Rite Aid: Jackpot must pay rent for slots

Grace Leong

Friday, March 3, 2000 | 10:58 a.m.

Rite Aid Corp., disputing allegations leveled against it by a Las Vegas slot route operator, is pursuing rents for slot machines operating in 37 of its Nevada drugstores.

Jackpot Enterprises Inc.'s subsidiaries, Cardivan Co. and Corral Coin Inc., stopped paying license fees to operate slots to Rite Aid on Sep. 30, but they haven't removed their machines from Rite Aid's stores.

In a motion filed Feb. 28 in response to a Jackpot lawsuit, Rite Aid said its Nevada stores will face serious operational problems if Jackpot succeeds in winning an injunction to dissolve a March 1999 slot contract and is released from paying monthly rents of $425,000.

Rite Aid spokeswoman Sarah Datz declined to reveal how much the company is owed.

Rite Aid accused the Jackpot companies of wanting to "enjoy the benefits of the transaction which they are trying to rescind, while injuring Rite Aid" by remaining on the stores' premises, keeping slot revenues and not allowing Rite Aid to collect rents.

But Sheldon Camhy, Jackpot Enterprises' attorney, disagreed.

"I've no reason to think our case is impaired. Jackpot doesn't want anything for nothing or a free ride," he said.

In a Dec. 8 federal lawsuit against Rite Aid, Jackpot seeks to have their 1999 contract rescinded.

Jackpot said it was induced into entering long-term license agreements at high fees based on market growth Rite Aid had allegedly promised.

Jackpot said that in March 1999, it signed the contract to expand with Rite Aid, as the drug store chain intended to remodel existing stores and add between 40 to 60 new stores in Nevada. Rite Aid has 29 stores in Las Vegas.

Jackpot said it also agreed to pay higher rents because Rite Aid allegedly said it planned to start major promotional and advertising programs in Nevada.

The company alleges Rite Aid also planned to implement a "robotic pharmacy," and repeatedly said it had the financial resources to accomplish such plans.

Jackpot, which claims it has taken an operating loss of more than $1 million since July 1 at the Rite Aid stores, wants the 1999 agreement rescinded and is asking for damages of at least $20 million.

The company fears it will continue to lose money at the existing drug stores because of the higher license fees and reduced business volume caused by publicity over Rite Aid's troubles nationwide.

Jackpot said Rite Aid, "if not now insolvent ... nevertheless is in such financial peril." Jackpot said it fears any damages it wins would be uncollectible if the court doesn't take immediate action against Rite Aid.

"The stores in question are being operated in a 'holding pattern' with the public being aware of Rite Aid's being a 'loser' that plans to sell the place and get out of town. Such an atmosphere is particularly antithetical to gaming operations. It repels customers in general and gaming customers in particular," Jackpot said in its suit.

But Rite Aid denied allegations that its expansion plan is in jeopardy.

Describing allegations by Jackpot of its insolvency as "spurious," Rite Aid said its stock is currently traded on the New York Stock Exchange, it isn't in default of any bank financing or public debt, is able to pay debts as they are due and isn't bankrupt on an equity or balance sheet basis.

Rite Aid said its sales for the 47-week period ending Jan. 22 rose 7.9 percent from the year-ago period to more than $12 billion.

Rite Aid also dismissed as "pure speculation and conclusion," Jackpot's allegations that its operations are being"run badly and without adequate management or controls."

Rite Aid, the nation's third-largest pharmacy chain, has seen its stock tumble after restating its earnings downward by $500 million for the past three fiscal years. The debt-ridden company's chief executive, Martin Grass, resigned in October. A team of well-respected executives from Kroger Co. took over at the chain in December, reassuring investors.

"We have a new management team that started in December that is now reevaluating all sites currently under construction," Datz said. "We plan to grow in a financially responsible manner, and all our projects have to make financial sense and bring returns to the company."