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Gaming Guru

Howard Stutz

Ohio judge's ruling opens door for 17,500 VLT games

31 May 2012

Nevada's slot machine manufacturing industry received some good news from a courtroom some 2,100 miles to the east.

An Ohio judge Wednesday dismissed a lawsuit blocking the state's racetracks from operating slot machinelike video lottery terminals. The decision paves the way for seven racetracks to open casinos for wagering on potentially 17,500 games.

The ruling was viewed as a victory for slot machine providers, which are expected to stock Ohio's racetracks with the games. Also, racetracks operated by Caesars Entertainment Corp., Pinnacle Entertainment and Penn National Gaming are expected to open casinos at their facilities.

"The addition of 17,500 new slot machines is an obvious positive for the equipment suppliers," Union Gaming Group principal Bill Lerner told investors. He said the biggest winners were International Game Technology, WMS Industries and Bally Technologies.

"Depending on construction schedules, we would expect the majority of the shipments to occur in the 2013 time frame," Lerner said. "For the gaming suppliers, a new market is a positive development against the backdrop of a lackluster domestic replacement market."

The ruling came a day after the opening of Ohio's second casino, the Hollywood Toledo, which is owned by Penn National. The Horseshoe Casino Cleveland, which is 20 percent owned by Caesars Entertainment and managed by the Las Vegas-based company, opened May 14. Two more stand-alone casinos in Columbus and Cincinnati are due open by next spring.

Franklin County Pleas Court Judge Timothy Horton dismissed the lawsuit challenging the constitutionality of the VLT's that was brought by Ohio Roundtable, a public policy group against gaming. The judge cited lack of legal standing.

"We do note that there is still a possibility of an appeal, but this is the ruling that all the operators have been waiting for," Macquarie Securities gaming analyst Chad Beynon told investors.

Legislation approved by Ohio lawmakers allows up to 2,500 VLTs per track. The facilities are required to pay a $50 million license fee with a 33.5 percent tax on the gaming revenues. Racetrack operators are required to invest a minimum $150 million into the facilities.

The Scioto Downs racetrack outside of Columbus is expected to open its 1,800-machine VLT casino Saturday, becoming the state's first racetrack casino. The facility will add another 350 machines by year's end.

"We expect other racetrack operators to move forward with the $50 million licensing requirement after today's decision, and construction of temporary facilities may begin shortly thereafter," Deutsche Bank gaming analyst Andrew Zarnett told investors.

Last year, Pinnacle spent $45 million to acquire the River Downs racetrack near Cincinnati in anticipation of having a casino. Caesars owns Thistledown in northeastern Ohio, which the company bought several years ago for the reason as Pinnacle.

With the lawsuit over, Penn National is expected act on a nonbinding memorandum of understanding with the state to move its two racetracks. A harness racing track will be moved from Toledo to Dayton and a thoroughbred track will move from Columbus to Youngstown.

"We view today's decision as a positive for all the seven racetrack operators," Zarnett said. "The court's decision has now paved the way for operators to seek licenses, construct and open VLT facilities."