Ban Damage: NV Reality of smoking ban sets in Page 2

By Jonathan On Jul 5, 2017

NV Reality of smoking ban sets in, Kitchens closing, workers losing jobs

CASINO COMPANIES: Herbst Gaming faces hurdles
Filings suggest company must restructure debt payments or face bankruptcy
Apr. 02, 2008,
By HOWARD STUTZ REVIEW-JOURNAL
The off-Strip Terrible’s is shown Tuesday. In a filings with regulators, Herbst Gaming, the hotel-casino’s owner, said its Southern Nevada operations have been negatively affected by failing economic conditions, a statewide ban on smoking in taverns and restaurants, and competition from American Indian casinos in Southern California.
Photo by Ronda Churchill
Casino operator and slot machine route manager Herbst Gaming may be forced to file for bankruptcy protection unless the company can reorganize a payment structure for its more than $1.146 billion debt, according to documents filed with the U.S. Securities and Exchange Commission.
The Las Vegas-based company said its Southern Nevada operations have been negatively affected by failing economic conditions, a statewide ban on smoking in taverns and restaurants, and competition from American Indian casinos in Southern California.
Herbst Gaming operates 16 casinos in Southern and Northern Nevada, including the three Primm resorts along Interstate 15 at the California-Nevada border, 35 miles south of Las Vegas, and the off-Strip Terrible’s on East Flamingo Road. The company also owns three casinos in Missouri and Iowa and operates approximately 7,200 slot machines through its Nevada route operation.
The company is privately held by brothers Ed, Tim and Troy Herbst, but roughly $800 million of its debt is through publicly traded bonds.
In its Form 10-K annual report filed late Monday with the SEC, Herbst Gaming said the poor financial results the company experienced during the second half of 2007 have carried over into the first few months of 2008.
Herbst’s overall revenues were $849.2 million in 2007, almost 43 percent higher than 2006, because the company spent $543 million to acquire two major casino companies, almost doubling the size of its casino holdings.
However, a 20 percent loss in revenues from its slot route business, coupled with a doubling of the company’s costs, expenses and interest payments, sent Herbst Gaming to a net loss of $127.2 million last year.
In February, Herbst hired Wall Street investment house Goldman Sachs to evaluate strategic alternatives for the company, which could include anything from a debt recapitalization to a sale of some of its businesses.
According to an independent audit of the company’s finances by Deloitte & Touche, Herbst Gaming has “going concern” qualification, which is a default under its credit agreement with its bond holders. The company plans to discuss the matter soon with its bond holders to try and restructure the debt.
“We and our advisers are actively working toward such a transaction that would address the decline in our operating results and our capital structure, including our outstanding indebtedness,” the company said in the filing.
If Herbst Gaming cannot complete a refinancing or restructuring, the company may be required to seek protection under Chapter 11 of the U.S. Bankruptcy Code.
Herbst Gaming general counsel Sean Higgins declined comment Tuesday, saying the 10-K filing would speak for the company. Herbst Gaming is not planning to hold a conference call to discuss its 2007 year-end and fourth-quarter earnings.
Gaming Control Board Chairman Dennis Neilander said casinos operated by Herbst Gaming would be placed on a different status than other licensees because of the company’s financial warnings. Additional audits of the finances and bankrolls at each location will be conducted.
Neilander said the control board became aware of Herbst’s financial issues as they mounted over the last six months.
“This is not a new scenario for us,” Neilander said, saying the Aladdin on the Strip and Fitzgeralds in Reno were the last casinos to operate under bankruptcy protection. “It’s tough because they were hit by so many factors at the same time. At this point, technically, this is the process we have to take.”
An investment source with knowledge of the situation said Herbst Gaming wants to resolve the matter without filing for bankruptcy. The source said banks that control about $320 million of Herbst’s debt are pushing for some sort of resolution. The source said the bank debt is currently worth about 70 cents on the dollar while the bond debt is worth about 14 cents on the dollar.
Several sources said Herbst’s downfall began with last April’s $394 million purchase of the three Primm casinos from MGM Mirage.
“They overpaid, pure and simple,” said a gaming source who asked not to be named.
In January 2007, Herbst paid $149 million to acquire five Northern Nevada casinos, including the Sands Regency in Reno.
During Nevada licensing hearings in March 2007, Herbst executives admitted cash flow at the Primm casinos had fallen from $75 million in 2000 to about $30 million in 2003 because of Indian gaming competition. Executives told regulators they were confident they could win back lost business. A year later, it hasn’t happened.
Sources confirmed that Primm executive Michael Puggi, who had been operating the resorts for MGM Mirage and was retained by Herbst, was recently let go. In the 10-K, the company said the Primm casinos continue to lose business to the expanding California Indian casinos in Riverside County and San Bernardino County.
“The Primm casinos derive a significant amount of their business from the Inland Empire region of Southern California, the economies of which have been negatively impacted due to a number of factors, including the subprime mortgage crisis and higher gasoline costs,” Herbst Gaming stated.
In its slot machine route operation, Herbst blamed a voter-enacted statewide ban on smoking in places that serve food with sending its tavern and restaurant customers to traditional casinos if they want to smoke and gamble. The ban started in January 2007.
Not only have revenues in the route operation fallen, $276.9 million in 2007 compared with $347 million in 2006, but cash flow from the division was off more than 56 percent, $32.8 million in 2007 compared with $75.5 million in 2006.
Herbst Gaming said it has renegotiated several lease agreements and has decreased its annual rent payments by approximately $20 million.
“However, if we are not able to offset decreased patron play, or patron play continues to decrease, there may be a material adverse effect on our business, financial condition and results of operations,” the company stated. “The success of our route operations is dependent on our ability to renew our contracts.”

Taverns hurt by smoking ban

Dec 3, 2007

Revenue has dropped at many taverns — as much as 30 percent in some locations — because of the state smoking ban.

The prohibition against smoking, which took effect in January, sent gamblers who want to light up while playing slot machines to traditional casinos.

Nevada Tavern Owners Association president Joseph Wilcock says his members are feeling the pinch and are slowing construction of new taverns.

Herbst Gaming is Nevada’s largest slot route operator with approximately 7,200 slot machines. In the third quarter, Herbst said revenues from the company’s route operations were about $66 million, a 21 percent drop over the same period in 2006. Many of its machines are in areas affected by the ban.

With butts out, bars lowered
Smoking ban in food-serving sites hurts revenue, slows spread for taverns
December 2, 2007
By HOWARD STUTZ, REVIEW-JOURNAL
Southern Nevada’s weakening economic conditions, coupled with a voter-enacted statewide ban on smoking inside businesses where food is served, has cast a pall over the once-booming tavern industry.
New taverns aren’t being built as fast as in previous years, said an official with the Nevada Taverns Owners Association, a trade group that represents the industry.
Meanwhile, revenue has dropped at many taverns — as much as 30 percent in some locations — because of a decline in customers and a decrease in the amount loyal patrons are spending.
Most blame the lost business on the smoking ban, which took effect in January. The prohibition against smoking sent gamblers who want to light up while playing slot machines to either a traditional casino or one of the handful of taverns built before 1992 that have 35 slot machines and are thus exempt from the smoking ban because the businesses were classified as casinos.
“There are a lot more challenges for an operator than ever before,” said Joseph Wilcock, the president and chairman of the tavern owners’ association. Wilcock owns The Brewery on East Sunset Road.
“The construction of new taverns slowed because some people want to redesign their plans in order to comply with the smoking ban,” Wilcock said. “But at the same time, the banks are jittery. They want to see the financial projects before they issue construction loans.”
Wilcock estimates that 75 of the tavern association’s roughly 300 members gave up food service to keep their gambling and smoking patrons. Most of the membership, he said, is complying with the smoking ban “but are losing their shirts.”
None, Wilcock said, wanted to give up the moneymaking slot machines.
During Southern Nevada’s economic boom times, taverns provided a lucrative business mode: a restaurant with reasonably priced food, a bar and 15 slot machines, most often owned by a slot machine route operator who serviced the games and paid out jackpots. Contracts differ, but for the most part, route operators split the slot machine revenues with the tavern owner, paying a fee to lease the space.
Tavern owners said gamblers often preferred the tavern experience to a locals casino, likening the atmosphere to the slogan from the NBC television series “Cheers,” which was set in a Boston-area bar that customers frequented because “Everybody knows your name.”
Roger Sachs, co-owner and operations director for the three Las Vegas-area Steiner’s taverns, said friendly service, good food and a lively atmosphere help keep customers from taking their business to a more traditional restaurant.
“Since we opened our store three years ago (on Las Vegas Boulevard South near Windmill Lane), about 15 traditional restaurants opened up around us. We lost some business, but it quickly came back.”
Sachs said the gambling devices made Steiner’s three locations profitable. He wouldn’t release numbers, but he estimated that each of the Steiner’s locations ranked in the top 10 percent in the county among tavern operations for gaming revenues before the smoking ban.
Since January, however, revenues from the slot machines are off 29 percent to 35 percent at each location.
“We probably do as well on food as anybody because that’s something we wanted to establish,” Sachs said. “But other places might take a monthly loss of $10,000 on food, but made it up with the gaming. That’s not the case now because the business is not there.”
Taverns are classified by the Gaming Control Board as restricted gaming licensees, along with convenience stores, laundries and other places with 15 slot machines or fewer.
Restricted gaming license holders don’t pay the state a percentage tax on their gambling revenues (the major casinos pay the state 6.75 percent on all gaming revenues.) Instead, restricted license holders pay an annual fee of $250 per slot machine, plus $20 per machine each quarter.
Gaming Control Board member Mark Clayton said the agency doesn’t audit the gaming revenues from restricted licensees because they don’t pay percentage taxes.
Still, an insight into how tavern owners have seen their profits drop comes from Herbst Gaming, Nevada’s largest slot route operator with approximately 7,200 slot machines in 700 locations throughout the state. The company has public debt and Herbst is the only route operator that publicly reports its earnings.
In the recently completed third quarter, Herbst said revenues from the company’s route operations were $66.1 million in the three months ended Sept. 30, a 21 percent drop over the same period in 2006. For the first nine months of 2007, Herbst’s slot route operations generated $212.5 million, 19 percent less than the same nine-month period in 2006.
“There is no question the smoking ban had a dramatic impact on our route operations and has fundamentally changed the slot route industry,” Herbst Gaming President Ed Herbst told gaming analysts following the earnings release.
United Coin Machine, which operates about 6,000 machines in more than 400 locations statewide, is experiencing similar losses in revenue. United Coin President Grant Lincoln said the smoking ban created an uneven playing field for the tavern operators, who don’t have the promotional budgets to match the customer incentives offered by the large casinos.
Like Herbst, United Coin is assessing how much of a financial effect the tavern industry will endure.
“There’s not a lot we can do,” Lincoln said. “As their volume suffers, our volume suffers. The question is, have we truly bottomed out? The smoking issue has been a fairly crushing blow for the average tavern operator.”
Lincoln said there are other economic issues facing tavern operators. Gasoline prices are climbing above $3 a gallon, which cuts into consumer spending, he said.
Sachs said Steiner’s bottom line first saw a change in customer spending habits when the real estate market softened. Housing speculators, who bought and resold homes in the vibrant environment, lost much of their disposable income and stopped spending as much on entertainment.
As the smoking ban took hold, tavern operators without a niche market suffered.
“I would say there has been an oversaturation in the market,” Sachs said. “With the economy right now, expansion has slowed.”
Sachs said Steiner’s is sitting on a potential fourth location, near Rainbow Boulevard and the Las Vegas Beltway in the southwestern Las Vegas Valley, but he’s waiting to see how the tavern association’s lawsuit challenging the smoking issue plays out in the Nevada Supreme Court.
For now, Sachs said Steiner’s will spend $75,000 to remodel the interiors at its three locations to separate the bar and restaurant areas with pony walls and glass, thus allowing smokers to frequent the bar and slot machine area once again.
Wilcock said many tavern operators will have trouble remodeling because of the cost. Banks, he said, aren’t as quick with loaning their money.
“I think we’ll start seeing a much different model as new locations open,” Wilcock said. “The new places will be built where smoking is separate from the food.”
This story first appeared in the Business Press. Howard Stutz writes for the Business Press’ sister publication, the Las Vegas Review-Journal. Contract reporter Howard Stutz at hstutz@reviewjournal.com or (702) 477-3871.

Bars working around Nevada smoking ban
Faced with losing food revenue or customers who light up to casinos exempt from the law, tavern owners tap their creativity.

By Ashley Powers, Los Angeles Times Staff Writer
November 19, 2007

LAS VEGAS — Dale Wageman is the kind of barfly this city’s taverns are desperate to woo. He likes to settle onto a bar stool each Saturday, glue himself to college football on the tube, and polish off beers. But to win him, Vegas bartenders must contend with his drinking buddy: a pack of USA Gold cigarettes.

A law voters approved a year ago has outlawed smoking in many business that sell food, including a number of bars and taverns. It drove Wageman to abandon his favorite watering hole.

To hang onto customers who smoke, bartenders have dreamed up all sorts of ways to evade the new rules. In lieu of now-prohibited ashtrays, they put out cups of water. They stock foil ashtrays in cigarette machines. They close their grills but, with a wink, hand out menus from nearby restaurants that will deliver to bar patrons.

The result has been a year of headaches for health officials untangling the Nevada Clean Indoor Air Act, a ballot initiative that seems to have left just enough wriggle room for bartender ingenuity. “They are trying to be imaginative so they can keep everything,” said Stephen R. Minagil, the Southern Nevada Health District’s attorney.

Voters, who approved the ban by 54%, turned down a less restrictive measure and ignored arguments that the law was the handiwork of relocated Californians.

The act bans smoking in most indoor places of employment, but not in strip clubs, brothels, casino gaming floors or bars that don’t serve food. Nevada’s law joined smoking prohibitions of varying toughness in 30 states and the District of Columbia.

Written to protect the public and workers from secondhand smoke, the law set off a small uprising among bar owners who argued that it unfairly harmed their businesses: They would either lose food revenue or customers who wanted to smoke, but pubs with enough slot machines to be considered casinos could continue to serve food while accommodating smokers.

In some Clark County bars, business plummeted by as much as 40%, said Joseph Wilcock, president of the Nevada Tavern Owners Assn. Wilcock said he poured $75,000 into creating separate spaces — one that served food and one that did not — at his Las Vegas watering hole, Brewery Bar & Grill. “We’re trying to figure out a way we can all survive,” he said.

Some spots — including the Venetian’s Tao and Mandalay Bay’s rumjungle — tried a split strategy: They served food during the day, but closed their kitchens at night to let club-goers light up.

Bilbo’s Bar & Grill tested inventive legal arguments. In April, a health inspector found contraband ashtrays and matchbooks — as well as two smokers — at Bilbo’s. The tavern argued that the ashtrays and matchbooks were 1st Amendment-protected advertising to no avail.

The bar and health inspectors clashed again. During a court hearing to determine whether shot glasses were doubling as ashtrays, attorneys placed an empty shooter on the witness stand. This time the judge sided with the bar.

The rules have proven to be so vexing that when the tavern owners association challenged them in court, law enforcement officers said they weren’t sure how to enforce them. A tavern attorney unpacked a grocery bag and asked whether such mixed-drink mainstays as olives and oranges would be allowed under the law. (They are.)

The judge tossed out the law’s criminal component, leaving health inspectors as its sole enforcers.

But the judge only has authority in the southern part of the state; elsewhere, sheriff’s deputies can issue $100 citations.

“Look, they’re not ‘big government’ people here,” said David Damore, an associate professor of political science at University of Nevada, Las Vegas. “They’re not going to go bar to bar to look for smokers.”

The smoking ban incensed Wageman, the 52-year-old heavy-equipment repairman who has been looking for a new bar.

“It feels like you’re a junkie if you go outside to smoke,” said Wageman. He said he tried bars that used coffee cups as ashtrays. He tried staying home. He finally settled on a PT’s Pub in suburban Henderson, which has a glass wall separating smoking and dining areas.

The pub is part of a large Nevada chain that addressed the smoking ban by installing ventilation systems and splitting up its spaces.

At the bar where Wageman now hangs out, each side of the glass barrier is considered a separate business, with distinct payrolls and workers. If Wageman wants a hamburger, he tells a bar waitress, who tells a restaurant waitress, who delivers his order. Although the health district is questioning that system, it’s bonded Wageman to a bar stool for now. He’s drained the pint in front of him; in an ashtray are three cigarette butts.

Smoking ban fuels quarterly loss for Herbst Gaming

November 9, 2007
Howard Stutz

LAS VEGAS, Nevada — The acquisition last spring of three casinos in Primm helped Herbst Gaming significantly grow its overall net revenues. Nevada’s 10-month-old ban on smoking in bars, restaurants and taverns, however, continued to eat away at the company’s profits.

Herbst Gaming reported a net loss of $28.9 million for the quarter ended Sept. 30, reversing net income of $8.2 million a year ago. Revenues in the period, however, were $219 million, a 58.6 percent increase compared with $138.1 million in the third quarter last year.

Over the first nine months of 2007, Herbst had net revenues of $583.6 million, an increase of 38.4 percent from 2006. However, the company has recorded a net loss of $34.1 million, reversing net income of $36.7 million for the first nine months of 2006.

Costs associated with the company’s April acquisition of the three Primm casinos on the Nevada-California border from MGM Mirage offset earnings. The smoking ban, which sent tavern customers who like to smoke while they gamble to casinos and locations unaffected by the ban, had a larger impact on Herbst’s financial results.

The company operates more than 7,000 slot machines in some 700 locations around Nevada, mostly inside restaurants, taverns, convenience stores and bars that can have up to 15 slot machines. Revenues from the route operations fell roughly 20 percent in the quarter.

“There is no question the smoking ban had a dramatic impact on our route operations and has fundamentally changed the slot route industry,” Herbst Gaming President Ed Herbst said in a conference call with analysts. Herbst is privately owned, but the company has publicly held debt.

Herbst spent the better part of the year renegotiating contracts with the some of the company’s largest slot machine route customers, such as supermarkets, to reduce the rate Herbst pays for leasing space. The savings is expected to be $20 million annually and the company is continuing to negotiate contract changes with its smaller customers, but the savings is expected to be another $1 million or $2 million annually.

Herbst Chief Financial Officer Mary Beth Higgins said the smoking ban affected all slot-route operators, but the steps taken in the past year has set the company up to compete in the changing market. She said the company continues to seek potential locations for expanding the route operations.

“We’re the best prepared company to benefit in the changing market,” Higgins said.

The company paid MGM Mirage $400 million for the Primm casinos, but revenues from the properties were lower than anticipated. Nevertheless, Herbst saw revenues from its Nevada casinos jump nearly five times over the same period in 2006, also due to the Sands Regent in Reno, which was acquired in January, and the recently remodeled Terrible’s, an off-Strip casino on East Flamingo Road.

Herbst executives said economic concerns in Southern California, particularly the Inland Empire where the bulk of Primm’s customer base resides, have affected spending habits. Visitation to the Primm properties is still strong, but the average amount being wagered is down slightly.

The company is changing out slot machines and refurbishing the public areas at the Primm resorts.

“Primm had a large and complicated integration,” Herbst said. “But there is a lot of upside and potential out there.”

Bilbo’s dodges a contempt citation

Health district told to ‘calm’ its zeal
Sep. 13, 2007
By ANNETTE WELLS, REVIEW-JOURNAL
Bilbo’s Bar and Grill and the Southern Nevada Health District are in a public and lengthy feud over the state’s smoking ban, but they’re not in contempt.

Of a court ruling, that is.

A judge on Wednesday rejected each sides’ attempt to slap a contempt finding on the other for violating a previous ruling. The health district said Bilbo’s was continuing to openly defy the provisions of the Nevada Indoor Clean Air Act. Bilbo’s said it was the health district that was out of line and the eatery was being harassed and singled out for prosecution.

And Bilbo’s won a small victory when District Judge Joseph Bonaventure ordered the health district to pay $1,000 in attorneys fees. In doing so, he sent somewhat of a message to the district.

“I do think you need to calm down a little,” Bonaventure told health district attorney Stephen Minagil. “Think this out. … Think this through. … That’s my opinion.”

At issue this time was whether Bent Barrel, operators of Bilbo’s, had violated the terms of District Judge Valerie Adair’s June 6 ruling because customers were using shot glasses, provided by bartenders, to deposit their cigarette butts and ashes.

Adair’s preliminary injunction had required Bilbo’s to remove all of its signature ashtrays and matches at its West Charleston address.

Although Bilbo’s obeyed that order, health district officials claimed that Bilbo’s employees merely exchanged its “flat” round glass ashtrays with “tall” round shot glasses.

“That item, the tall glass, is an ashtray,” Minagil said while pointing at an empty shot glass atop the witness stand podium during Wednesday’s hearing. “It is placed out on the bar for patrons to use as an ashtray. And they are not removed when they are used.”

Bob Peccole, attorney for Bent Barrel, argued that the health district was just “picking on Bilbo’s.”

After nearly two hours of back and forth, mostly bantering between Minagil and Peccole about the definition of an ashtray and how a shot glass may or may not be considered as such, Bonaventure found there wasn’t enough evidence to hold Bilbo’s in contempt.

If Bilbo’s was providing shot glasses to patrons specifically for ashes it might seem they are violating Adair’s order, Bonaventure said. But if patrons were using shot glasses that previously contained a drink, there’s no contempt of court, he said.

“I don’t see the facts in this situation here where Bilbo’s is providing shot glasses to be used as ashtrays intentionally,” Bonaventure said.

Peccole argued it was the health district that violated Adair’s order when the district suggested that Bilbo’s employees and representatives — and not the health district — were responsible for enforcing the Nevada Clean Indoor Air Act. He also said the health district was “harassing” Bilbo’s by sending inspectors to the eatery and photographing its customers.

In his response, Minagil said the health district isn’t harassing Bilbo’s and that the eatery is but one of 25 establishments to receive a letter from the agency because of compliance issues under Question 5, passed by voters last year.

The smoking ban has been called confusing by some lawmakers, members of the general public, and businesses, especially in Southern Nevada.

The law, which prohibits smoking in nearly all public places in Nevada, including grocery stores, restaurants and bars that serve food, was challenged by Southern Nevada businesses in December.

District Judge Douglas Herndon upheld the law but took the criminal component out in Southern Nevada, leaving the health district with sole enforcement responsibilities. In Northern Nevada, police and health officials are enforcers of the law.

The Nevada Tavern Owners Association has filed a notice of its intent to appeal Herndon’s order to the Nevada Supreme Court. The filing does not state the legal grounds for the challenge, and the association has until October to do so.

Since the law went into effect, the Health District has fielded more than 2,000 public complaints regarding Question 5 violations.

Several of the 25 businesses the health district has sent letters to have met with the agency’s staff to rectify compliance issues.

Violators of Question 5 are subject to a $100 fine for each infraction.

Businesses can be fined if they fail to post “No Smoking” signs or fail to remove ashtrays and other smoking paraphernalia. Smokers who violate the law are subject to a fine if they are caught smoking, however that hasn’t happened yet.

“We think we’re seeing compliance from most businesses,” Minagil said after Bonaventure’s decision. “Nobody told us ‘No’ except for Bilbo’s.”

Minagil said the next step is to go back before Adair and ask her to clarify her order, specifically as it relates to what an “ashtray” is.

“He (Bonaventure) thought we should not have asked for the contempt motion,” Minagil said.

“We thought it was pretty clear. … This isn’t the end of the case. We are in the second of nine innings. Judge Adair still has to make her judgment permanent.”

Peccole had a different take on Bonaventure’s decision.

“I’m thinking maybe this is time something like this happens to wake them up,” Peccole said. “What he (Minagil) should do is direct his attention to let’s moving along the case (civilly). Let’s find out if it’s constitutional or not.”

During the hearing, Bonaventure also suggested the health district go after individual smokers.

Minagil said they health district is meeting with the Justice Court about setting up a system where individual smokers caught violating the ban will be cited.

Bully’s Bar & Grill has gotten around the Anti’s.
They opened a “Smokin’ Bully’s”…. NOT using a LOOPHOLE as the writer suggests.
The law says that if a Bar has a Kitchen there will be no smoking.
A bar without a kitchen is Smoker friendly — if the Owner chooses.
– A Newsletter Reader
——-
Smokin’ Bully’s exploits Nevada loophole
JOHNATHAN L. WRIGHT, RENO GAZETTE-JOURNAL
8/29/2007

Smokin’ Bully’s is scheduled to open Saturday in the former Timberline Lounge No. 2 space in Sparks.

Smokin’ Bully’s, a sports bar only, will be situated across from Bully’s Sports Bar & Grill No. 5.

Folks can order food at No. 5, take it across to Smokin’ Bully’s and spark up while eating — thus exploiting a loophole in the Nevada Clean Indoor Air Act, which prohibits smoking where food is commercially served.

Smokin’ Bully’s is at 2828 Vista Blvd.

Herbst revenue jump goes up in smoke
Gaming company blames second-quarter loss on smoking ban
Aug. 16, 2007
By HOWARD STUTZ,REVIEW-JOURNAL
Herbst Gaming boosted its revenue during the second quarter, thanks largely to the addition of three casinos in Primm.
However, tough anti-smoking laws covering grocery stores, convenience stores, restaurants and taverns continued to hurt revenue from the company’s slot machine route operations.
Herbst Gaming, one of Nevada’s largest slot route operators with 7,200 slot machines in 700 locations, reported a net loss of $1.35 million in quarter ended June 30, as opposed to net income of $11.3 million a year ago.
Overall, revenue generated by the company’s 16 casinos in Nevada, Iowa and Missouri and its Nevada route operations was $231.6 million in the quarter, up 36.5 percent from $147 million in the same quarter a year ago.
However, revenue from the route operations was $71.7 million in quarter, down 21.3 percent from $87 million a year ago. Herbst executives blamed the smoking ban, passed by Nevada voters in November, as a reason customers were staying away from the route operations.
Herbst Gaming President Ed Herbst said during the company’s conference call that several cost-cutting steps are being implemented to help the route operations, such as renegotiating many of the route contracts.
“We’re going to absorb the changes and our route operations will rebound over the next several years,” Herbst said.
Herbst Gaming Chief Financial Officer Mary Beth Higgins said the smoking ban completely changed the slot route industry.
“This permanently changed the economics in this business,” Higgins said. “It is not a minor event. It is an industry-shifting event.”
Brian Gordon, a partner in Applied Analysis, a Las Vegas-based financial consulting firm, said a softening in the Southern Nevada economy in recent months may also be hurting slot route operators.
Gordon said economic indicators, such as softness in the housing market and slowdowns in overall employment growth, may be affecting consumer spending patterns.
“The smoking ban has had an impact, but it seems other factors may be playing into the market as a whole,” Gordon said.
The Primm casinos, acquired in April from MGM Mirage for $400 million, helped the company’s efforts. Coupled with the company’s four Northern Nevada casinos, purchased in January for $119 million, the Nevada casino operations generated $95.3 million in revenues, compared with $23.4 million during the same three months a year ago.
Herbst said he was pleased with the results the first full quarter the company has owned Primm Valley, Buffalo Bill’s and Whiskey Pete’s.
“These are three great properties and the strategy is to complete the integration and bring these acquisitions into the fold,” Herbst said.

Smoking ban tests resourcefulness

Barkeeps find ways to let patrons keep smoking without running afoul of the law

July 30, 2007
By Ed Koch, Las Vegas Sun

When a tough, voter-approved anti-smoking law went into effect in January, Southern Nevada bar owner Rich Hall, like many other local tavern operators, ignored it for a couple of weeks.

And then Hall, who operates three local bars, realized he had a bunch of nervous smokers on his hands.

“Whenever anyone would come into the bar, customers would cup their cigarettes in their hands and shift their eyes back and forth,” Hall said. “It was like watching teenagers smoking behind the schoolhouse.

“I didn’t want to put them through that.”

So he installed a glass wall.

Hall, a 54-year-old non smoker whose restaurants prior to passage of the measure last November already were non smoking, installed sealed glass partitions separating the bar from the restaurant in each of his businesses. The price tag for all three locations was about $60,000, he said.

Hall’s places and more than 100 other local bars have been approved by the Southern Nevada Health District for such modifications to comply with the Nevada Clean Indoor Air Act , which went into effect in January.

The law prohibits smoking in places that serve food, including bars, grocery stores and convenience stores. Major casinos are exempt from the law, as are some bars that have unrestricted gaming licenses.

Smoking is permitted in bars that do not have food or have done away with food service.

Many tavern owners continue to ignore the law. Although they may have gotten rid of ashtrays and match books, they still wink and provide cups of water for their smoking customers’ ashes, and then look away.

The health district, the law’s chief enforcer, is trying to get scofflaw bar owners to obey the measure – under threat of lawsuit and civil penalties – but the progress has been slow.

“Overall, I am not satisfied” with the enforcement progress, said Southern Nevada Health District attorney Steve Minagil. “It’s like trying to corral cats. Unfortunately, seven months after this law went into effect we are still running down complaints, writing letters, filing lawsuits. I’m optimistic that more places are complying, but it has come after a lot of work.”

The district has investigated m ore than 2,000 complaints about bars violating the law . It has written letters to – and held meetings with – 20 of the most blatant alleged offenders and has filed lawsuits against two of them.

The district allows bar owners to separate their restaurants from their bars, essentially turning the bars into smoking-friendly stand-alone structures while maintaining a smoke-free environment in adjacent restaurants.

One of Hall’s bars, Mulligan’s Border Bar & Grill at Pebble Road and Maryland Parkway, is one of 130 establishments that has submitted such plans. To date, partition projects have been completed at 35 bars, the district says.

For some establishments, spending thousands of dollars for glass partitions to keep their food service was not cost-effective.

“We never even considered it (glass walls) because it already was costing us so much to keep the kitchen open,” said Rebecca Marlowe, bar manager of the New York City Bar on Spring Mountain Road. “We were never really a food bar. It was just a convenience for our players.”

After the law went into effect, the establishment closed its kitchen so patrons could smoke to their hearts’ content.

The NYC Bar is one of a number of places that offers customers menus from area fast-food restaurants that deliver, which apparently does not violate the new law.

Marlowe said some customers have told her they miss her homemade meatloaf , which used to be on the Thursday menu, but she said business has been good since the change.

Hall, who moved to Las Vegas in 1989 and worked for the Big Dogs and Roadrunner bars before opening his own bar business with two partners in 2000, says he does not regret putting up the glass walls.

“Eventually this law is either totally going to go away or will be strictly enforced,” he said. “My concern is that thumbing noses at the law will only make the anti-smoking advocates even more committed in their cause to wipe out smoking everywhere. And that won’t help any of us.”

In addition to putting up glass partitions, Hall revamped his air-conditioning system to prevent bar area intake vents from exporting smoky air through the restaurant vents.

Hall said he has no idea how long it will take to recoup those renovation costs because that hinges on whether his business picks up.

In the months shortly after the law went into effect, Hall said , his bar and restaurant business was down 20 to 25 percent. He says bar revenues have increased in recent months but the restaurant business remains slow despite glass walls keeping out the smoke.

But that isn’t to say that his smoking gamblers still don’t enjoy one of his restaurant’s meals, thanks to a loophole in the law that Hall doesn’t mind exploiting.

His bar patrons can order food in his restaurant, bring it back to the bar a few feet away on the other side of the glass partition, eat, smoke and gamble and still be in compliance.

“The law prohibits us from serving food (in the bar),” Hall said. “Technically, we are not serving it” when customers pick up a restaurant take-out order.

It’s no different, he says, from when a bar customer brings in his own bagged lunch from home or a pizza or burger from a joint down the street – or orders out like at the New York City Bar. The law does not ban smoking and food eating, just smoking and food serving.

Some businessmen have tried to get around the law merely by giving their restaurants different names than their adjacent bars. Nice try, the health district says. Minagil said he has written them letters telling them they can’t do that.

When the anti-smoking law went into effect, a number of bar operators said scores of small businesses would go under. But health district statistics show that the number of small local bars actually has increased slightly.

The health district said there were 1,957 permits in August 2006 for what the agency classifies as “drinking establishments.” As of this month, that number is 2,029.

Hall says the district’s permit figures surprise him. He reckons it will take a little more time before the bars that were most affected by the new law will go out of business in significant numbers.

“I can tell you there are a number of places that I know of that are on the brink of closing their doors because of this law,” he said.

Nevada unemployment rises to 4.6 percent in May

June 18, 2007

Nevada’s unemployment rate edged above the national average for the first time in five years in May.

The rate was pressured by a housing slump, the closure of some aging Las Vegas casinos and a statewide smoking ban, according to the state Department of Employment, Training and Rehabilitation.

The seasonally adjusted unemployment rate rose 0.5 percentage points from a year ago to 4.6 percent in May, while the national average was 4.5 percent.

The last time Nevada’s jobless rate was higher than the national average was in March 2002. The state jobless rate was also 0.2 percentage points higher than in April.

Department director Terry Johnson says people are continuing to move to Nevada at a tremendous pace but jobs have not grown as quickly as in the past.

He says the continuing decline in the sale of new and existing homes was one of the leading causes of the rising jobless rate. Casino jobs also fell 1.4 percent from a year ago partly because of the closure of the Stardust casino-hotel and the pending closure of the New Frontier in Las Vegas.

Meanwhile, no new major properties have opened since the Red Rock casino-hotel in April 2006. The department also said the number of unemployment claims made by food preparation and food service workers has increased 58 percent since the beginning of the year.

It said that may be do to a higher state minimum wage since November and a smoking ban that has reduced traffic at some taverns.

Ashtrays, matches gone but smoking continues at Las Vegas bar

June 8, 2007

LAS VEGAS – Ashtrays and matches were gone, but smokers kept lighting up at a tavern that is challenging Nevada’s voter-approved anti-smoking law.

Some patrons at Bilbo’s Bar and Grill in Las Vegas discarded cigarette ashes in red plastic cups as they smoked while watching Thursday’s NBA Finals, the Las Vegas Review-Journal reported Friday.

While smoking in a bar where food is served violates the Nevada Clean Indoor Air Act, a Clark County District Court judge’s ruling earlier Thursday did not require bar employees to stop people from smoking.

Judge Valerie Adair’s written order followed a hearing on Wednesday at which she said she was unwilling to require bar employees to police their patrons.

The preliminary injunction found Bilbo’s owners Bent Barrel Inc. engaged in a “persistent and continuous violation” of the measure, and ordered Bilbo’s to remove ashtrays and matches from the bar. No penalty was levied.

The ruling made Bilbo’s, several miles west of the Las Vegas Strip, the first business in the state reprimanded for violating the law passed by voters statewide in November.

A trial has not been scheduled on a civil lawsuit filed April 30 by the Southern Nevada Health District, which is seeking to fine Bent Barrel $100 for each of two people observed smoking in the bar April 12.

Lawyer Robert Peccole, representing the bar, has made several arguments against the measure. He called it unconstitutionally vague, said it infringed on Bilbo’s free speech right to distribute materials bearing Bilbo’s logo, and maintained that it unfairly favors certain businesses.

The law was not vague about removing ashtrays, Adair said, adding that a provision banning “other smoking paraphernalia” would reasonably include matches.

The measure also does not violate a business owners’ right to commercial speech, Adair said, when weighed against the government interest in protecting the public from the effects and exposure to secondhand smoke.

The judge said Bent Barrel, as the holder of a state-issued gaming license, is subject to regulations under the act.

The smoking ban took effect in most parts of the state on Dec. 8 and in Clark County in January. It prohibits smoking in bars and restaurants, in slot machine sections of grocery and convenience stores, and at video arcades, shopping malls, schools and day-care centers. It allows smoking on casino floors.

NEVADA CLEAN INDOOR AIR ACT: Smokers flout judge’s order

?June 8, 2007
ANNETTE WELLS
A judge on Thursday made it official: Bilbo’s Bar and Grill will have to remove its smoking paraphernalia, making it Southern Nevada’s first business reprimanded for violating the Nevada Clean Indoor Air Act.

Customers responded: Kiss my ashtray.

On Thursday night, while watching the NBA Finals, a few customers at Bilbo’s on West Charleston Boulevard had their lighters on the bar, cigarettes in hand, discarding their ashes in red plastic cups.

Even if the spirit of the law was going up in flames, the bar was complying with the letter of the law, having removed the ashtrays and matches that it had contended were a form of advertising. The items are emblazoned with the restaurant’s name and the addresses of its three locations.

Even nonsmoking customers sympathized.

“I think the law is extreme,” said Chris Cleary, a construction worker who quit smoking two years ago.

Earlier in the day, District Judge Valerie Adair issued a preliminary injunction against the eatery, ordering it to remove smoking paraphernalia immediately in accordance with Question 5, the state’s smoking ban.

Bilbo’s complied. The prohibited items were nowhere in sight Thursday night.

Adair’s written decision came a day after she heard arguments from Bilbo’s attorney, Bob Peccole, against the request for the preliminary injunction filed by the Southern Nevada Health District. Adair’s decision is the first significant ruling in a civil lawsuit pending against the businesses’ owner, Bent Barrel Inc., to collect fines for at least two violations.

Peccole and Health District attorney Stephen Minagil both had expected Adair to rule in favor of the health agency.

“The only problem I’m having is whether or not this decision will be a reflection of how she is going to hold the merits of this case,” Peccole said after Wednesday’s hearing. “The full trial has yet to come.”

Peccole, a longtime Nevada attorney, said he felt Adair had “already made her decision” before the parties went to court Wednesday.

Passed by voters in November, Question 5 prohibits smoking in nearly all public places in Nevada, including grocery stores, restaurants and bars that serve food. Casino floors, brothels and smoke parlors are exempt, as are businesses with unrestricted gaming licenses.

Violators are subject to a $100 fine for each infraction.

Businesses can be fined if they fail to post “No Smoking” signs or fail to remove ashtrays and other smoking paraphernalia. Smokers who violate the law are subject to the fine if they are caught smoking.

Adair’s ruling said removal of the ashtrays and matches potentially used as advertising does not violate the business owners’ right to commercial speech. The restriction “is no more extensive than necessary to serve the substantial government interest of mitigating the effects and exposure to secondhand smoke.”

Bilbo’s, she said, “has numerous other means of engaging in protected commercial speech … such as swizzle sticks, coasters, glasses and napkins.”

Peccole also had argued that the law unfairly favors certain businesses, referring to the exemption given those with unrestricted gaming licenses.

Adair said the law provides a “rational basis for the distinction between businesses with a nonrestricted gaming license and businesses with a restricted gaming license.” Because Bent Barrel is the latter, she said, the restrictions of the ban apply.

Both Minagil and Peccole said they expect the civil lawsuit proceedings to take four to six months. “It’s going to be a while because we have to get on the civil calendar. It’s not going to be a short process,” Peccole said.
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