Regulatory board OKs company to run Herbst Gaming

By Richard N. Velotta

Thursday, Dec. 2, 2010 | 2:05 a.m.

The state Gaming Control Board on Wednesday recommended approval of the licensing of a new company that will run the Herbst Gaming empire, which is expected to emerge from bankruptcy protection later this month.

In a meeting in Carson City, board members spent a little more than an hour wading through a complex corporate structure that oversees three resorts in Primm, several casinos in Southern and Northern Nevada and a network of 309 slot route properties throughout the state.

Herbst also operates riverboat casinos in Iowa and Missouri.

The board’s recommendation will be considered by the Nevada Gaming Commission on Dec. 16.

Included in the recommendation is the licensing of a new management team, headed by CEO David Ross and Chief Operating Officer Ferenc Szony. Members of the founding Herbst family no longer hold management or board positions.

Among the directors on the Herbst Gaming board is Michael Rumbolz, who chaired the Control Board in the late 1980s.

The recommendation also included approval of the suitability of Edward Mule and Robert O’Shea, the managers of Silver Point Capital, a private investment firm that focuses on distressed properties and has a 16 percent stake in Herbst.

“We’ve positioned ourselves to emerge from bankruptcy as a strong and viable company,” Ross told regulators at the hearing.

Szony, who operated the Sands Regency property in Reno before his company was acquired by Herbst in 2006, said he believes the company’s properties are well positioned to take advantage of California feeder markets, both in Southern and Northern Nevada. The company also has a new $350 million credit facility.

Ross and Szony told board members that as part of the company’s recovery from bankruptcy protection that it had to shed payroll and lay off employees a year ago. They said they also cut promotional expenses and sought better energy efficiencies.

Herbst filed for Chapter 11 bankruptcy protection in March 2009. Ross and Szony said the combination of the downturn in the economy and the enactment of Nevada’s smoking ban on the heels of the acquisition of the Sands Regency and the Primm properties from what was then MGM Mirage resulted in massive losses.

The smoking ban particularly hurt the company’s slot route operation where many tavern owners had to choose between serving food and allowing players to smoke while they gambled. Bondholders, which were unsecured creditors, lost an estimated $362 million in the case.

The executives said the new company would have five divisions: Southern Nevada, which includes casino properties in Las Vegas, Henderson and Pahrump using the Terrible’s brand; Northern Nevada, which includes Sands Regency and Terrible’s branding in Reno, Verdi and Dayton; Primm, home of Whisky Pete’s, Buffalo Bill’s and Primm Valley; the Midwest properties in Osceola, Iowa, and St. Joseph and La Grange, Mo.; and the slot route, which has four separate parent companies, E-T-T, Cardivan, Market Gaming and Corral Country Coin.

The Control Board, faced with licensing the 309 bars, taverns, convenience stores and grocery store locations on the slot routes, opted to post a 34-page chart in its agenda to list the location, parent company and number of machines licensed in those restricted properties. The state issues restricted licenses for properties with 15 or fewer slot machines.

In other business, the Control Board recommended approval on two race and sports book licenses for Cantor Gaming, including a license for the soon-to-open Cosmopolitan of Las Vegas property on the Strip.

Cantor Gaming CEO Lee Amaitis told regulators that his company would introduce its in-line and mobile gaming products before the Super Bowl in February at the Hard Rock, Tropicana and Cosmopolitan properties.

Amaitis said the handle and hold were above expectations when the high-tech system was introduced at the M Resort, due to a greater velocity in wagering and higher limits. He said he thinks the system has grown the market and while he expects some M Resort customers to switch to the Hard Rock, Tropicana and Cosmopolitan because they’re closer to a player’s home, he expects the market will continue to grow.

The Cosmopolitan is scheduled to open Dec. 15, which means the race and sports book would begin operating at least a day after the doors open.