Executives of the slot machine maker paint a picture of a poorly run company desperately trying to inflate the numbers with any possible deal. The late summer winds, blowing straight off the Nevada desert, pushed the outside temperatures beyond 30 degrees. Inside the Aristocrat Technologies offices, looking over downtown Las Vegas, the tension was palpable…
Executives of the slot machine maker paint a picture of a poorly run company desperately trying to inflate the numbers with any possible deal.
The late summer winds, blowing straight off the Nevada desert, pushed the outside temperatures beyond 30 degrees. Inside the Aristocrat Technologies offices, looking over downtown Las Vegas, the tension was palpable.
Vast fortunes have been won and lost by the rich and famous ever since Chicago mobster Benjamin “Bugsy” Siegel established this gambling oasis in the desert in the 1940s.
And almost exactly a year ago, Aristocrat – an Australian company that had become the world’s second-biggest poker machine maker – was set to become another victim. Senior executives from Australia and North America were bunkered down for a three-day meeting to avert an earnings crisis.
As concerns about revenue surfaced, the group’s Australian chief executive Des Randall stared straight across the table at the company’s US president of operations, Mark Newburg, and delivered an ultimatum. As the corporate bloodletting gathered pace, the finger for this catastrophe was pointed firmly at the North American executives, who were portrayed as deliberately misleading head office about the true nature of the company’s affairs.
But North American executives paint a picture of a poorly run company desperately trying to inflate the numbers by grasping at any possible deal. And the deal in mind centred on Colombia, better known for its cocaine and heroin exports.
Financial documents painted a grim picture. Slot machine sales in North America were weak and Aristocrat faced missing its full-year profit target of $109 million. But the US executives say Randall knew full well that Aristocrat would not meet targets. Not by a long shot.
On February 7, five months after the meeting, Aristocrat announced a $28.8 million profit downgrade – the first of several – and all hell broke loose. Since then, more than $1 billion has been wiped from the company’s market value. Six senior executives including Randall have been sacked. The chairman, ALP stalwart John “Bruvver” Ducker, has been forced to fall on his sword and the Australian Securities and Investments Commission has begun an investigation.
Randall, former managing director of information technology company NCR Australia, was fighting to save his high-flying career. In desperation, Randall sent a succession of confusing announcements to the Australian Stock Exchange in a bungled attempt to explain the debacle.
Later, at two emotion-charged earnings briefings with incredulous media and analysts, Randall said senior executives in the US had never warned him that they would miss targets for slot machine sales. Randall also said he found out only on February 4 that a contract involving the sale of 3000 slot machines to a customer in Colombia, which Aristocrat had been relying on to make its numbers, had fallen through.
Mike Snyder, 42, a dapper electronics whiz, headed Aristocrat’s Caribbean and Latin American operations. Snyder claims Randall knew as early as June 2002 – a full eight months before the profit warning – that slot machine sales in North America were falling short of Randall’s targets, and that the company would miss its numbers unless it sold several thousand machines in South America.
After boasting to the media and analysts that Aristocrat would achieve 20 per cent market share in the highly competitive North American market by the end of 2002, Randall did not want to have egg on his face. It was not just the company’s reputation. Ego was at stake. The Napoleonic Randall told Newburg and other senior executives that they had to get the numbers. No excuses.
Snyder, who was sacked in March, has begun legal action against Aristocrat in the District Court of Clark County, Nevada, seeking more more than $US990,000 ($A1.5 million) in damages and costs. The potential saviour was a Colombian deal with casino operator Carlos Quintero.
If the deal came off, it would be Aristocrat’s biggest. It was worth $US40 million over five years and was more than big enough to fill the gaping hole in the company’s bottom line. A lawless Latin American enclave better known for its cocaine production and kidnappings of foreigners than legitimate business, Colombia had up to 30,000 slot machines on the ground.
Quintero told Snyder a South African businessman, who had casino operations in Peru, would lend him the cash for the deal. But the South African skipped out. In his place, Spain’s biggest bank, Banco Santander, agreed to recommend Quintero to its lending committee.
On the strength of that, Quintero gave Aristocrat two cheques for $US1 million as security. But he asked the company to wait several weeks before depositing them. Snyder claims Aristocrat head office in Sydney was kept fully informed. Quintero signed the contract for the machines on December 12 and the shipment left Australia on December 17.
But Quintero’s cheques bounced in mid-January. And Aristocrat knew then it would be difficult to convince PricewaterhouseCoopers to include the revenue in the 2002 net profit without a deposit to secure the deal. The final straw came about a week later when the Spanish bank pulled out.
Last month Aristocrat announced it had reached a $US3.5 million settlement with Quintero, recovering 2350 machines from the warehouse in Bogota.