BALLY MANUFACTURING CORPORATION History

Address:
8700 West Bryn Mawr Avenue
Chicago
Illinois
60631
United States

Telephone: (312) 399-1300
Fax: (312) 693-2982

Public Company
Incorporated: 1968
Employees: 27,200
Sales: $2.07 billion
Stock Index: New York Boston Philadelphia Cincinnati Midwest Pacific

Company History:

Bally Manufacturing Corporation, a leader in the recreation industry, owns and operates four casino hotels and 310 health-and-fitness clubs. The company designs, manufactures, sells, and services gaming and coin-operated amusement equipment including slot-machines, video games, instant ticket lottery games, and German wall-machines, which are wall-mounted slot-machines.

The fun and games began in 1931, during the Great Depression in Chicago, current site of Bally headquarters. Roy Moloney, Joel Linehan, and Charles Weldt invested in Lion Manufacturing, with plans to manufacture games, novelties, and push cards, an early form of a lottery. Led by Moloney, the three men decided to market a hand-controlled machine they had adapted from an older French parlor game similar to pool, called bagatelle.

In 1932 the group introduced the first pinball game, with seven plays for a penny, called Ballyhoo. The name, taken from a humor magazine with a brightly colored cover, was influential in two ways: it inspired the colorful baseboard for pinball that survives today; and it gave the young company a brand name. More than 50,000 Ballyhoo machines were sold within seven months, each for $16.50 plus shipping. The company continued working with small devices such as shavers, ballpoint pens, sewing machines, air conditioners, the first humidifier, and cola dispensing machines. By the end of the 1930s Lion employed 500 people.

The outbreak of World War II caused Lion to alter production. The company developed gun-sights for B-52 bombers, an oxygen regulator for fighter pilots, and detonator fuses. During peak war production, Lion manufactured 6,000 fuses a day, seven days a week. For its contributions Bally received the army-navy "E" Award.

Following the war Lion jumped back into the gaming business, making bumper and six-pocket pool tables as well as childrens' amusement park rides. Lion experimented with the manufacture of televisions and related equipment, including the first remote control for television. The remote project was later abandoned; the device was awkward because it depended on an electrical wire between the set and the control unit. In the late 1950s Lion introduced an advanced cola vending machine, which combined syrup and soda water while dispensing, as well as a coffee machine business that dispensed a freshly brewed cup each time. The vending machine market was hot. Lion sold the coffee machine business to Seeburg, a Chicago-based company, and the United States' largest jukebox manufacturer, in 1960. The pinball public was still playing, however, so Lion concentrated on developing more gaming machines.

The death of Roy Moloney in 1957 rocked the company. After six years of confusion, Lion sales and marketing manager William T. O'Donnell took charge and attracted a group of investors to buy the company in 1963. By the mid-1960s the pinball market declined somewhat. New legislation legalized the production of slot machines, however, spurring new casino openings in Nevada. Because most machines in use were at least 20 years old, Lion saw an untapped market.

The newly revitalized Lion promptly designed a revolutionary slot machine called Money Honey that combined mechanical play with electric pay-out techniques. The sound generated when a player hit the jackpot could overwhelm a casino floor. Such audio devices were not simply marketing gimmicks of the time; they previewed the style of electronic video games to come.

In the mid-1960s Lion designed and developed its Slot Data System (SDS), the first computerized data-controlling system for slot machines. Before SDS, players could cheat machines; the state of Nevada calculated losses up to 10% of an estimated $500 million in slot machine revenue. Because of the success of Money Honey and SDS, Lion became the leading producer of slot machines.

After more than 30 years in business, Lion incorporated as Bally Manufacturing in March 1968. O'Donnell initiated acquisitions, including Midway Manufacturing, a competing amusement game producer, and Lenc-Smith, a tool and die maker. Bally's growth continued into the 1970s. In 1974 Bally acquired all of the shares of American Amusements, Incorporated, a chain of shopping-mall game arcades. Bally renamed the subsidiary the Aladdin's Castle chain.

In 1975 the Bally Distributing Company was purchased for $9.5 million in cash and stock. That year was the beginning of a four-year period during which Bally reached record operating results. In 1977 Chairman O'Donnell initiated Bally's diversification into casino hotels. Plans for Bally's Park Place were launched just in time for the 1978 New Jersey state decision to begin licensing casino operators.

The sailing was not smooth for the Park Place opening. In May 1979 Xcor International's Williams Electronics, a competing producer of slot machines, filed suit against Bally. Williams claimed that Bally's New Jersey casino venture would give Bally a monopoly in slot machine sales, O'Donnell said the case had no merit. Bally had in fact sued Williams in a Chicago court for anticompetitive action in New Jersey.

O'Donnell's plans neared fruition in 1979, when Bally's official license application reached the New Jersey Casino Control Board. In an ironic and abrupt circumstance, William T. O'Donnell's reputation--and position as chairman of the Bally Manufacturing Corporation--was called into question. According to an article in The Wall Street Journal of August 13, 1980, New Jersey legislation required that key executives and any persons holding substantial stocks in a casino corporation be "investigated and found qualified to hold a casino license before the company can be licensed."

Bally's Park Place opened under a temporary license, on the condition that O'Donnell resign while the New Jersey Gaming Enforcement Division investigated his alleged former association with crime figures. Richard Gillman, a former investment banker who joined Bally in 1970, was named chairman of Park Place.

Robert Mullane was elected the new chairman of the board of Bally Manufacturing in 1979. Mullane, who had experience in the securities and vending-machine businesses, had joined Bally in 1971.

Bally entered the 1980s with nearly 50 years in the amusement games industry. In this decade all markets became increasingly international in scope, with many U.S. companies merging, dissolving, or initiating leveraged buyouts to survive. Within the decade Bally would divest itself of most of the businesses upon which it was founded.

Bally grew steadily during the 1970s, and in 1980 its computer and video game market boomed. In contrast to the younger pinball market, video games appealed to an older customer with more expendable income. Bally's Aladdin's Castle division thrived, rocketing from 20 arcade centers in 1974 to 221 centers by year-end 1980. Bally's innovative Space Invaders video game drew a revenue of $133.9 million. In 1981 the company introduced Pac-Man, which it assembled and distributed under license from Namco of Japan. Ms. Pac-Man, introduced in 1982, became the most popular coin-operated game ever. Baby Pac-Man, brought out the same year, combined video and pinball playing fields, to attract both markets.

While reaping huge profits from the video game craze, Bally diversified in preparation for both a market drop and increasing competition from Japanese designers, who were beginning to manufacture in the United States. Two major acquisitions of 1982 were Six Flags Corporation, the world's second-largest amusement park operator; and Scientific Games, Incorporated, the inventor and largest supplier of instant-ticket computerized lottery games.

In 1983, Bally's amusement game revenue plunged 60%; but the company did not sink with the falling market demand. Having anticipated long-term growth in leasure-time markets, Bally acquired Health & Tennis Corporation. Within four years it became the world's largest owner and operator of fitness centers. In 1984 Bally purchased Lifecycle, Incorporated, from Augustine Nieto Jr. The subsidiary, renamed Life Fitness Incorporated, produced and marketed fitness equipment including computerized weight-training machines. Within six years Life Fitness became the official fitness equipment supplier to the U.S. National Football League.

Bally's fastest growing division by mid-year 1984 was Scientific Games. Because of the availability of essentially tamper-free electronic lottery machines, 18 states had lottery systems in place, with 20 more states considering the option.

The California State Lottery contract, worth $30 million-$40 million, did not go to Bally unnoticed. In the July 1, 1985, issue of The New Republic, it was noted that Bally lawyers were responsible for drafting a law that required potential lottery contractors to reveal income tax returns of all owners, officers, and directors, "an apparently insurmountable obstacle for its competitors." The same article criticized that "this nice bit of . . . work, turn[ed] the appeal of openness and 'full disclosure' into a device for closing off competition."

Bally's next move was the 1985 purchase of MGM Grand Hotels, owner of two casinos in Nevada. Atlantic City casinos now numbered 11. While business slowed as a result of increased competition, Bally's Park Place, catering to the one-day visitor--and smaller spender--continued providing the company a steady cash flow.

In what Fortune of December 23, 1985, aptly called the "Atlantic City Reshuffle," high-rolling licensees began to buy one another out. Real estate financier Donald Trump, owner of two Atlantic City casinos, held 9.9% of Bally's stock in the first quarter of 1987. Trump threatened a takeover. In an eye-for-an-eye style punchout, Bally not only bought Trump out but also bought the Golden Nugget casino to increase its casino holdings. In the scuffle, Bally paid heavily.

To finance its four casino properties and growing debt--and to streamline operations--Bally sold its Six Flags Amusement Parks in 1987. The October stock market crash foiled Bally's proposed plan to sell off its profitable health and fitness division for $500 million. The company considered other options.

By mid-year 1988 Bally announced, after 57 years in the big business of games, the sale of its amusement game manufacturing division to its competitor WMS Industries, formerly Williams Electronics. In 1989 the Aladdin's Castle arcade chain was sold. The same year Bally announced the move of its lottery and video poker machine industry from Illinois to Nevada. Adding to its casino holdings, Bally agreed to acquire the London Clermont Club in 1990, and finalized the acquisition of the software company Logistics to its Bally Systems subsidiary.

Bally Manufacturing Corporation entered the 1990s as flexible as it was during the volatile 1980s, with restructuring plans in progress. To Bally's credit, the company maintained its edge as the world's largest full-service gaming company and leading position in the fitness-center industry.

Principal Subsidiaries: Bally's Park Place; Bally's Grand; Bally's Las Vegas; Bally's Reno; Bally's Health & Tennis Corp.; Bally Gaming, Inc.; Bally Gaming International GmbH (Germany); Bally Wulff Automaten GmbH (Germany); Bally Wulff Vertriebs GmbH (Germany); Life Fitness, Inc.; Life Fitness Europe GmbH (Germany); Scientific Games, Inc.

Further Reading:

"The Bally Story," Bally corporatetypescript, 1983.

Source: International Directory of Company Histories, Vol. 3. St. James Press, 1991.

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