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Best of Howard Stutz

Gaming Guru

Howard Stutz

Bally, Sands strike big deal

24 April 2007

LAS VEGAS, Nevada -- Bally Technologies announced Monday it signed the largest contract in the gambling equipment maker's history, a $56 million to provide Las Vegas Sands Corp. with management systems to operate slot machines, jackpot bonusing and operations at casinos under construction in Las Vegas, Macau and Singapore.

The contract covers the $2.4 billion Venetian Macau, which is opening the summer; the $1.6 billion Palazzo, which is scheduled to open in December; six Las Vegas Sands-owned casinos under development on the Cotai Strip in China; and the $3.6 billion Marina Bay Sands in Singapore, which broke ground this year and is expected to open in 2009.

The deal does not include the sale of Bally Technologies-made slot machines. Revenues from the contract will be rolled out over a 2 1/2-year period.

"This is a milestone event for Bally," said Bally Technologies Chief Executive Officer Richard Haddrill. "We look forward to working together on all of these integrated resorts around the world."

Haddrill said deal gives Bally's what amounts to a high-profile Asian showroom for its gaming system and management products.

"This allows us to place a strategic presence in Asia with a highly-progressive company," Haddrill said. "We'll be able to display the functionality of our systems business. All of (Las Vegas Sands') global properties can be managed with the system, including communicating within different Asian languages."

Bally Technologies already supplies Las Vegas Sands with casino management systems for The Venetian and the Sands Macau.

Gaming analysts credited the deal as another sign that Bally Technologies has emerged from the financial doldrums the company experienced over the past two years, fueling speculation that it was a potential takeover target.

The company completed a nearly two-year endeavor to restate earnings since 2005. While its net loss increased during that time, revenues grew more than 11 percent over the same period, a trend Bally executives are predicting will continue well into the current fiscal year. Bally estimated in March its total revenues will be more than $670 million for 2007.

"It's a meaningful deal for Bally," said Deutsche Bank gaming analyst Bill Lerner.

"It's an important transaction because it gives Bally high visibility, it's a high margin deal and it will last over an extended period of time."

David Katz, gaming analyst at CIBC World Markets, told Reuters there is an expectation that the company will continue to generate a healthy amount of revenue and profit from the sales of systems.

"It (the deal) further establishes Bally as a market share leader in casino management systems. It is a very high-profile deal for them," Katz said.

Bally Technologies said it has enhanced its software for Las Vegas Sands to accommodate the specific requirements of the Asian market. The company's systems support dual currencies, multiple chip sets per table, non-negotiable chips, premium player programs, chip purchase vouchers and expanded monetary fields.

Eventually, the technology will allow Las Vegas Sands to link management at the company's casinos in Las Vegas, Macau and Singapore.

"We see this as an endorsement of our technology portfolio and product road map," said Tom Reilly, Bally's East Region Vice President of Sales.

Shares of Bally Technologies closed at $24.18 Monday on the New York Stock Exchange Monday, up $1.17, or 5.08 percent.

Lerner said the Bally announcement affected shares of casino equipment rival International Game Technology. Investors wrongly believed the deal included slot machine sales. Shares of IGT closed at $38.48, down $1.52, or 3.8 percent, on the New York Stock Exchange.

"There was some concern, and IGT was getting a bit of a negative reaction, which shouldn't be the case," Lerner said.