The Future of Gambling

WMS Industries is leading the charge in transforming the slot machine business. And it's doing so by design

On Nov. 11, 2001, slot machines in a Detroit casino started doing exactly what they're not supposed to do: They started letting players play—and win—for free. WMS Industries, which had designed the machines, rushed technicians to fix the problem, but the damage was done. Casinos cancelled orders, and by mid-2002, WMS stock had plunged from $21 a share to less than $10. "Those were the dark days," says Brian R. Gamache, who had been promoted to chief executive only five months before the snafu.

Today, WMS is back in the game, thanks to new (and glitch-free) machines. Coming off record quarterly revenue, Gamache says sales in the June 30 fiscal year will reach an all-time high of $640 million or more. Earnings should top $55 million, a record as well. The stock now trades above $33 a share. But some industry analysts worry that the company's streak may be cut short. Economic hard times are spoiling the action in casinos. Moreover, analysts expect gaming-machine leader International Game Technology of Reno, Nev., to step up efforts to take back market share lost to its resurgent rival.

Gamache, 48, a big man with a tanned face and gray hair, professes no worries. "People go into a casino hoping for a life-changing event, and that's going to be even more of a draw in a recession," he says. "You can leave a casino with more money than you went in with. Tell me, can you do that in a restaurant or a movie theater?" As for IGT, he says, "We have better content. It's that simple."

In gaming industry lingo, content refers to what gamblers see on a device's video screen. WMS led the charge in transforming slot machines from mechanical three-image reels with a pull lever, to computerized consoles with LCD screens, push buttons, and such themes as Monopoly or Wizard of Oz, its latest hit. The company gets all its revenue from casinos—40% from leasing the games and collecting a portion of the cash fed into each machine, and 60% from selling them outright. Two-thirds of its clientele is domestic, with most others in South America.

WMS designs all its games in a sprawling building on Chicago's Northwest Side. In the basement are two giant rooms, each split into a warren of cubicles. The center's 485 employees engineer games and test them over and over to ensure against another bout of bugs. It's a playful place, with tons of young, nerdy-looking people wandering around chatting. Cubicles are decorated to express maximum individuality: One designer has more than 100 action figures from Star Wars and old cartoons. Of the company's other 1,045 employees, 560 work at the Waukegan, Ill., headquarters, which also houses a factory where devices are manufactured.

Chief Innovation Officer Larry Pacey, 43, who joined the company in 2001 after five years at video-game shops SegaSoft and n-Space, heads the design team. In late 2006, he oversaw the launch of three types of new games: sensory immersion, which uses moving seats and blasting Bose speakers to give players the feel of a jet plane; transmissive reels, a design that combines old-fashioned reels with film-like graphics and details; and community gaming, which allows a group of players to sit next to each other and compete in the same bonus rounds.

Since then, WMS has added its top-selling Wizard of Oz, a dreamscape in which Glinda the Good Witch makes sudden appearances and bonus rounds let you explore the Emerald City. The animation could be from a Pixar movie. In the Empress Casino in Joliet, Ill., Krystyna Golak, 27, says she plays the game all the time: "It's full of surprises. Other slot machines are so predictable and boring."

Gamache and Pacey intend to borrow further from Hollywood and Internet gaming. Today, slot machines have to be inspected and repaired individually. Pacey says if all the games were networked to a central server, a casino manager could change screen displays by clicking a mouse. Plus, fixes could be made remotely. "It's the future of gambling," he says. "And we're making it happen."