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Statehouse beat: Job not all it's cracked up to be

CHARLESTON, W.Va. -- Being licensed as one of the 37 limited video lottery operators in the state would seem practically to be a license to print money.

Operator is the Lottery's term for LVL machine distributors -- the companies that install and maintain the state-sanctioned slot machines in bars and clubs and take a 23.5 percent cut of the profits. (With the state and localities getting 50-plus percent and the bar owner the other 23.5 percent.)

With LVL running gross profits in excess of $200 million a year for the past few years, distributing LVL machines would seem to be a lucrative enterprise.

So it was somewhat surprising to learn that in the audited financial reports presented to the Lottery Commission by the accounting firm of Gibbons and Kawash that five LVL operators are running operating deficits through the first six months of the year.

Some of the five are small, like Viking Vending of Arthurdale, with assets of $58,587 and income deficits of $251 through June 30 and $125,241 in 2012. The largest operator running a deficit is Clay Music in Belle, with assets of $1.88 million, but operating losses of $81,121 in 2013 and $122,707 in 2012.

However, even LVL giant Derrick Video, with assets of $27.97 million and operating income of $1,386,167 for the first months of 2013, reported an income deficit of $732,457 in 2012.

That's primarily because the late Jerry Derrick panic-bid after getting shut out in the first two rounds of bidding when the 10-year LVL licenses came up for renewal in 2011, and ended up paying a total of $7.2 million for 550 licenses.

Derrick Video wrote off the expenditure as $3.6 million in liabilities in 2011 and 2012, creating the 2012 operating deficit.

In addition to costs of licensing, and equipment costs (new LVL machines run between $12,000 to more than $16,000), the business is somewhat labor intensive, with the 37 operators employing 270 licensed service technicians to do maintenance, repairs, and cash sweeps on the machines.

Figures for other key players in the LVL market include Advanced Lottery Technologies, based in Keyser, $7.03 million in assets, $838,247 income in 2012, $767,980 for first six months of 2013; Random World of Bluefield, $11.44 million assets, $326,200 income in 2012, $22,463 in 2013; Shaffer Amusement, Clarksburg, $8.42 million in assets, $2.2 million income in 2012, $758,261 in 2013; Southern Amusement of Logan, (51 percent ownership by Vicki Ferrell, wife of former Delegate Joe C. Ferrell, convicted in 2011 of racketeering and tax fraud for the company's running illegal gray machines), $14.69 million assets, $1.12 million income in 2012, $764,015 in 2013; Wheeling Coin, $11.5 million assets, $878,996 income in 2012, $256,079 in 2013.

***

Speaking of limited video lottery, Lottery Director John Musgrave hosted a meeting of operators and retailers Thursday, drawing a packed house to adjoining conference rooms at the Civic Center.

The primary issue is the 2017 shutdown of an obsolete communications protocol that will effectively render some four-fifths of the 7,400 LVL terminals in the state as useless.

Options are to let the machines go dark, losing four years' of value on the 10-year licenses; buy new machines at $12,000 to $16,000 a pop; or buy conversion kits that will run anywhere between $1,200 and $3,600, depending on the machines and software upgrades ordered.

The conversion kits are a gamble, in that the operators would be putting them into 15 to 20-year-old Game King machines for which replacement parts like motherboards and CPUs are no longer available.

In one case, it also means replacing current games with software containing different games that may or may not be popular with the regular patrons.

Though the meeting was civil, it was clear the operators and retailers are not happy about the circumstances. One commented, "We just spent millions of dollars on our licenses, and halfway through, you're telling us our games are obsolete."

***

Howard Mullens, who had been deputy secretary of Transportation, last week transferred over to the Department of Revenue in the newly created position of special assistant and legislative liaison.

Apparently, a sexual harassment complaint at the Department of Transportation prompted the transfer. Mullens didn't return calls.

***

Finally, the entourage for the 13-day state trade mission to Europe, which continues through next Tuesday, includes Gov. Earl Ray Tomblin, two State Police troopers (I wouldn't go to France without two bodyguards, either); Hallie Mason, the governor's director of public policy; Commerce Secretary Keith Burdette, state Development Office international development director Steve Spence, and international economic development representative Angela Mascia.

Mascia, who is fluent in five languages, made headlines some years back regarding her involvement with then-Gov. Bob Wise.

Reach Phil Kabler at philk@wvgazette.com or 304-348-1220.


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