Jackpot, Rite Aid settle slot lease dispute

David Strow

Friday, March 31, 2000 | 10:59 a.m.

Jackpot Enterprises Inc. of Las Vegas announced Thursday it is settling its $20 million lawsuit against drug store operator Rite Aid Corp.

The settlement will help clear the path for Jackpot to sell its slot route operations as it converts itself into an Internet company incubator. In a major concession, Rite Aid agreed to slash its annual rent by half, saving Jackpot $2.5 million per year.

Jackpot Chief Executive Allan Tessler said settlement talks had been under way before Jackpot's change of direction and added the agreement would make it far easier for the company to sell its slot routes.

"It's an easier picture now for the people interested in the route," Tessler said. "(The lawsuit) interjects a substantial piece of uncertainty into the business. That is now gone."

Tessler also said the 10-year length of the rental agreements "was cut down substantially."

The settlement was confirmed by Rite Aid.

"We have agreed to a reduction of the licensing fee, and we do intend to resolve outstanding litigation," said Rite Aid spokeswoman Sarah Datz.

Jackpot sued Rite Aid last December, claiming Rite Aid had tricked it into paying excessively high licensing fees to operate slot machines at 31 of its Las Vegas stores. When it signed the contract in March 1999, Jackpot said Rite Aid promised to remodel its stores and add between 40 to 60 new stores in Nevada.

Instead, Jackpot said it began losing money at the stores as Rite Aid's well-publicized troubles -- and the possibility Rite Aid planned to sell off stores in the area -- drove customers away. Those difficulties also caused Rite Aid to scrap its expansion plans here, Jackpot claimed.

From July 1 through December, Jackpot said it absorbed a $1 million operating loss at the stores.

"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," Jackpot said in its December lawsuit. "Such an atmosphere is particularly antithetical to gaming operations. It repels customers in general and gaming customers in particular."

Rite Aid called the charges "spurious," and attempted to force Jackpot to continue payment of the rental fees. Jackpot suspended those payments Sept. 30, and through March 1 the unpaid rents totaled more than $2 million.

But neither company would say whether Jackpot agreed to pay back rent.

"We agreed not to go into detail, but I can tell you we're very satisfied with the result," Tessler said.

On Thursday, Jackpot also announced it hired investment banker Koffler & Co. of Los Angeles to help the company market the slot route operations.

"There are a number of companies that have indicated interest in buying the route business," Tessler said. "There was a sufficient number that the board decided we need an investment banker. We'd like to complete this as fast as reasonably possible."

Jackpot is converting itself into a company that will invest in young Internet business-to-business companies. Toward that goal, it had formed a $100 million investment fund aimed at Internet companies.

The company will be renamed J Net Enterprises Inc., subject to shareholder approval.