(Bloomberg) — Billionaire Johann Graf has never had to fight on so many fronts at the same time.
The ordinary-man’s gambling company, Novomatic, the 73-year-old Austrian butcher-turned-tycoon created four decades ago, is raking in smaller profits as the pandemic drives people away from slot machines in casinos from Las Vegas to Macau. His company is also battling allegations of corruption, its chief executive has left and it needs to refinance about 1 billion euros ($1.2 billion) in debt.
“Not only is it in a delicate sector, but it’s also facing several challenges at once,” said Alois Woegerbauer, the head of 3 Banken-Generali Investment, a Linz, Austria-based firm managing 10 billion euros in holdings, including Novomatic bonds. “Given the weaker sales outlook and the legal issues, the coming months will be decisive to see which direction Johann Graf and the company take.”
This article, based on court documents and interviews with more than 25 business partners, bond investors, lawyers, bankers and former employees who asked not to be identified discussing their relationship with Graf and the company, seeks to capture the secretive billionaire’s rise and the challenges he now faces.
Graf, whose ascent is the stuff of Austrian folklore, started out as a butcher in post-World War II Vienna, living with his parents in a small apartment with a communal toilet down the hallway. Fifty years on, bankers working on a stock-market listing of Novomatic told Graf his net worth was close to 5 billion euros. The incredulous entrepreneur, polishing off a Viennese Schnitzel at his art-deco city-center guest house, jotted the number down on a napkin and put in his jacket pocket, according to an adviser who was present.
While the listing never happened, the cigar-smoking mogul’s fortune has expanded. It is estimated by the Bloomberg Billionaires Index at $6.6 billion — after a $260 million drop this year — making him the second-richest man in Austria behind Dietrich Mateschitz, the co-founder of energy drink Red Bull.
Graf’s wealth stems mostly from his full ownership of Novomatic, which runs gambling bars, counts Book of Ra, American Poker II and Sizzling Hot among its best-selling games and whose slot machines are installed in the world’s biggest casinos. The company has more than 2,000 gaming facilities across 50 countries.
Business has been hit hard as disposable incomes have shrunk. On a recent afternoon, staff outnumbered clients at the company’s flagship outlet in Vienna’s Prater amusement park. In a hall decorated with gold-colored Egyptian goddesses and mystic signs, four customers sat before screens watching horse races from Paris — a far cry from its heyday when hundreds thronged to Europe’s biggest sports-betting and gambling bar each day.
The drop in business may cut earnings by up to 40% from about 700 million euros in 2019, according to S&P analyst Patrick Janssen. The yield on Novomatic’s 500-million-euro bond due in 2023 rose to more than 5% this year from 1% between 2016 and early 2020. The company also has to repay about 450 million euros in debt in the next 12 months. While its cash and credit lines of about 1.2 billion euros are “sufficient,” S&P says Novomatic needs to cut debt ratios to keep its rating.
Even before the pandemic roiled business, Novomatic had been caught up in a political scandal that rocked Austria last year. Then-Vice-Chancellor Heinz-Christian Strache was covertly filmed on the Spanish island of Ibiza saying “Novomatic pays them all,” as he spoke of political funding to a woman posing as a Russian donor.
The wide-ranging video that brought down the Austrian government also prompted police searches at the homes of Graf, other Novomatic executives and government officials — including Former Finance Minister Hartwig Loeger — allegedly touched by the scandal.
Prosecutors paint a picture of influence peddling on a large scale, alleging that the company promised politicians up to 500,000 euros for favorable legislation and “to help Novomatic gain a casino license in Vienna and a nationwide online license.” Monthly fees were part of a sham consulting contract, they claimed in documents seen by Bloomberg News.
Novomatic denies the allegations, saying the company, its executives and Graf haven’t been involved in any bribery attempts and that the case will be dropped once the facts are established. Heinz-Christian Strache has since retracted his Ibiza comments about the company.
Still, the case marks a turning point for Graf and the gambling empire he built. If charges are brought, banks and customers may reduce or cut ties with the company. S&P says its negative outlook on the company reflects the risk of prosecution, other legal action or “findings of unethical behavior.” Even if no charges are brought, the company may be forced to significantly cut back its Austrian presence.
In either case, it may mean a sea change for Novomatic and its founder, diminishing the role of the country where the enterprise started.
When he created Novomatic as a maker of advanced gambling terminals and slot machines in 1980 with a few thousand euros in savings, Graf was choosing a different path from his butcher father.
While state-owned Casinos Austria AG’s glamorous halls could easily be the setting for a James Bond movie with its tuxedo-clad guests and evening-gown-adorning women floating around with flutes of Champagne, Graf realized early on that there was a huge untapped market of ordinary people wanting to gamble in just plain old jeans. He put his machines in smoky back rooms of cafes and inns, helping his business take off in the 1990s.
Novomatic moved to fancier digs, with an office and event hall in an elegantly renovated art deco building next to Vienna’s famed Secession building. The entrepreneur and his executives also wanted to make a splash on the international stage. Jennifer Lopez sang at the company’s opening of Latin America’s biggest casino in Chile in 2009. Novomatic invested in showy stalls at gambling conventions in Las Vegas and London.
Graf brought Austrian specialties like Sacher Torte and Mozart chocolate balls as he zipped across the globe in his Bombardier Challenger 300 corporate jet. The company burnished its image by sponsoring the arts, including the Vienna State Opera.
For all that, Graf, an avid vintage-car collector, keeps a low profile, eschewing flashy parties and preferring to meet a handful of old friends once a year in a specialty-butcher shop in Vienna.
His employees barely get a glimpse of him when he visits the company’s futuristic, gated headquarters in the middle of vineyards close to Vienna, with its spacious, modern office buildings and showrooms displaying the latest gambling machines. He’s brought there in a large black limousine early in the morning and stays all day ensconced with his inner circle in conference rooms.
He has made sure Novomatic is among Austria’s most sought-after employers with higher-than-average salaries, food courts, private pension contributions and company cars. Senior executives and business partners have built luxurious vacation homes. The last Novomatic CEO, Harald Neumann, had a penchant for fancy cars, often arriving at Vienna’s Café Landtmann — where the city’s rich and powerful meet to talk business and politics — in a Porsche Cayenne or a Lamborghini Urus.
Local politicians were keen to support Novomatic after the company’s global expansion led to the creation of 3,000 well-paid jobs in the region.
Still, increasing political pressure in markets such as Germany and Austria led to stricter gambling rules. Regulatory concerns and writedowns at its M&A targets made bankers and investors hesitate over a stock market listing in 2017, pulling the plug less than 24 hours before a planned announcement — the second cancellation in six years.
While other company founders in their 70s step back, Graf — only one of whose three sons is active in the business — is still very hands-on. Insisting on being called by his honorific “professor,” Graf keeps busy.
Even more so after supervisory board members left in September last year and the CEO quit in February in the wake of the company’s troubles. Novomatic says its two-member board of long-term executives Ryszard Presch and Johannes Gratzl will keep the show going.
Consolidation of its business in Europe, where machines are operating again, and new offers, both physical and online, in Latin America, the U.S., Australia and Africa will drive its post-pandemic growth, Novomatic says. In the U.S., for example, it plans to install gambling machines in bars, cafes or at gas stations as more states allow it.
For now, though, as the cloud of bribery allegations hangs over the company, luring top business talent, renewing licenses, getting bank loans and drawing investors remains a major challenge. Novomatic may have to retreat from some markets or cut staff to boost profits. Selling its iconic building in Vienna is an option it is considering.
Graf declined to be interviewed for this article, pointing instead to the company’s public statements. Novomatic executives have said they may shrink the Austrian business to take some heat off, noting that it’s no longer a “core” market.
When Graf’s house and Mercedes Maybach limousine were searched on Aug. 12 last year, he wasn’t amused, according to a police protocol published by Falter magazine. Graf noted that while he makes 5% of his revenue and pays all of his taxes in Austria, he gets “80% of the shit” from the country.
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