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Howard Stutz

Game makers take aim at Pennsylvania

19 July 2010

LAS VEGAS, Nevada -- This month's rollout of table games in Pennsylvania casinos is expected to be a boon for the state's tax coffers.

It's also turning into a financial windfall for Nevada-based table game providers and gambling equipment vendors.

Pennsylvania is one of three Eastern states -- along with West Virginia and Delaware -- that enacted legislative changes, allowing their once slot machine-only casinos to offer customers blackjack, craps, roulette and other table games.

In exchange for gambling expansion, casino operators pay their respective states additional fees and increased gaming taxes. The money is expected to help states dig their way out of huge budget deficits.

Wall Street estimated the three states could combine for some 1,100 tables by year's end.

The Keystone State, which accounts for about two-thirds of the new table games, is the big prize. Las Vegas gaming companies have their sights trained on the market.

"Pennsylvania was always a fantastic jurisdiction for us prior to table games being approved," Shuffle Master Gaming Chief Operating Officer David Lopez said.

The company had more than 100 electronic table games, classified as slot machines, in use at the state's nine casinos. Shuffle Master is replacing some of those electronic tables with live Let It Ride, Three Card Poker and Ultimate Texas Hold 'em tables staffed by dealers.

Electronic card shufflers and chip counters are also being used in Pennsylvania casinos.

"Now it's an even better market," Lopez said.

The nine Pennsylvania casinos began operating more than 660 table games last week. The figure will go above 700 later this year when the SugarHouse Casino in Philadelphia opens with 42 table games.

Pennsylvania casinos had operated just slot machines since gambling was legalized in 2004.

The table-games bill, which Gov. Ed Rendell signed into law in early January, allows casinos to add up to 250 table games, although none of the state's casinos will reach that figure initially.

"On balance, it will be good for the people of Pennsylvania," Rendell told The Philadelphia Inquirer earlier this month.

The two largest table games locations opened today. Harrah's Chester, a racetrack casino operated by Harrah's Entertainment, has 115 table games, while Sands Bethlehem, which is owned by Las Vegas Sands Corp., has 89 games.

"Pennsylvania is kind of the mother lode," Gaming Partners International Chief Executive Officer Greg Gronau said.

The company, formerly known as Paulson Gaming, provides casinos with table game felt layouts, gaming tables, playing cards, chips, dice and other gambling products.

Last year, gaming vendors competed to place the equipment surrounding 145 table games inside Aria, CityCenter's centerpiece hotel-casino, which opened in December.

The number of table games in Pennsylvania equals nearly five Arias.

"From a volume perspective, we haven't seen an opportunity like this in quite some time," Gronau said.

Gaming Partners International told investors that orders shipped to Pennsylvania for the quarter ended June 30 yielded revenues of $4.5 million. The company expects to report additional revenues from Pennsylvania in the quarter that ends Sept. 30.

Shuffle Master, which is supplying Pennsylvania casinos with gaming equipment across its entire product line, hasn't told investors exactly how much the company expects to achieve from sales and leases.

"We've told Wall Street from the very beginning that Pennsylvania would be accretive for us," Lopez said. "We're still very comfortable in making that statement. It's going to be a very strong market."

The Las Vegas-based company's prospects have impressed Wall Street.

Morgan Joseph gaming analyst Justin Sebastiano said specialty table games, such as the titles Shuttle Master owns and distributes, could comprise one-third of the table game market in the East.

"We think Shuffle Master should be able to grab the lion's share of the specialty table games and shuffler placements, as well as earn incremental income from the placement of add-on bonus products," Sebastiano told investors.

The declining economy reduced the capital expenditure budgets of casino operators, which limited spending on new gaming equipment over the past few years. Table game companies and slot-machine providers lost revenues and were forced to cut costs during the slump.

Pennsylvania and other new table game markets gave large and small equipment providers new opportunities.

VisuaLimits, a Las Vegas-based company that produces a table game management system, earned a contract for the tables at the Mohegan Sun at Pocono Downs racino and the Parx Casino in Bensalem.

VisuaLimits Chief Operating Officer Ryan McClellan said Pennsylvania allows the company, which also has contracts with casinos on the Strip and with an American Indian casino in Southern California, to have an East Coast case study.

"It is a true startup market, but it also allows us to get our product out there for other casino operators to see," McClellan said of the system, which incorporates technology with table game signs, providing casinos with marketing opportunities.

The system lets casino operators better track table game pit operations with real-time game status reporting and automated dealer monitoring.

Because the table game regulations are new in Pennsylvania, McClellan said vendors needed to work closely with casino regulators during the rollout to follow the state's rules.

"We can see that Pennsylvania is a market that will continue to grow and change quickly," McClellan said.

Las Vegas Sands President Michael Leven said table games allowed the company to boost the return on investment prospects for Sands Bethlehem, which opened more than 15 months ago.

The company restarted construction on a 300-room hotel addition and expanded its casino staff by almost 400 employees to make way for an expected boost in customer traffic. Leven said interest in casino's retail mall by potential vendors may also spike.

Leven said table games allow Sands Bethlehem to attract a larger audience from communities in northern New Jersey and New York City, which is about 100 miles east of Pennsylvania's Lehigh Valley.

"There are no guarantees, but table games change your market dynamics and attracts a different kind of player," Leven said. "We've been profitable with slot machine play, but a successful table game operation has the ability to generate a better return and increase our cash flow."