Economy’s wobbles trouble for company

Evidence the gaming industry is being hurt by the slowing economy has multiplied. Even companies serving casinos are facing a crisis.

On St. Patrick's Day, Las Vegas-based Cash Systems announced Deutsche Bank would explore strategic alternatives for the company to maximize shareholder value. With shares trading below $1 on the Nasdaq National Market, there may not be much value left. Cash Systems (ticker: CKNN) closed at $2.21 on March 17. A week later, shares fell to 46 cents. (The stock closed Friday at 57 cents a share.)

The company was trading at a 52-week high of $7.46 in July.

Cash Systems is a cash access provider to casino customers. For a fee, the company handles transactions such as automated teller machine withdrawals, credit-card cash advances and check cashing.

Herein lies the problem. In the recently completed fourth quarter, Cash Systems had a net loss of $4.3 million, $4.1 million of which was related to returned checks in the check guarantee business.

In other words, gamblers bounced more checks in casinos than players bounced basketballs during this weekend's NCAA Sweet 16. Cash Systems shoulders the burden for those bad checks.

Company revenues were up 4 percent in the quarter and almost 10 percent for the year. The company has devices in approximately 135 casinos, predominantly in the American Indian gaming market, and has extended several contracts, including a deal in Oklahoma.

Cash Systems' management team is well-connected and reads like a gaming industry all-star squad. Chairman and Chief Executive Officer Mike Rumbolz ran casinos for Donald Trump and Circus Circus. Board members include University of Nevada, Las Vegas Gaming Institute boss Patricia Becker, former MGM Grand executive Patrick Cruzen and retired Boyd Gaming Corp. President Don Snyder.

Cash Systems is carrying debt of $22.4 million, but the issue is the current consumer environment, in which the number of credit card defaults has increased nationally.

Rumbolz told investors the company's products and technology are strong and well-received. However, despite the company's relationships, until weakness in the consumer spending market changes, Cash Systems could be in for a rough haul.

Gaming analysts pounced on news that Bally Technologies won a summary judgment in a patent infringement lawsuit with casino equipment rivals International Game Technology and Shuffle Master.

"Bally could shave several million dollars of annual legal fees from this case alone," Macquarie Capital gaming analyst Joel Simkins said. "While too early to tell, we believe Bally could sue IGT for legal costs plus additional amounts."

Howard Stutz's Inside Gaming column appears Sundays. E-mail him at hstutz@reviewjournal.com or call 477-3871.