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Alliance Gaming Reports Q1 Earnings

16 October 2000

LAS VEGAS, Nevada – (Press Release) -- Oct. 16, 2000 -- Alliance Gaming Corporation (Nasdaq: ALLY) today announced results for the quarter ended September 30, 2000.

For the first fiscal quarter, the Company reported record earnings of $3.4 million or $0.32 per diluted share, an eight-fold increase over the $0.04 per diluted share in the prior year quarter.

Operating results for the September 2000 quarter include:

-- Consolidated revenues of $120.0 million for the quarter, an increase of 2% from the $117.2 million in the prior year quarter. Compared to the prior year quarter, substantial revenue growth was reported at both the Route Operations and Casino Operations and revenues declined at the Bally Gaming and Systems business unit. Reversing several quarters of declining revenues, the Wall Machine and Amusement Games business unit reported revenue growth of 1% over the prior year quarter.

-- Consolidated EBITDA of $19.6 million for the quarter, an increase of 33% from the $14.7 million in the prior year quarter. Each of the Company's business units reported increases in EBITDA compared to the prior year quarter.

-- Consolidated operating income totaled $13.1 million for the quarter, an increase of 56% from the $8.4 million in the prior year quarter.

``This quarter's results reflect all of our business units performing at or above our expectations and lower corporate overhead costs,'' stated Robert Miodunski, President and Chief Operating Officer.

``Our Bally Gaming and Systems business unit sold a modest 2,100 games this quarter, but continued strong systems sales and strength in the proprietary gaming operations revenues combined with the effects of the reduced overhead cost structure nevertheless allowed this unit to increase its EBITDA by 13% over the prior year quarter.

``Bally Wulff is experiencing very positive momentum right now, in spite of continued weakness in the deutschmark against the U.S. dollar,'' continued Mr. Miodunski. ``The September road show, which is used to showcase new products in Germany, was very successful and was instrumental in our having the most popular game currently in the German market. The positive financial results at Bally Wulff are also reflective of the cost reductions put in place in the March 2000 quarter.''

``During the September quarter we continued to reduce our long term debt, did not incur any additional borrowings on the revolving credit facility, increased cash, and reduced our daily sales in receivables statistics, all of which point to a continued gradual strengthening of our balance sheet,'' stated Robert Saxton, Senior Vice President and Chief Financial Officer.

``The sale of the Nevada route continues to be on track for the end of fiscal 2001, which when complete will provide for a substantial reduction in the Company's long term debt.''

Bally Gaming and Systems business unit reported a 15% decrease in revenues over the prior year quarter. Revenues for sales of gaming devices were down over the prior year quarter primarily as a result of the lower number of units sold with the average new unit selling price remaining unchanged. Systems revenues of $9.6 million is the third best quarter on record, trailing only the September 1999 and June 2000 quarters.

The September 1999 quarter benefited significantly from Y2K replacements. In the current quarter, Systems continued to benefit from consolidation within the casino operators which has caused displacement of competitor systems and new systems installations in California. Gaming Operations revenues increased 141% over the prior year quarter.

The increase in Gaming Operations revenues was a result of the increase in number of progressive games deployed, which now totals 1,025 units, and an increase in the number of daily-fee games, which now total 1,675. Due to a telephone company strike in New Jersey, installations of Betty Boop games in Atlantic City planned for the September quarter were delayed until October. So far in October, a total of 89 Betty Boop progressive games have been installed in Atlantic City, bringing to 172 the total Betty Boop games installed in that market.

The gross margin for Bally Gaming and Systems improved to 54% from 45% in the prior quarter. This substantial improvement is a direct result of the increase in gaming operations revenues, which reported a gross margin for the quarter of 64%, and to a lesser degree the elimination of sales to certain foreign jurisdictions, which provided virtually no margin in the prior year quarter.

The current quarter shipments for Bally Gaming included approximately 300 units to the Nevada and Atlantic City markets, 550 units to Canada, 770 units to international markets and 480 units to Native American casinos, riverboats, and other domestic markets.

Route Operations Revenues increase 15%, EBITDA increases 9%

For the Nevada route operations, net win per day per gaming machine increased 12% to $65.40 in the current quarter compared to $58.30 in the prior year quarter. The average number of gaming machines deployed also increased 5% over the prior year quarter. At September 30, 2000 the Gamblers Bonus product was available at approximately 350 locations and was installed in over 3,600 gaming machines or 45% of the Nevada route's total installed base of gaming machines.

The decrease in revenues at VSI is due primarily to a lower average number of gaming units deployed and a 9% decrease in net win per day per gaming machine to $70.70 from $77.40 in the prior year quarter, which reflects the proliferation of truck stops in the metro New Orleans area as well as the impact of land based casino in New Orleans.

Route Operations EBITDA of $5.9 million and operating income of $3.7 showed increases of 9% and 24%, respectively, over the prior year quarter. These improvements were a result of the increased revenues, offset by game rental costs in Nevada which totaled $1.1 million in the current quarter, compared to $0.8 million in the prior year quarter.

In August 2000, the Company signed a definitive agreement with UC Acquisitions Company, LLC, an independent third-party gaming operator, for the sale of its Nevada-based route operations. The gross selling price, which is based on a multiple of cash flows for the 12 month period prior to closing, is estimated to be approximately $118 million, consisting of $6 million in preferred stock and $112 million is cash. The sale is expected to be completed before June 2001.

For the quarter ended September 30, 2000, Casino Operations reported an 11% increase in revenues over the prior year quarter. Rainbow Casino's revenues increased 14% as a result of a 39% increase in the average number of gaming machines. The increased number of gaming devices contributed to an 18% decrease in the win per day to $141. Slot handle at the Rainbow Casino increased 25% over the prior year quarter. Table win declined almost 6% due to an 11% reduction in the average table game hold.

Volume of table game play, measured by the drop, increased by over 15% compared to the prior year quarter. Revenues at Rail City grew $0.2 million due to an 11% increase in slot revenues and a 36% increase in table revenues, slightly offset by a 14% decline in keno win. Slot win per day at Rail City increased 14% to $80.

EBITDA at Rainbow grew at a modest 4% to $5.6 million compared to the prior year quarter, while its EBTIDA margin declined slightly to 39%. Both measures were impacted by a significant increase in competitive pressures in the Vicksburg market.

For the quarter ended September 30, 2000, the Wall Machines and Amusement Games business unit reported a 1% increase in revenues from the prior year quarter, which reversed almost six consecutive quarters of comparative declines in revenues. Revenues reported in U.S. dollars were significantly adversely impacted by the 14% decline in the deutschmark against the U.S. dollar.

Revenues in deutschmarks actually increased 18% over the prior year quarter. The revenue increase resulted from a 32% increase in units offset by an 8% decrease in the average selling price offset by a decrease in leased machine revenues and amusement game distribution revenues. The foreign currency fluctuation between the dollar and the deutschmark decreased revenues and EBITDA by $2.4 million and $0.3 million, respectively, for the quarter ended September 30, 2000.

Wall Machines and Amusement Games deployed approximately 690 machines into its leasing program during the current quarter, which was consistent with the prior year quarter. The decline in leasing revenues is a result of a decline in the average installed base of leased machines as games coming off lease outpaced new games deployed and a slight decrease in the average monthly rental rates.

Gross margin for the quarter was 44% compared to 32% in the prior year quarter. This increase was due to the favorable impact of a higher volume of trade-ins on used equipment related to sales of new wall machines and an improved fixed cost absorption rate.

Net interest expense for the quarter ended September 30, 2000, increased to $8.9 million from $7.7 million in the prior year quarter. The increase is primarily due to slightly higher average amount of working capital borrowings in the current quarter and the increased interest rates on the credit facility. The Company recorded an income tax provision of $0.5 million in the current quarter compared to an income tax provision of $0.1 million in the prior year quarter primarily as a result of deferred tax charges in Germany.

Under the Company's recently announced intent to resume its share repurchase plan, the Company has purchased a total of 64,000 shares at an average price of $3.50.

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