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Alliance Gaming Reports Record Q2 Earnings

10 January 2001

LAS VEGAS, Nevada – (Press Release) --Jan. 10, 2001 -- Alliance Gaming Corporation (Nasdaq: ALLY) today announced results for its second fiscal quarter ended December 31, 2000.

For the quarter, the Company reported record earnings of $5.5 million or $0.52 per diluted share, compared to a net loss of $0.70 per diluted share in the prior year's quarter.

Operating results for the December 2000 quarter include:

-- Consolidated revenues of $131.5 million, an increase of 15% from the $114.5 million in the prior year quarter. Double-digit revenue growth was reported in the Bally Gaming and Systems, Route Operations, and Casino Operations business units, while the Wall Machine and Amusement Games business unit reported single-digit growth.

-- Consolidated EBITDA of $21.8 million, an increase of 126% from the $9.7 million (before unusual items) in the prior year quarter. Significant EBITDA growth was reported in the Bally Gaming and Systems, Casino Operations, and Wall Machine and Amusement Games business units.

-- Consolidated operating income totaled $15.2 million, an increase of 520% from the $2.4 million in the prior year quarter.

``This quarter's results reflect continued growth in revenues in each of our business units, resulting in record revenues, EBITDA and earnings,'' stated Robert Miodunski, President and Chief Operating Officer. ``Our Bally Gaming and Systems business unit continues to report improved results which reflect sales of 2,600 gaming devices, placement of an additional 370 wide area progressive and proprietary games, the sale of 8,400 SDS game monitoring units, and the ongoing benefit of the lower overhead cost structure.''

``Bally Wulff continues to show improvement in revenues, EBITDA and operating income,'' continued Mr. Miodunski. ``Wall machines which were successfully showcased in the September road show in Germany translated into strong unit sales during the December quarter, and coupled with the reduced overhead cost structure has resulted in improved profitability.''

``The Casino Operations business unit reported strong revenue and EBITDA growth in spite of increased competitive pressures and adverse weather conditions we experienced over the normally busy holiday period,'' stated Robert Saxton, Senior Vice President and Chief Financial Officer. ``The Route Operations in Northern Nevada were impacted by lower than expected hold percentages and higher game rental costs, and the Louisiana route revenues have declined with the continued proliferation of truck stops in that market.''

``We have successfully kept the corporate administrative costs at levels substantially below that of the prior year. Additionally, during the December quarter we continued to reduce our long term debt and actively managed our working capital which results in a continued strengthening of our balance sheet,'' stated Mr. Saxton.

The Company also updated its earnings guidance for fiscal year 2001. The Company believes that its diluted earnings per share will be in the $1.75 range.

Bally Gaming and Systems Revenues increase 26%, EBITDA increases $9.1 million

Bally Gaming and Systems business unit reported a 26% increase in revenues over the prior year's quarter. Revenues from sales of gaming devices increased 14% over the prior year's quarter primarily as a result of increases in both the number of units and the average new unit selling price.

Systems revenues increased 63% over the prior year quarter primarily as a result of higher volume of game monitoring unit installations driven by continued consolidation within the casino operators which has caused displacement of competitor systems and new systems installations in California.

Gaming Operations revenues increased 22% over the prior year's quarter as a result of the increase in number of progressive games deployed, which now totals 1,060 units, offset by a slight decrease in the number of daily-fee games, which now total 1,600.

New placement of Betty Boop progressive games were concentrated in Atlantic City with a total of 109 units installed during the quarter bringing to 192 the total Betty Boop games installed in that market.

The gross margin for Bally Gaming and Systems improved to 54% from 42% 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 67%, the increase in new unit sales and an increase in new unit sales prices.

The Bally Gaming and Systems EBITDA improved to $8.9 million for the quarter ended December 31, 2000, up from the loss reported in the prior year period. This improvement is due to the above mentioned increases in revenues and gross margins, as well as the reduced overhead cost structure and the elimination of the foreign sales office costs as a result of their closure earlier in the calendar year.

The current quarter shipments for Bally Gaming included approximately 420 units to the Nevada and Atlantic City markets, 260 units to Canada, 390 units to international markets and 1,530 units to Native American casinos, riverboats, and other domestic markets.

Route Operations Revenues Increase 12%

For the Nevada route operations, net win per day per gaming machine increased 9% to $66.40 in the current quarter compared to $61.00 in the prior year quarter. The average number of gaming machines deployed also increased 5% over the prior year quarter.

At December 31, 2000 the Gamblers Bonus product was available at approximately 355 locations and was installed in over 3,700 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 14% decrease in net win per day per gaming machine to $65.30 from $76.10 in the prior year quarter, which reflects the significant increase in competition from truck stops in the metro New Orleans area as well as the impact of the land based casino in New Orleans.

The Combined Route Operations EBITDA of $6.0 million declined 3% compared to the prior year period. This decline was a result of the lower results at VSI, a lower than expected hold percentage in Northern Nevada, and higher game rental costs in Nevada which totaled $1.4 million in the current quarter, compared to $0.7 million in the prior year quarter.

The Company has 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 including $6 million in preferred stock. The sale is expected to be completed by June 2001.

Casino Operations Reports 15% Increase in Revenues, 18% Increase in EBITDA

Casino Operations reported a 15% increase in revenues over the prior year quarter. Rainbow Casino's revenues increased 14% as a result of a 20% increase in the average number of gaming machines offset by a 4% decrease in the win per day to $135.

Slot handle at the Rainbow Casino increased 21% over the prior year quarter. Table win declined 11% due to a 2% reduction in the average table game hold. Volume of table game play, measured by the drop, increased by 2% compared to the prior year quarter.

Revenues at Rail City grew $0.7 million due to a 10% increase in slot revenues, a 9% increase in table revenues, and a 25% increase in keno win. Slot win per day at Rail City increased 10% to $85.

EBITDA at Rainbow grew 19% to $4.8 million compared to the prior year quarter, while its EBITDA margin increased slightly to 35%. Both measures were negatively impacted by ongoing competitive pressures in the Vicksburg market as well as adverse weather conditions during the year-end holiday season.

Wall Machines and Amusement Games Revenues Increase 5%, Reports Increased EBITDA and Improved Margins

For the quarter ended December 31, 2000, the Wall Machines and Amusement Games business unit reported a 5% increase in revenues from the prior year quarter. The revenue increase resulted from a 52% increase in units sold offset by a 21% decrease in the average selling price and lower leasing revenues.

As a result of the 16% decline in the Deutschemark against the U.S. dollar, the reported revenues and EBITDA were reduced by $4.1 million and $0.6 million, respectively, for the quarter ended December 31, 2000.

Wall Machines and Amusement Games deployed approximately 1,200 machines into its leasing program during the current quarter. The slight decline in leasing revenues is a result of the current quarter's deployments occurring late in the period and a reduction in the average rental rate for games in the installed base.

Gross margin for the quarter was 46% compared to 43% 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 which has improved since the restructuring was completed in February 2000.

Net interest expense for the quarter ended December 31, 2000, totaled $8.6 million which is unchanged from the prior year period; however, the prior year period included $0.5 million in fees paid to amend the bank credit agreement. The increase in interest expense is primarily due to the higher balance of working capital borrowings which were entered into in December 1999, and the increased interest rates on the credit facility.

The Company recorded an income tax provision of $0.3 million in the current quarter compared to an income tax provision of $0.2 million in the prior year quarter primarily as a result of state income taxes.

Pursuant to the terms of the Company's share repurchase plan, during the six months ended December 31, 2000, the Company purchased a total of 104,000 shares at an average price of $4.20.

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