Golden Gaming now Nevada’s large slot-route operator

A single transaction changed the business model of Golden Gaming Inc.

The privately held Las Vegas-based company is still Nevada's largest tavern operator, with 40 restaurants under three brands in Las Vegas and Reno.

But the Thursday closing of an asset swap with Affinity Gaming also makes Golden Gaming the state's largest slot machine route operator.

In Nevada's restricted gaming market (locations with 15 or fewer slot machines) Golden Gaming has a 45 percent stake -- roughly 8,500 slot machines in 650 bars, restaurants, taverns, convenience stores, grocery stores, pharmacies, and other noncasino businesses statewide.

The increased route operations means some 95 percent of Golden Gaming's slot machine inventory is outside the company's 40 wholly owned taverns. In other words, Golden Gaming's success depends on driving customers to play at businesses run by rivals.

"That's an important point that we're trying to get across," said Golden Gaming Chief Operating Officer Steve Arcana. "Whatever capital we spend on marketing efforts and the marketing we produce is to the benefit of this 95 percent of our business. We believe that we can provide these locations a more robust marketing effort than they ever had in the past."

For example, Golden Gaming recently picked up the contract to operate slot machines at the nine Buffalo Wild Wings locations in Las Vegas, and is creating a players card for loyal Buffalo Wild Wings customers to earn points toward free play and meals at any of the restaurants.

Arcana said Golden Gaming could do the same for any of its route locations and isn't planning a one-size-fits-all approach.

"I would see the migration of players' club programs being tailored within brands, even if it's just one tavern, as opposed to one large program," Arcana said.

The idea is to keep the slot machines active.

The bulk of Golden Gaming's slot route operations are through participation contracts, where the company shares gaming revenues with the locations' owners.

Golden Gaming operates the slot machines in large chain stores, such as Vons, Albertsons, Safeway, Smith's, CVS pharmacies and Reno's SaveMart. Golden Gaming pays rent on the space but doesn't share slot machine revenue.

"We are motivated to ensure that all of those slot machines and their locations are successful and have the best-in-class technology," Golden Gaming Chief Executive Officer Blake Sartini said.

Nevada had 19,071 restricted slot machine locations, including 14,056 in Clark County, at the end of 2011, according to the Gaming Control Board.

The business is a locals gaming market, which puts the restricted gaming locations in competition with casinos operated by Boyd Gaming Corp., Cannery Casinos, and Station Casinos.

Sartini, 52, spent 15 years with Station Casinos in management and senior executive positions, including time on the company's board. He is the brother-in-law of Station Casinos owners Frank Fertitta III and Lorenzo Fertitta.

Clark County's locals gaming market experienced a comeback in 2011. Casinos in the balance of Clark County saw gaming revenues increase 1.2 percent over 2010. Henderson-area casinos grew revenues 2.9 percent while North Las Vegas gaming revenues were relatively flat.

Sartini said gambling in taverns is also on the rebound, though "customers value taverns for different reasons."

Success in Nevada means the company could become the nation's leading slot machine route operator, he said.

"Restricted gaming is a uniquely Nevada business model," Sartini said. "We're a company that understands route gaming."

But Golden Gaming is exporting that business model to places like Illinois, which may allow restricted gaming in some 10,000 locations with liquor licenses. Analysts estimate the Illinois market could be as many as 50,000 slot machines.

Other states might explore restricted gaming if the idea succeeds there, Sartini said.

Golden Gaming wants to provide operators with the technology for managing the slot machines, such as accounting and cash controls and other systems, but hasn't ruled out becoming a slot route operator in Illinois, Sartini said.

Union Gaming Group Principal Bill Lerner told investors last week the execution of Illinois' Video Gaming Act was uncertain because of staffing shortages related to license approvals. The issue has been in the planning stages since 2009. He said most major slot machine makers would provide games to the various locations.

"The Illinois Gaming Board is anticipating having the first games available by the third quarter of 2012, although that time line could be extended out till the end of the year," Lerner said.

For now, the focus for Golden Gaming is on Nevada.

The transaction with Affinity Gaming was announced in September. Affinity -- which had been known as Herbst Gaming before its bankruptcy reorganization -- gave the bulk of its slot machine route operations and two casinos in Pahrump to Golden Gaming in exchange for the company's three casinos in Black Hawk, Colo.

Separately, Affinity also sold the portion of its slot route operation covering the Terrible Herbst convenience stores to JETT Gaming, a slot machine route operator owned by the Herbst Gaming Trust.

Golden Gaming did not disclose costs associated with the transaction, but Affinity in a regulatory filing valued the three Colorado casinos between $76.2 million to $92.3 million. Golden Gaming would assume certain liabilities related to Affinity's Pahrump casinos and the slot machine route. The assets included $23.75 million in cash to operate the slot machine routes.

Both businesses would be valued, Affinity said. The business with the higher price is required to pay cash to other to make up the difference, according to the filing.

Immediately after the deal was announced, Golden Gaming began preparing for its increased presence in the slot route operations. The company acquired a second headquarters office to house its PT's, Sierra Gold and Sparky's tavern businesses.

Meanwhile the transaction gave the company an increased presence in Pahrump, where it already owned the Pahrump Nugget. Golden now has three Pahrump casinos with 1,000 slot machines and 526 employees, making it the largest employer in Nye County.

Sartini said the company looks to improve on the casino operations in Nye County, where casinos in 2011 produced $50.4 million in gaming revenues, a decline of just less than 1 percent from 2010 according to the Gaming Control Board.

Golden Gaming now has roughly 2,100 employees, making the company one of the largest privately held employers in the state's gaming industry, company officials said.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.
Follow @howardstutz on Twitter.