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Aug. 16, 2007
Copyright © Las Vegas Review-Journal

Herbst revenue jump goes up in smoke

Gaming company blames second-quarter loss on smoking ban

By HOWARD STUTZ
REVIEW-JOURNAL

Herbst Gaming boosted its revenue during the second quarter, thanks largely to the addition of three casinos in Primm.

However, tough anti-smoking laws covering grocery stores, convenience stores, restaurants and taverns continued to hurt revenue from the company's slot machine route operations.

Herbst Gaming, one of Nevada's largest slot route operators with 7,200 slot machines in 700 locations, reported a net loss of $1.35 million in quarter ended June 30, as opposed to net income of $11.3 million a year ago.

Overall, revenue generated by the company's 16 casinos in Nevada, Iowa and Missouri and its Nevada route operations was $231.6 million in the quarter, up 36.5 percent from $147 million in the same quarter a year ago.

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    • However, revenue from the route operations was $71.7 million in quarter, down 21.3 percent from $87 million a year ago. Herbst executives blamed the smoking ban, passed by Nevada voters in November, as a reason customers were staying away from the route operations.

    Herbst Gaming President Ed Herbst said during the company's conference call that several cost-cutting steps are being implemented to help the route operations, such as renegotiating many of the route contracts.

    "We're going to absorb the changes and our route operations will rebound over the next several years," Herbst said.

    Herbst Gaming Chief Financial Officer Mary Beth Higgins said the smoking ban completely changed the slot route industry.

    "This permanently changed the economics in this business," Higgins said. "It is not a minor event. It is an industry-shifting event."

    Brian Gordon, a partner in Applied Analysis, a Las Vegas-based financial consulting firm, said a softening in the Southern Nevada economy in recent months may also be hurting slot route operators.

    Gordon said economic indicators, such as softness in the housing market and slowdowns in overall employment growth, may be affecting consumer spending patterns.

    "The smoking ban has had an impact, but it seems other factors may be playing into the market as a whole," Gordon said.

    The Primm casinos, acquired in April from MGM Mirage for $400 million, helped the company's efforts. Coupled with the company's four Northern Nevada casinos, purchased in January for $119 million, the Nevada casino operations generated $95.3 million in revenues, compared with $23.4 million during the same three months a year ago.

    Herbst said he was pleased with the results the first full quarter the company has owned Primm Valley, Buffalo Bill's and Whiskey Pete's.

    "These are three great properties and the strategy is to complete the integration and bring these acquisitions into the fold," Herbst said.



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    Jerry wrote on August 16, 2007 09:22 PM: Regarding Herbsts'gaming revenue at the "routes", perhaps it is hurting them, but it is likely saving lives, and certainly making me feel better! From a lung cancer survivor. Revenue is not everything.


    A.K. Smith wrote on August 16, 2007 01:57 PM: David - No, "they" aren't opening another. They couldn't afford to stay in business after the smoking ban. A new owner is taking the place over, closing the bar and making the entire place a restaurant. The guys who are shutting down lost their shirts. This ain't the MGM. It's a small local bar/restaurant. But I assume that's fine because we don't know the people who lost their shirts. I hadn't seen much reporting of fallout from the smoking ban, and I thought it would be interesting to see others' reaction to having a local bar/restaurant go under. Well, it's now confirmed. The reaction is interesting.


    Lee Yarbrough wrote on August 16, 2007 12:38 PM: There are many of the smaller bars in town that are hurting now and have laid off employees because of the lack of customers.

    I personally know two local bar tenders that are making less then half of what they did before the law changed. If there is two, there are more.

    When are all the non smokers going to start supporting all these bars?


    David Huntington wrote on August 16, 2007 11:48 AM: A.K. Smith, they closed one restaurant but are opening another? Sounds to me they aren't hurting that much. Or perhaps they wanted to reduce overhead and used the smoking ban as an excuse. I remember when MGM Mirage used 9/11 as an excuse to 'clean house.' Businesses will survive but don't use the smoking ban as their reason to eliminate jobs.


    A.K. Smith wrote on August 16, 2007 11:09 AM: Yeah, "they'll get over it" but will the employees they lay off? And will the convenience store owners who now will make less money so have to charge their customers(you) more? It's easy enough for YOU to say "they'll get over it." But since you risk nothing every day in a business that may or may not go out of business because of the ridiculous smoking ban, you're opinion means nothing. I took my family to a restaurant the other day and guess what? It wasn't there anymore. The owner said they shut down due to lack of business because of the smoking ban and the new owners were opening it up as a Mexican Restaurant next week. Hey, I love Mexican food, but the former owner went out of business because a bunch of whiny nannies decided that nobody should be able to choose whether they mind smoke in the air or not. But hey, I'll probably get over it too.


    pjs wrote on August 16, 2007 10:05 AM: they will get over it --it is something new & Casino's will get over it& business will come back..Resturants & some clubs in Boston, MA., did