Jackpot Enterprises Inc.

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Jackpot Enterprises Inc.

1110 Palms Airport Drive
Las Vegas, Nevada 89119
(702) 263-5555
Fax: (702) 263-5500

Public Company
Employees: 875
Sales: $91.1 million (1996)
Stock Exchanges: New York
SICs: 7993 Coin-Operated Amusement Devices; 7011 Hotels, Motels

Jackpot Enterprises Inc. is an established leader in the operation of gaming machines in multiple retail locations or gaming machine route operations. In just over 15 years, the company has grown to become one of the largest gaming machine route operators in the State of Nevada, operating, as of June 1996, approximately 4,400 state-of-the-art video poker and other gaming machines in over 440 locations.

Jackpot Enterprises Inc. was organized on June 11, 1980, under Nevada law as a wholly owned subsidiary of Bristol Gaming Corporation. Through public offerings and private stock sales, Bristols ownership of Jackpot decreased to 52.3 percent by the end of 1981.

In July of that year, Jackpot, then an independent Nevada corporation, began gaming operations through the acquisition of two already established slot-machine businesses and, thus, has been actively engaged, through its subsidiaries, in the gaming industry for over 30 years. On July 1, 1981, the company acquired the State of Nevadas two premier slot machine route businesses which owned, installed, and operated slot machines at leased locations in supermarkets, drug stores and general merchandise stores. Both acquisitions included the continuing services of the existing management. Corral United Inc., a partnership company, was purchased for approximately $5 million in cash, less nearly $200,000 in Bristols common stock. Cardivan Company, an individually held private company, was acquired for approximately $2.5 million in cash, less $37,500 in Bristols common stock. With the acquisition of these two companies, Jackpot opened operations with 345 single-coin slot machines.

Gaming machine route operations involve the installation, operation, and service of gaming machines owned by a company in licensed, leased or subleased space in retail stores such as supermarkets, drug stores, merchandise stores, convenience stores, bars, and restaurants. All of Jackpots gaming machine route operations are located in the State of Nevada, with options in South Dakota and Montana. The company normally licenses, leases, or subleases space in stores which are part of a chain of stores and installs gaming machines and a change booth near the stores entrance, where customer traffic is the greatest. The number of gaming machines per store is determined by licensing limitations, available space and license, lease, or sublease negotiations. Much like a vending machine route, the machines are routinely serviced by mechanics employed by Jackpot rather than the retail store employees. The change booths, however, are operated during retail store business hours by employees of Jackpot in stores which have generally 15 or more machines in them. Some of the stores in which Jackpot places its machines include some of the largest store chains in the United States (Albertsons Inc., Kmart Corporation, Lucky Stores Inc., Thrifty PayLess Inc., and Warehouse Markets Inc.), as well as Cub Foods, Longs Drugs, Oseo Drug, Safeway Food & Drug, Sav-on Drug Stores, and Scolaris Food & Drug Company. The company utilizes a wide variety of models and styles of gaming machines and the companys average customer is a shopper with about five dollars and 15 minutes to spare.

The ownership and operation of casino gaming facilities and gaming routes in Nevada are subject to The Nevada Gaming Control Act and the regulations promulgated thereunder and various local regulations. Jackpots gaming machine operations are subject to the licensing and regulatory control of The Nevada Gaming Commission, The Nevada State Gaming Control Board, and local regulatory agencies, collectively known as The Nevada Gaming Authorities. Before placing gaming machines at new locations, the company conducts extensive research involving comparisons with other locations based on demographic data and trends, potential revenues, and personnel experience in order to determine the type and denomination of gaming machines which would be most appropriate for the location under consideration. After the machines are placed, the companys computerized tracking system continues to monitor results in order to determine the optimum mix of gaming machines. As the trend of the public shifted towards larger-denomination coins, the company began phasing out its nickel slot machines and moving more into dime, quarter, half-dollar, and dollar slot machines, as well as adding multiple-coin machines, allowing players to play up to as many as 10 coins at a time. Video poker machines gradually increased in popularity as well and, by 1987, the company operated nearly 900 of these machines.

Rapid Growth During the 80s

From the beginning of the companys operations, Corral Coin Inc., a Las Vegas, Nevada-based gaming machine route operator, was engaged by Jackpot to collect its slot machine gross receipts, deliver coins for change booths, provide supplies, and supervise and assist its changer people. Jackpot also serviced Star Amusement Company Inc.s video game machine route which, in 1981, had 956 machines. Also in the first year, the company purchased over 225 multicoin slot machines for approximately $1 million.

In 1982, Jackpot optioned the right to purchase the capital stock of and video game machine route business owned by Star for $4 million. The same year, the company agreed to acquire the slot machine routes of Nevada Novelty Inc. for approximately $2.4 million. In 1987, Star was renamed Comet Enterprises Inc. and was 32.6 percent owned by Bristol.

The companys subcontractor, Corral Coin, was acquired in January 1986, an acquisition which added not only the collection and servicing of existing Jackpot machines, but an additional 185 gaming machines at six locations. The company, in 1987, was admitted to the New York Stock Exchange, trading under symbol J. By this time, the company operated over 1,500 gaming machines at over 130 locations. The following year, 1988, Jackpot had grown to over 1,900 machines in over 170 locations, showing a growth rate of 350 percent over four years. Bristols holdings in Jackpot by this time had dropped to 17.3 percent.

Also at the same time, the company developed a gaming machine called X-TRA Draw Poker. X-TRA Draw Poker was a new concept in video poker machines improving upon existing machines on the market with only a one-time draw feature. The X-TRA Draw machine allowed the player to take a second draw, therefore increasing the chances for a win or increasing the chances for a larger win if there was already a winner after the first draw. The game initially took a five-coin limit and gave the player the option of playing a ten-coin limit. The game was approved for field testing by The Nevada Gaming Control Board in 1988 and was implemented shortly thereafter. Jackpot held an exclusive right on the game until January 1990 when it gave the rights to a distributor to make the equipment available worldwide, whereupon the company would receive a royalty for every machine subsequently sold throughout the world.

The company embarked upon an active acquisition program in 1989. November of that year saw the company acquiring a casino called The Nugget. The 35-year-old slot machine only casino, located on a main street in Reno, Nevada, with nearly 200 gaming machines, was obtained for approximately $1.5 million and was operated under the moniker of Jackpot City Inc. In early 1990, the company obtained a small gaming machine route and, in the spring, the company entered into an agreement with a major supermarket chain. In July, Jackpot Enterprises obtained The Owl Club, an operation located in the small mining town of Battle Mountain, Nevada, operating 75 gaming machines, four live 21 tables, a restaurant, bar, and small motel, for nearly $2.6 million. After remodeling and refurbishing the facility, it was operated as Jackpot Owl Inc. Also in July, the company began operations as a minority partner in joint ventures to operate two small gambling halls in Deadwood, South Dakota, to be called Deadwood Nugget Inc. and The Lucky Miner, also known as Jackpot Mining Company Inc. In the same year, Jackpot agreed to acquire a gaming route with approximately 300 machines in Nevada, signed an agreement to acquire a small casino in Henderson, Nevada, which was never consummated, and embarked on a joint venture in gaming activities in the State of Montana. These acquisitions and agreements boosted the number of gaming machines the company operated to over 2,500 in over 200 locations. Bristols share in Jackpot, meanwhile, had decreased to just under 5 percent.

Expansion Continues, the 1990s

The South Dakota operations did not do as well as the company had hoped and, in 1991, the company closed the Deadwood Nugget facility. An investment of another $3.6 million in addition to the purchase price was required to refurbish and remodel The Owl Club. During that year, the company continued to look at expansion into other states besides Nevada and in other markets. In addition to Montana and South Dakota, the company was considering Oregon, which had recently approved machine gaming and video lottery gaming; Illinois, Iowa, Louisiana, and Mississippi, all of which had legalized forms of river boat gaming and low-stakes casino gaming had been legalized on a limited basis in Colorado. The company jumped to operating over 3,000 machines in over 275 locations, including Vons and Phar-Mor. Corral Country Coin Inc., formerly J. J. Parker Co., a gaming machine route operator with 300 machines in Nevada, was also acquired that year for approximately $1.7 million. Again, Bristols holdings in the company dropped, this time to 4.66 percent.

Company Perspectives:

Jackpot Enterprises Inc. provides high levels of service and popular gaming products. The company intends to enhance its position as a leader in the Nevada gaming machine route business by continuing to provide the high levels of service and products, cultivating its existing relationships with major customers and expanding its gaming machine route operations through the selective addition of new locations and/or the consolidation of other route operators.

The following year, continuing its aggressive acquisition program, Jackpot Enterprises, in July, acquired a route operation with approximately 175 gaming machines at nearly 25 locations from Bally Gaming Inc. for approximately $275,000. August saw the company acquire approximately 1,650 gaming machines at nearly 200 locations from International Game Technology Inc. (IGT) and its subsidiary Electronic Data Technology. The company also entered into an exclusive license with IGT to distribute and operate Megapoker, a linked progressive video poker system at non-casino Nevada gaming locations. By the end of 1992, the company owned and operated nearly 4,500 gaming machines at approximately 500 locations throughout Nevada. The company continued examining potential markets in the state lotteries of Georgia and Nebraska as well as gaming in other limited forms in Oklahoma, Virginia, New Jersey, West Virginia, Missouri, Nebraska, Kentucky, Arizona, Connecticut, Washington, Minnesota, and California. In the 12 years the company had been in business, revenues increased by 690 percent, the employee base grew by 320 percent, and the net worth jumped 380 percent. Bristol changed its name to Sports-Tech Inc. and dropped its share in Jackpot to 4.44 percent. Late in 1992, Phar-Mor filed for Chapter 11 Bankruptcy, affecting 65 gaming machines the company operated at Phar-Mor locations.

In 1993, Neil Rosenstein, chairman and CEO of Jackpot since its inception, retired, turning over the reins to John F. OReilly in what would be the companys best year to date. In that year, the company increased revenues by 33 percent and net income leaped 113 percent over the previous year. Sports-Tech changed its name again to Sports-Tech International Inc. and its interest in Jackpot dropped to 0.84 percent. Early in the year, Jackpot entered into a letter of agreement with Winners Entertainment Inc., formerly Excalibur Holding Corporation, to form a joint venture to own and operate video lottery machines in West Virginia. The company began casino operations in July at The Debbie Reynolds Hotel, Casino and Hollywood Movie Museum. In August, the company broke ground on its new facility, a 34,000-square-foot facility with office and warehouse space for its corporate, administrative, accounting, and data processing employees near The Palms Airport Center adjoining McCarran International Airport. Also in August, the company and Players International Inc. entered into an agreement with Trump Ocean Club Casino Inc. in Gulfport, Mississippi.

September of that year saw the company reach an agreement with President Riverboat Casino-Mississippi Inc. and Casinos International Inc. under which President Riverboat would provide Jackpot with a riverboat casino, The President Casino-Missouri, a 292-foot vessel accommodating approximately 1,000 passengers and containing 30 game tables and 600 slot machines. A floating restaurant complex, The Riverboat Restaurant, with 40 table games and 750 gaming machines, would also be obtained by the company as part of a dockside entertainment and meeting complex in Tunica County, Mississippi. The entire project would be named The Tunica Project and was located at Kings Landing. Jackpot was unable to reach a suitable agreement with Casinos International and proceeded without them. The company also continued examining gaming opportunities, turning to the worldwide market and including Canada, Mexico, the Caribbean, South America, Russia, Europe, Australia, and Asia.

OReilly had a short reign as CEO when, in 1994, the company elected Allan R. Tessler as chairman and assigned Don R. Kornstein as president and CEO. Due to rapid overbuilding by other gaming enterprises, The Tunica Project was shut down shortly after its opening in December 1993. After a company record-making $6.5 million in net income, in 1994, that net income plunged to a $4.6 million loss. By 1994, the company operated over 4,000 machines in over 430 sites, including the newly acquired Post Office Casino, with 94 gaming machines in the Holiday Inn Express at Jackpot, Nevada. That same year, the company opened and then subsequently closed The President Casino, another attempt to gain a toehold in the Mhoon Landing section of Tunica County, Mississippi.

Streamlining for the Future

The following year, 1995, under Kornsteins guidance, the company streamlined its operations, cutting 15 percent of its operating costs. The facility in Deadwood, South Dakota, was closed, as were all operations in Tunica, Mississippi. The company operated approximately 4,300 machines at nearly 450 locations and net income jumped back to $6.6 million.

In 1996, as part of its strategy to exit its casino operations, the company approved a plan to divest itself of two of its casinos, The Owl Club and The Pony Express Casino. The decision was reached after the board considered that the casino operations generated unacceptably low returns on capital, possessed limited growth prospects, and commanded a disproportionately high amount of management time. The Owl Club, located in Battle Mountain, Nevada, operated 89 gaming machines and two live table games and contained a beverage operation incident to the conduct of gaming activities, a restaurant operation, and an 18-room motel. The Pony Express Casino, located in Jackpot, Nevada, operated 94 gaming machines in a 2,600-square-foot facility. The company also ceased operations at The Debbie Reynolds Hotel and Casino and at The Nugget. Several high-ranking officers also resigned following the rocky two-year period during OReillys reign as CEO. At the end of the year, the company operated nearly 4,400 machines at over 440 locations and net income was approximately $5.5 million.

The company acknowledges that it has challenges ahead, but optimistically continues to review and evaluate potential opportunities in both gaming and nongaming industries. The companys strong financial position and access to capital represent a competitive advantage which will enable it to explore potential new acquisitions and strategic alliances and grow in the future.

Principal Subsidiaries

Cardivan Company; Corral Coin Inc.; Corral County Coin Inc.; Corral United Inc.; Jackpot Gaming Inc.; Jackpot Owl Inc.; Jackpots Highway 93 Casino Inc.

Further Reading

Gaming Insiders Laying Down More Bets, CDA-Investnet Insiders Chronicle, August 1, 1994, p. 2.

Jackpot EnterprisesCompany Report, Paine-Webber Inc., June 12, 1990.

Jackpot Enterprises to Sell Off Casino Operations, New York Times, August 15, 1996, p. C4.

Sharav, Ben, et al, Hotel/Gaming Industry, Value Line Investment Survey, March 3, 1995, p. 1781.

, Hotel/Gaming Industry, Value Line Investment Survey, May 31, 1996, p. 1783.

, Hotel/Gaming Industry, Value Line Investment Survey, August 30, 1996, p. 1786.

, Hotel/Gaming Industry, Value Line Investment Survey, May 30, 1997, p. 1788.

Daryl F. Mallett

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Jackpot Enterprises Inc.

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