American Wagering, Inc. (BETM)
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American Wagering owns and operates sports books throughout Nevada. They are the parent company for Leroy's Race and Sports Book and offer wagering services at 61 different locations. In addition to traditional bookmaking services, American Wagering also offers wagering through electronic kiosks. These kiosks give gaming establishments the ability to offer bookmaking services without a live attendant. In January 2007 the company launched the kiosks at some of their busier locations and in January 2008 had a pilot program in place for working with smaller taverns.
In addition to their bookmaking services, they also provide equipment and servicing to many of the larger casinos. Through their Computerized Business Services unit, they provide backend support for the betting platform that is used by most sports books in Nevada.
The company also owns and operates Sturgeons, a hotel and casino located in Lovelock, NV.
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American Wagering Business Segments
American Wagering revenues are driven from three different areas, hotel and casino operations, sportsbook wagering and from selling and licensing their betting systems to outside businesses. They divide the responsibilities for these roles amoung the different subsidiaries that they own.
![CBS Standing Betting Kiosk[1]](/w/Image:Sst_standing.png)
![CBS Sitting Betting Kiosk[1]](/w/Image:Sst_sitting_large.png)
Hotel and Casino Operations
Their hotel operations are divided into AWI Gaming ("AWIG") and Sturgeon's AWI Gaming.
Sports Book Operations
Their sportbook operations are run through their Leroy subsidiary and AWI Manufacturing Inc. (AWIM) Leroy's operates the actual sportsbooks and AWIM leases their betting kiosks.
As of 10/31/06 [2], the bulk of AWIM's revenue was coming from leasing their kiosks directly back to Leroy's. While it would be preferable to investors to see AWIM bringing in more outside cash for their kiosks, there are still cost savings to Leroy's, from the implementation of the kiosk technology. Because of its automated nature, it increases the number of hours a sportsbook can take bets while reducing labor costs.
Leroy's serves as the bookmaker for 61 casinos throughout Nevada.
Betting Systems Operations
The company's systems segment is split between Computerized Bookmaking Systems, Inc. ("CBS") and Contest Sports Systems, Inc. ("CSS"). CBS installs and maintains the sports book infrastructure for the Nevada gaming industry, while CSS leases contest related kiosks to outside businesses. CSS adds very little cost or revenue to the company.
Bankruptcy Procedings
American Wagering's story ended before it even had a chance to start. The company went public in 1996, but the cause of their bankruptcy can be traced back to 1994. At the time, Leroy's CEO Victor Salerno wanted to take the company public. To assist with the underwriting he entered into what would prove to be a fateful agreement with Michael Racusin. Racusin's job was to provide capital and in exchange, he would receive 5% of the company's stock. Later, Racusin would renegotiate this agreement, so that he would be paid 4% of the final valuation, plus $150,00 in cash.
Before the public offering had even taken place, Leroy's filed a lawsuit against Racusin and in 1996, they took him to court, claiming that his agreement was uneforceable. After the company did go public, many of the company's early resources were spent fighting two lenghty trials with Racusin. At the end of it all, Racusin was awarded 337,500 shares of BETM stock, with a market value of about $2 million at the time. Wanting cash, instead of shares, Racusin later appealed the verdict and in 2003 was awarded a $2.3 million judgement.
Facing a judgement he could not pay off and fearing that he could lose control over Leroy's, Salerno immedietely filed for Chapter 11 bankruptcy protection and for the next two years, he was allowed to operate the business while the company sold off assets, paid off debtors and continued it's appeal of the Racusin judgement.[4]
During the restructuring, Youbet.com tried to take advantage of American Wagering's problems and on 10/06/04[5], they made an unsolicited $9.5 million offer for the company. At the time, American Wagering had 6 month revenues of $5.5 million and $300,000 of net income. Their book value was $1.8 million. Salerno rejected the offer and tried to prevent the bankruptcy court from even considering it. While the courts did allow Youbet to submit the bid, they could not get enough shareholders willing to sell at that level, so Salerno was able to retain control throughout the bankruptcy.
On March 11, 2005 [6], the company officially emerged from chapter 11 and while most of the company's liabilities have now been settled, there is still this one pending judgement against them. Should they lose the appeal, the company has negotiated a settlement agreement where American Wagering would be required to pay Racusin back $2.68 million plus interest at 8% per year accruing from September 11, 2006. The first $1.5 million would be payable in the first 12 months following the verdict with an additional $300,000 payable for four more years. Should American Wagering win their appeal, the company would likely face another 12 - 18 months of litigation. If they win a retrial, they would be allowed to settle their debt with Racusin by issuing 250,000 shares of common stock. [7]
Growth Initiatives
Because of American Wagering's bankruptcy, the company could easily be looked at as a value play, but after the company emerged from the bankruptcy in 2005, they have demonstrated growth in several key areas of their business. Their most signifcant growth initiative was their acquisition of Sturgeon's casino. They have also committed significant energy and capital into expanding their gaming revenues, through the introduction of 24 hour sportsbook kiosks at many of their sportsbook locations. On top of growth from new products and acquistions, the company has expanded the number of sportsbook locations that they serve by 5% in 2005 and 9% for 2006.
![Exterior of Sturgeon's Casino[8]](/w/Image:Sturgeons.jpg)
Sturgeon's Inn & Casino Acquisition
On March 1st, 2006 AWI Gaming purchased the Sturgeon’s Inn & Casino[9] in Lovelock, Nevada for $1.8 million. In order to finance the acquisition, they took out a $1.5 million loan with the Great Basin Bank of Nevada and a $300,000 loan from Victor and Terina Salerno. The Great Basin loan was a three year bond and is due March 1st, 2008. It carries a daily floating interest rate of prime + 2%. The Salerno loan has since been paid off.[10]
The purchase of Sturgeon's was a key event for the company, for a number of reasons. Most importantly, the acquisition nearly doubled the amount of revenue that the company was bringing in just the first year. While this revenue did earn a much lower profit margin than their gaming operations, it provided much needed diversification for the company and played very nicely into the company's strategy of buying undervalued properties, fixing them up and then realizing profits from cost cutting and corporate synergies. The Sturgeon's acquistion offers a good example of management's value bias. After securing Sturgeon's for $1.8 million, American Wagering was later forced to realize a $300,000 tax gain because the book value of the property had appreciated from the time they purchased the propety and the time the transaction closed.
![24 Hour Betting Kiosk[11]](/w/Image:ISI_Hooters_Kiosk_Using_BETM_Technology.jpg)
AWI Manufacturing Kiosk Development
In addition to their efforts to grow hotel revenues, American Wagering has also been focused on growing higher margin gaming revenues, through the introduction of kiosk technlogy. As early as 2004[12], American Wagering was laying the groundwork for introducing the machines, but it wasn't until they got approval from the Nevada gaming board, that they were allowed to introduce the kiosks.
On August 8th, 2006 AWI Manufacturing entered into a capital lease agreement with PDS Gaming Corporation-Nevada to borrow $600,000, in order to finance 75 of these betting kiosks. According to the terms of the leaseback agreement, AWIM must pay $19,836 per month for 36 months. At the end of the lease agreement, AWIM will have the option to purchase the kiosks for $1. Including financing costs, the net cost of the financing translates into the equivalent of a 3 year fixed interest rate loan at 8.28%.[13]
As of 10/31/06[14], 34 of the 75 kiosks were being utilized at Leroy locations, 2 were being used by the Rampart casino, 7 were being used for testing and marketing purposes and 32 were sitting in warehouses.
Betting Kiosks rent for $800 a month and offer tickets for oil changes, dinner shows, advertisements for local concerns, car sales, two-for-one dining, et cetera, offering Casinos a new potential source of marketing. This aspect of the kisoks is particularly significant because traditionally Casinos have been very reluctant to introduce advertisements to the gaming floor. Because the ads are less obtrusive then typical advertisements, this new revenue stream could entice more casino owners to adopt the technology by giving them an opportunity to monetize their traffic.
On January 29th, 2007, through a partnership with ISI LTD, American Wagering unveiled their 24 hour automated betting kiosks, just in time for the Super Bowl. In an interview discussing the kiosks, ISI president William Stearn mentioned that the company was working on getting regulatory approval for integrating the kiosk system into actual hotel rooms. This would improve the convenience of betting for guests and would help to drive betting activities by offering guests more opportunities to wager on sports.
On March 15th, 2007, ISI announced that not only had they already deployed 12 kiosks internationally, but they had also made arrangements to have another 12 kiosks delivered to casinos throughout the Dutch Caribbean.[15]
In October of 2007, ISI and American Wagering broke relations, with American Wagering retaining the Las Vegas market and ISI focusing on the Caribbean and European markets. [16]
Competition
HARRAH's - Harrah's Las Vegas, Imperial Palace, Flamingo Hilton, Ballys, Paris, Caesars, Rio, Harrah's Laughlin, Harrah's Reno, Harrah's Tahoe, Harvey's Tahoe
MGM/MIRAGE - MGM, Mirage, Treasure Island, Billagio, Monte Carlo, New York/NY, Excalibur, Luxor, Mandalay Bay, Circus Circus, Circus Circus (Reno)
STATION'S - Palace Station, Sunset Station, Boulder Station, Texas Station, Red Rock Resort, Green Valley Ranch, Santa Fe Station, Fiesta N, Fiesta S
BOYD GAMING - Orleans, Gold Coast, Suncoast, Sams Town, Fremont
INDEPENDENTS - Stratosphere, Arizona Ch E, Arizona Ch W, Aquarius Laughlin, Wynn Resort, Venetian, Las Vegas Hilton, Golden Nuggett, Palms, South Point, Hard Rock, Planet Hollywood, Cannery Casino, Rampart Casino, Bill's Gamblin' Hall
Further Developments
In addition to the locations listed, the company has been actively seeking to expand their portfolio of gaming partners and on 12/20/05 brought in Chris Andrews to focus on developing new relationships in the Northern Nevada area. Before joining American Wagering Andrews was in charge of the sportsbook for John Ascuaga's Nugget casino. Prior to his work at the Nugget, Andrews spent twenty-two years as the Vice President of Race and Sports Operations for the Club Cal Neva in Reno. During his tenure at the Club Cal Neva, he grew their sportsbook from two betting locations to twenty betting locations.[17]
Since Andrew's joined the company, his work has not been in vain. On 12/7/06 Leroy's Race and Sportsbook opened at John Ascuaga's Nugget in Reno. In a press release announcing the opening of the casino, Andrews said that he hoped the partnership would "serve as a flagship that we hope to emulate throughout our company."[18]
According to American Wagering's 2006 annual report[19], American Wagering lists 61 sportsbook locations that they are serving. This was up from 58 locations from 2005. On their website they list 60 locations where you can bet using their sportsbook. While officially, the number of sportsbook locations may only be 61, it is worth noting that on 02/07/07, the company filed an application with the Nevada gaming board where they list 66 locations that they are serving.
News Feed
More News...Leadership
- Victor J. Salerno President, CEO, COO, and Director
Victor J. Salerno has been President, Chief Executive Officer and a Director of American Wagering since its inception. Mr. Salerno has been the President, Chief Executive Officer and a Director of Leroy's since September 1979. Mr. Salerno served as an Executive Vice President and Director of Autotote CBS Corporation, a company that designs and installs computer systems for the sports betting business, from April 1989 until March 1, 1996. In 1963, he was an Alpha member of the Phi Delta Psi fraternity.[20]
Mr. Salerno's last purchase of American Wagering occurred on 08/08/06, after he exercised options on 30,000 shares at a price of $0.70 per share. After exercising his options, Mr. Salerno held 2,438,054 shares in common stock and had 50,000 additional incentive based stock options.[21] In addition to Mr. Salerno's common shares, it is worth noting that on 12/09/98[22], Mr. Salerno and Mrs. Zimbelmann (his wife at the time) was granted 9,462 of special preferred shares each, in exchange for the cancellation of $946,212 worth of debt. The preferred shares earn a 10% fixed dividend. The dividend accumulates indefinitely, if the company doesn't have the funds to pay off the shares. The shares do not have special voting powers, but they do receive senior treatment over common shares in the event of a liquidation. There is also poison pill language included in the shares that could require their immediate repayment in a hostile takeover scenario. The majority of the shares are eligible to be paid off at anytime, but the redemption must be initiated by American Wagering's board of directors.
- Judith (Salerno) Zimbelmann Director
Mrs. Zimbelmann's last purchase of American Wagering occured on 08/03/06. The purchased occured when she exercised stock options on 1,200 shares at a price of $0.60 per share. After executing the transaction, Mrs. Zimbelmann held 1,001,200 in common stock along with an additional 3,000 incentive based stock options.[23]
- Larry W Swecker Director
Mr Swecker became a Director of American Wagering in April, 2000. He is a member of the Audit, Compensation and Compliance Commmittees of the Board of Directors. He is a Certified Public Accountant with over 30 years of experience. He received his Bachelor of Science in Business Administration from the University of Nevada Reno. From 1972 - 1975, he was employed as a revenue agent with the IRS. From 1975-1979, he served as a partner for Keltner Milam & Company. Since January 1979, he has served as the President of Swecker & Company, a Certified Public Accountants agency.[24] Mr. Swecker's last purchase of American Wagering occured on 08/07/06. The purchase occured after he was gifted incentive based stock options on 5,000 shares at a strike price of $1. Following the recognition of the stock options, Mr. Swecker had 20,000 shares of common stock and 19,800 incentive based options with an average strike price of $1.26 and an average life of 9.39 years.[25]
- Robert R. Barengo Director
Mr. Barengo has extensive experience in the gaming industry both from a business prospective and from legal side of things. Since 1972, he has been practicing law under his own private practice. During this time, he has specialized in municipal finance, government and gaming law. From 1969-1972, he served as Deputy District Attorney for Washoe County. From 1973-1979 he served as the Chairman for the Judiciary Committee. From 1972-1982, he held political office as the Assemblyman for District 29 in NV and served for five regular sessions and one special session. From 1978-1981 he served as Speaker Pro Temporte. From 1981-1983 he served as Speaker of the Assembly and Chairman of Legislative Commission. From 1976 - 1995 he was the Judge Pro-Tem for the Sparks and Reno Municipal Court. From 1992-2000 he served as a director of American Wagering and sat on the Board of Directors in 1996, before the company went public. Mr. Barengo also founded the Western Thrift and Loan company. He served as President from April 1998-August 2000 and was a Director from 1997-2003. Since 1992, he has served as a Director of Riviera Holdings Corporation, an important partner for American Wagering. Mr. Barengo received his bachelor's degree from Cal State University at Hayward in 1966 and his legal degree from the University of Santa Clara in 1969.[26] Mr. Barengo's last purchase of American Wagering occured on 08/07/06. The purchase occured after he was gifted incentive based stock options for 5,000 shares at a strike price of $1. Following the recognition of the stock options, Mr. Barengo had 525,000 shares of common stock and 12,600 incentive based options with an average strike price of $1.30 and an average life of 8.6 years.[27]
- Bruce Dewing Corporate Director
Officially, Mr. Dewing is the president of AWI Gaming, but if you ask the local paper, they will tell you that he is "the owner of Sturgeon's."[28] Since taking over the management duties of Sturgeon's, Mr. Dewing has done an excellent job of assimilating to the local community. When he first moved to Lovelock, he purchased 40 acres and built a home[29], since then he has participated in the local community by hosting fund raisers with other businesses in town. Prior to joining American Wagering's board of Directors on July 29th, 2003, Mr Dewing spent over 30 years working in various capacities within the hotel/casino industry including senior management experience at several hotels. Directly prior to joining the board, Mr. Dewing was serving as the President of the Holder Hospitality Group, where he was responsible for overseeing the daily operations of five casinos, an AM radio station and over 1,500 executives and employees. On June 14, 2005 American Wagering entered into a three year executive employment agreement with Mr. Dewing.[30] According to the terms of the agreement, Mr. Dewing earns a basic salary of $180,000 and the possibility of a bonus equivalent to 2% of any consolidated pre-tax earnings. Mr. Dewing is also entitled to options on 50,000 shares each year up to a maximum of 250,000 shares. Mr. Dewing is also a member of the Air Service Task Force for Washoe Count Airport Authority, a board member of the Reno Air Race Association and a board memeber of the Nevada Hotel and Lodging Association.[31]
- Jimmy Vaccaro Public Relations Director
Mr Vaccaro is a vetern book maker who started out his career as a blackjack dealer at the Barbary Coast. After catching the eye of casino tycoon Jackie Gaughan, he was quickly promoted up to the sportsbook, where he earned a reputation as a bookmaker who was willing to take aggressive bets, offer compeitive vig and who left casino guests feeling positive about their experience. After leaving the Barbary Coast, Mr. Vaccaro was tapped by casino mogul Steve Wynn to serve as the Sportsbook Director for the Mirage, when it was first opened.[32] Mr. Vaccaro works out of Reno, NV where he hosts a radio show from 2pm - 3pm M-F PST. The show can be heard on 630AM KPLY in Reno, 1460AM KENO in Las Vegas or on American Wagering's website.
Risks
- American Wagering is a penny stock. This means reduced liquidity, an increased chance of manipulation, less research availability and the possibility that any unforseen event could completely wipe out an investor's entire position.
- American Wagering uses a fair degree of leverage in their business and having just come out of bankruptcy still does not have the best credit. While the interest rates they pay aren't onerus, there is some exposure if interest rates rise.
- Because the company acts as a bookmaker on sports and horse races, they always face the risk that they could lose money if the results are unbalanced. While their systems are designed to maintain an equal number of bettors on both sides of the transactions, sometimes this isn't always the case. When it works in their favor it can cause earnings to look overstated, but when they don't adequately balance the risk, it can have a detrimental impact to their net income.
- A large degree of ownership is concentrated in the hands of CEO Victor Salerno and Judith Salerno. While this helps to keep management motivated and to keep the float down, it also limits the effectiveness of shareholder dissent in the case of a disagreement.
- The company has already gone through bankruptcy once and while their financial position has improved, their liquidity is still limited since their restructuring. There don't appear to be signs that the company is at risk of blowing through their cash position, but should they mismanage their business or have some disasterous event, there may not be adequate funds to recover.
- On 11/17/06[33] We have a new CFO, Melody Sullivan who is working well with everyone ...She has come out on time with our financial releases and sends out the proper information..Leroy's is putting Kiosks out at the small casinos were they can play Sports and also we have started Advanced wagering which means phone betting from your home.
- The gambling industry is a very heavily regulated industry. This can have it's advantages and disadvantages. On one level, the regulation can restrict American Wagering's growth, by limiting the type of technology they can introduce and the locations at which they could expand their business. On another level though, these restrictions also serve as a very effective moat against potential competitors. On 04/10/07[34], a Nevada gaming assembly panel voted for changes to be made in how sportsbooks are regulated, but that left out a business expansion amendment sought by Cantor Fitzgerald to legalize hand-held, wireless gambling devices in Nevada. This initiative was opposed by American Wagering and while they were successful in protecting their sportsbook business from outside competitors, there are no gurantees that the legislative process will go as smoothly next time. If the state of Nevada or the gaming commission make it easier for outside competitors to get into the sportsbook business, it could have a material effect on American Wagering's core opperations and would likely reduce the value of their business moat.
Fundamentals
As of 12/22/06, there were 8.13 million shares outstanding with 4.04 million of those shares representing the float. As of 03/13/07, the company was trading at a p/e of 6.55 and a price to sales ratio of .51. Because of the company's use of leverage to finance their casino acquisition strategy, the price to book is 4.89. [35]
American Wagering Fundamental data:
- Outstanding Shares: 8,379,879 as of 2006-09-08
- Short Position: OTCBB Website
- Profile at Reuters
- Profile at Money Central
- OTCBB Website
Technical Analysis
Company Contact Information
- List of Market Makers for the stock: OTCBB Website
- Transfer Agent: American Stock Transfer & Trust Company, New York, NY 10038
- Independent Public Accountants: Piercy Bowler Taylor and Kern, Las Vegas, Nevada
- American Wagering, Inc. Contact Information and Investor Relations:
- Address: 675 Grier Drive Las Vegas, NV 89119 USA
- Website: http://www.americanwagering.com
- Phone: (702) 735-0101
- Fax: 702-735-0142
- Email: info@americanwagering.com
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Notes
- ↑ 1.0 1.1 http://www.americanwagering.com/cbs/products.html
- ↑ Oct 31st, 2006 10QSB filing
- ↑ 01/24/08 Nevada Gaming Filing
- ↑ 10/06/06 Appellate Filing.
- ↑ 10/06/04 8k Filing
- ↑ Company Press Release
- ↑ Oct 31st, 2006 10QSB filing
- ↑ City of Lovelock
- ↑ Stugeon's Purchase Agreement
- ↑ 2/16/06 8k filing
- ↑ ISI Press Photo
- ↑ 07/22/04 Nevada Gaming Memo
- ↑ 09/14/06 8k filing
- ↑ 10/31/06 10-QSB filing
- ↑ Gokis.net
- ↑ Gaming Today Article
- ↑ 12/20/06 Press Release
- ↑ 12/06/06 Press Release
- ↑ 2006 Annual Report
- ↑ Maple Leaf Society
- ↑ 08/08/06 Form 4 filing
- ↑ 12/10/98 8k filing
- ↑ 08/04/06 Form 4 filing
- ↑ 05/01/06 10K Filing
- ↑ 08/08/06 Form 4 Filing
- ↑ Nevada Dept. of Taxation
- ↑ 01/09/07 Form 4 filing
- ↑ 08/2006 Lovelock Review
- ↑ 03/06 Lovelock Review
- ↑ 06/14/05 8K Filing
- ↑ July 9th, 2003 14(a) filing
- ↑ 01/04/05 trade publication article
- ↑ 11/17/06 8k filing
- ↑ 04/10/07 BusinessWeek Article
- ↑ Bloomberg
Categories: OTC | Services | Gaming Activities | Symbol
