Herbst improves Jackpot, reports gains

Monday, Feb. 18, 2002 | 10:38 a.m.

A Herbst Gaming Inc. executive says revenues are exceeding expectations for the company, more than a year after its $45 million acquisition of Jackpot Enterprises.

Herbst, the No. 2 slot route vendor in Nevada behind Alliance Gaming Corp., has increased its cash flow by improving former Jackpot locations, executive Mary Beth Higgins said at last week's American Gaming Summit in Las Vegas.

Higgins, chief financial officer of the Las Vegas-based owners of the Terrible Herbst franchise, said cash flow for the company was $29.4 million last year. The previous year, Jackpot and Herbst together had cash flow totaling $18.6 million. Higgins said the improved results were due to the company revamping the Jackpot locations and installing more appealing games.

The company has about 7,000 slot machines, some on fixed-space leases, others on participation leases, meaning the company and the store share revenues. Under the company's lease agreements, Herbst maintains the machines, pays large jackpots and replenishes the coin supply.

Herbst gets about 22 percent of the revenue in an average participation lease, Higgins said. Among Herbst's partners on slot routes are the Albertson's, Vons and Safeway grocery store chains, the Sav-On and Rite Aid drug store chains and the Kmart discount store chain. Kmart competitors Wal-Mart and Target have corporate policies against the placement of slot machines in their stores.

Other slot route sites are convenience stores, including 49 Terrible Herbst stores. The company is the largest franchisee for Chevron gasoline in the state.

Higgins said the most sites have 15 or fewer slot machines making their presentation to customers critical for success. The company has done the best with multidenomination and multiplay games -- machines capable of playing differing cash amounts and several types of games. The company also "waterfalls" its machines -- that is, it places its best games in high-revenue outlets, replacing machines that are sent to second-tier locations and sending those machines to third-tier sites.

Most of Herbst's machines are inexpensive to modify with a quick change of computer chips and display glass giving a slot a completely different look. The look is important to the company, Higgins said, because with the number of slots on the route, a $1 increase in revenue per machine each day would result in three-quarters of a million dollars in additional revenues in a year.

In addition to the slot route, Herbst has entered the locals casino market in Las Vegas with the December 2000 opening of Terrible's hotel-casino at Flamingo and Paradise roads. Higgins said the 373-room hotel has been a huge success for the company, even in a year when the gaming industry has had to endure a downturn brought upon it by the Sept. 11 terrorist attacks.

Higgins said about 43,000 people live within a 2-mile radius of the property and 125,000 vehicles a day drive past the casino.

About 100,000 people have signed up for the company's loyalty program, Terrible's Player Club, which rewards card holders when they purchase gasoline at the convenience stores as well as when they play slot machines. Points can be redeemed for gasoline and food as well.

Higgins said Terrible's is thriving on repeat business and has won a lucrative contract to house flight crews from Southwest Airlines, but the company has never lost sight that it is strictly a locals product.

"A lot of people like our shirts with the (lawman) logo," Higgins said. "But we know we're for locals. 'Terrible's' is not a particularly attractive name to tourists."