without the benefit of being able to talk about our performance in any detail," Prater said.