Albertson’s slot machine dispute heads for federal court docket

David Strow

Thursday, Sept. 2, 1999 | 11:36 a.m.

Alliance Gaming Corp. won the approval of a split Nevada Gaming Control Board Wednesday to put slot machines in 15 former Albertson's stores in the Las Vegas Valley.

The licensing will not take effect, however, until Cardivan Co., a subsidiary of Jackpot Enterprises, surrenders its license to operate machines at the 15 stores, which are being taken over by Raley's Inc. Albertson's sold the stores to Raley's as part of an antitrust settlement with the Federal Trade Commission, and has told Cardivan it wants to terminate the operating agreement Cardivan has with the stores.

But Cardivan is fighting that move, and refuses to surrender its licenses. Jackpot claims the store operations account for some 15 percent of its revenues; in 1998, the company reported revenues of $93 million.

Earlier this week, the company sued Albertson's and Raley's in federal court in an attempt force the companies to allow its machines to stay in Clark County stores.

The fact that Cardivan refused to surrender its licenses -- and that Cardivan was asking a federal judge to decide the validity of the contract -- made Gaming Control Board members wary of acting on Raley's application. Gaming regulations prohibit two companies from holding licenses for the same location.

"We're caught in the middle here," member Bobby Siller said. "I'd prefer to let the courts work it out. This is like dancing between two big elephants."

Chairman Steve DuCharme echoed Siller's concerns. "This is not the forum to decide (the validity of) this contract," he said.

A Cardivan attorney told the board that the company "believes we have a legitimate dispute with Albertson's because of our contractual rights." He noted that the contract to operate in the stores does not expire until 2011.

But an Alliance Gaming attorney questioned the timing of the lawsuit and suggested it was filed as an attempt to interfere with the company's licensing hearing. "They are trying to hold the locations hostage by refusing to surrender the license," he said.

Alliance, Raley's and Albertson's claim that Cardivan didn't have a provision in its contract allowing operations to continue at the locations in the event of a sale.

DuCharme and member Dennis Neilander voted in favor of the licensing after the attorney general's office informed the board that provisions could be put in place to ensure that the licenses wouldn't be issued until Cardivan's licenses were withdrawn. Siller voted against the licensing.

In a separate matter, the board approved a two-year license for a West Virginia company that bought the Cheyenne hotel-casino in 1998 in North Las Vegas, but only after expressing grave concerns over a series of undocumented consulting contracts awarded to the Cheyenne's former owners over a three-year period. The North Las Vegas casino was purchased for $5.5 million.

Board investigators found that MTR Gaming Group Inc. made about $1 million in consulting payments since 1996 to John Baldwin and Shawn Scott, former owners of the property. MTR Chairman and Chief Executive Edson Arneault told the board that he had contracted with Baldwin's company, Sunset Management, to help him identify possible acquisition opportunities, since the company was in a position where it needed to grow beyond the West Virginia market. However, none of the consulting contracts were put into writing.

Arneault repeatedly said he was not aware of any payments being made to Scott. But board members noted that investigators had received a cocktail napkin with a note authorizing payments of $120,000 to Scott over a 12-month period. The board noted that the writing on the napkin was Arneault's. The board had previously declined to renew a license application by Scott prior to the Cheyenne's sale, but DuCharme noted that he saw "nothing sinister" about a decision to pay consulting fees to Scott. Board members became annoyed after MTR couldn't tell them definitively what the consulting contracts were for.

Board members also expressed concern over MTR's decision to award a short-term consulting contract to a former executive at its West Virginia facility who was discharged after he was caught placing wagers with funds taken from the property's racetrack wager box. The former executive received the consulting contract through Sunset Management.

"It does have some appearance that it was structured to avoid detection," DuCharme said. "Since there's nothing in writing, we're able to draw sinister conclusions at will. It looks like they're laundering his contract through Sunset Management."

Siller noted that the consulting contract given to the former executive might be acceptable in West Virginia, but was not acceptable to Nevada regulators.

"In Nevada, the right thing to do is not to use him," Siller said. "We do not tolerate this kind of behavior."

Arneault acknowledged MTR had made a mistake by not putting the terms of the consulting agreements into writing. "This will not happen again, believe me," he said.

Board members decided to award a temporary license so they could audit MTR's compliance efforts in two years. The Cheyenne casino now operates as the Speedway casino.

Based in Chester, W.Va., MTR Gaming Group does business as Speakeasy Gaming of Las Vegas Inc. dba Ramada Inn and Speedway Casino; and Speakeasy Gaming of Reno Inc. dba Ramada Inn and Speakeasy Casino.

Also on Wednesday, the board approved a gaming license for New York investor Carl Icahn, owner of the Stratosphere and Arizona Charlie's hotel-casinos.

Icahn reiterated to board members what he has said previously -- that he plans to spend $60 million completing an unfinished hotel tower at the Stratosphere.

Icahn was asked by the board if he intended to make more acquisitions in Nevada. The investor said he was searching for additional acquisition opportunities in the state, but said he had no deals he was actively working on at this time.