Successful wager – Montana firm buys biggest Nevada video-gambling operator

On a recent morning in the Missoula workshop of Century Gaming Inc., two repairmen quietly reworked keno and poker machines in the ambient light from an open garage-style door. Several dozen out-of-commission gambling machines stood idle in an adjoining space.

By ROBERT STRUCKMAN of the Missoulian

http://missoulian.com/articles/2004/08/10/business/bus01.txt

A car whirred past outside on Russell Street. At the end of the workbench, a bright-faced poker machine in "attract mode" chirped its familiar, computer-generated come-on.

The quiet, almost rustic scene belied a reality of tremendous change. Over the past few months, Century Gaming, a Montana video-gambling route operator, has completed the purchase of the largest video-gambling route operator in Nevada.

State officers of the Montana Gambling Control Division and gambling industry spokesman alike use words like "unprecedented" and "brilliant" when talking about Century’s purchase. Nobody is sure exactly what the move means for gambling in Montana. Even J. Grant Lincoln, Century’s president and chief operating officer, shrugged at the question.

"What next? We’re a minnow swallowing a whale. We’re going to concentrate on the here and now," Lincoln said.

About 30 months in the works, the purchase from United Coin Co., a subsidiary of Alliance Gaming Corp, of 8,200 video poker, keno and slot machines more than quintuples the size of Century, which owns 1,800 of Montana’s 18,000 keno and poker machines.

Century Gaming bought United Coin for $104 million. Century’s financial backing came from a syndicate of two major insurance companies and a New York bank arranged by Canadian Imperial Bank Corp.

Century’s revenues will increase from $36 million last year to a projected $270 million, Lincoln said. The Nevada branch of the company will operate under its old name.

"There won’t be any increase or decrease in our Montana operations," Lincoln said. Century has 35 employees in Montana. United Coin has just under 600 in Nevada. "The same is true in Nevada. We’re bringing on all the employees, all the managers, basically everything."

Century Gaming started looking for out-of-state expansion options because gambling in Montana has become static.

Limits on wagers and payouts in Montana won’t likely change, said Rich Miller, the president of the Montana Gaming Industry Association in Helena. Neither will the number of locations to gamble or the number of poker and keno machine licensed in the state for operation.

By contrast, video gambling machines in Nevada allow higher wagers and don’t have a payout limit. On average, Montana gambling machines make about $53 per day, according to state statistics. One machine’s average daily take in Nevada is about $75, Lincoln said. A video gambling machine costs the same in Nevada as in Montana, about $9,000.

The purchase by a Montana gambling company of a significant out-of-state operation is an anomaly, and it arose from the relative stability of Montana’s market, the particular strengths of Century Gaming, and quirks in Montana’s gambling laws.

"As far as the direction of gaming in Montana, the direction is toward more entertainment, new machines with better graphics, bonus screens, that sort of thing," Miller said.

But there’s a limit to the kind of growth: it probably won’t ever again rise above the low single digits. Also the Montana economy is small compared to Nevada’s.

"Nevada has a lot more coin," Lincoln said. "You look at growth in the Reno area, the Las Vegas area, and it’s a steady 5 or 6 percent."

It all looks promising to a Lincoln and Steve Arntzen, Century Gaming’s chief operating officer for Montana.

Century Gaming was built by growth and acquisition. It started in 1995 as a small route operator in Missoula with the purchase of 475 machines. Over the rest of the decade, Century Gaming rose above the ranks of the other route operators by consolidating and merging. The last few years, though, has seen stagnation.

More in-state consolidation seemed too much of a hassle, Lincoln said, compared to the relatively small dividends. There are 101 route operators in Montana, seemingly a ripe scenario for consolidation.

As for out-of-state acquisitions, Lincoln figured there was nothing to stop him. No state laws stood in the way. Route operators are significantly different from licensed casino operators in Montana. A Montana gambling license is tied to a state liquor license, and the rules for owning a liquor license are stringent. To begin with, the licensee must be a resident of the state. That rule can prohibit casino owners from getting into major out-of-state financial partnerships. If a casino operator defaults on a loan, the out-of-state lender cannot take the liquor or gambling license as payment of the debt.

But route operators have another set of rules, even though they can essentially run the gambling nitty-gritty.

"We do the nuts-and-bolts. We own and repair the machines, collect the coin, pay the taxes," Lincoln said. "We let the tavern owners do what they do best – take care of the customer. We take care of what we do best."

That is one reason why, when the state Gambling Control Division looked at Century’s proposed purchase of the Nevada company, they gave the thumbs-up, said Gene Huntington, an administrator in the state office.

When Century Gaming first considered buying a Nevada operator, Lincoln said, the focus was on the smallest one, an operator with gambling machines in grocery stores.

"It’s better that that didn’t work out," Lincoln said. "United Coin is a much better fit."

It’s not as if Century had a lot of choices. There are only three gambling machine operators in Nevada. But Lincoln kept trying.

Nevada was the target because "it’s the gambling Mecca," Lincoln said.

Miller agreed: "It’s like going to the Olympics, if you want to use a sports analogy. Lincoln and his partner (Arntzen) are extremely good businessmen. They know that the only real growth (for Montana gambling) is out of state. Then you have to consider the attraction of going to Nevada, operating and being licensed in Nevada. I’m sure it was a thrill and a challenge, and businessmen like a challenge."

On a basic level, United Coin does exactly the same business that Century Gaming does. It puts video gambling machines in convenience stores, local bars, and other small outlets.

"It’s the kind of business we know," Lincoln said. "It’s what we do, only on a bigger scale."

Reporter Robert Struckman can be reached at 523-5262 or at [email protected].