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Howard Stutz

California vote has slot giants grinning

7 February 2008

LAS VEGAS, Nevada -- Nevada's largest slot manufacturers said Wednesday they are ready to fire up the assembly lines after California voters approved a gambling expansion that could add up to 17,000 machines at four of the Golden State's largest Indian casinos.

Gaming analysts speculated that between 6,000 and 10,000 of the slot machines could be shipped over the next 12 months. Timing depends on building additions to existing casinos as the four tribes now have the ability to double and triple their slot machine offerings.

The outcome translates into a 27 percent increase in the California slot machine market, thrilling slot makers and Wall Street.

"This is like adding an entire new state into the mix," said Chuck Brooke, senior vice president of government relations for International Game Technology. The California expansion is larger than the 15,000 slot machines being proposed for five casinos in Maryland and the potential of 15,000 slot machines in Kansas.

"Incrementally, the expansion will be achieved over time, but it's nice to know that it's out there," Brooke said.

Wachovia Capital Markets gaming analyst Brian McGill said the major slot makers, including IGT, Bally Technologies and WMS Industries, could see their earnings jump upwards of at least 6 cents to 7 cents per share, based on California sales and shipments.

"The passage of the four slot referendums in California is undoubtedly a positive for equipment manufacturers, and it occurred in the midst of a two-week period of slot expansion activity in the U.S.," McGill said.

The California approval on Tuesday followed good news in Florida last week for slot makers. Voters authorized 6,000 slot machines at three racetracks in Miami-Dade County, while the state's governor allowed the Seminole Indian Tribe to add slot machines at their seven casinos.

"Obviously, we're very happy," Bally Technologies Chief Operating Officer Gavin Isaacs said. "It's good news for all of us, but there's a lot of work still to be done."

The vote culminates nearly a year of wrangling by four of the state's wealthiest Indian tribes -- Sycuan of San Diego, Pechanga of Temecula, Morongo of Banning and Agua Caliente of Palm Springs -- to expand their slot machine floors.

The tribes negotiated new gaming compacts with California Gov. Arnold Schwarzenegger in which they agreed to pay increased fees and revenue percentage, potentially totaling $9 billion over the 23-year life of the compacts, in exchange for more slot machines. The state Legislature and the U.S. Department of Interior signed off on the deals. However, two competing Indian tribes, a wealthy racetrack owner and labor organization UNITE-HERE challenged the compacts, saying they were unfair to smaller tribes.

Four initiatives asking voters to approve the expansion were qualified for the ballot and the campaign became one of the most expensive in California history. The two sides spent almost $150 million to smother voters with competing messages.

Slot makers stayed on the sidelines to await the outcome, not wanting to get in the middle of a fight between their largest customers.

"Let's just say we kept our heads down, but we were obviously pleased by the outcome," Brooke said.

California is already the nation's largest Indian casino market, with estimated revenues of $7.7 billion in 2006, accounting for nearly 30 percent of all gambling revenue generated by tribes nationally. At the end of last year, 57 casinos in California had roughly 63,000 slot machines.

Slot machine company representatives and gaming analysts speculated the initiative approvals could pave the way for other tribes to negotiate similar compacts with the state.

The Sacramento Bee reported Wednesday that a Santa Barbara County tribe may be interested in adding 5,000 slot machines, while a tribe in Sonoma County may be ready to revive its plans. A tribe in El Dorado County, which would compete for customers with Nevada casinos in the Lake Tahoe area if it builds its already approved casino, may want to redo its compact to increase its slot offerings.

With California facing a budget deficit of $10 billion, Schwarzenegger told the San Diego Union-Tribune he would negotiate new agreements if they meant increased revenues to the state.

"I'm interested in one thing, and one thing only, that ... the Indian gaming tribes pay their fair share and... we in California get the money, because we need the money," Schwarzenegger said.