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Howard Stutz

Gaming companies boosted by elections in three states

6 November 2008

LAS VEGAS, Nevada -- Nevada-based casino operators and slot machine manufacturers were the beneficiaries as voters in three states Tuesday approved ballot initiatives that expanded legalized gambling opportunities.

One Wall Street analyst suggested the election of a new governor in Delaware might mean Nevada could pick up competition from the state in the legalized sports wagering field.

Exactly when companies will benefit from the expected revenue boost provided by voters was unclear to Wall Street, where analysts have been looking for some good news to boost sagging stock prices in the gaming sector.

"The overall election results were mostly in line with our expectations," Susquehanna gaming analyst Robert LaFleur told investors Wednesday. "The combination of high voter turnout and the potential of gaming as an economic stimulus were catalysts to get enough votes this year."

In Maryland, voters overwhelmingly approved the addition of 15,000 slot machines at five different locations. The estimated 48 percent to 51 percent tax on gaming revenues would be directed toward the state's educational fund.

Missouri voters repealed a loss limit in which gamblers were held to $500 in losses every two hours. In exchange for Las Vegas-style gambling, the state's casinos agreed to a 1 percentage point increase in the gaming tax.

In Colorado, voters allowed the state's casinos to increase wagering limits to $100, extend gambling to 24 hours, and add craps and roulette to the table games mix.

Most analysts said Las Vegas-based casino operators Ameristar Casinos, which operates properties in Missouri and Colorado; and Pinnacle Entertainment, which has a casino in St. Louis and is building second resort in the market; hit the jackpot.

"The big winner on election night was Ameristar," Wachovia gaming analyst Brian McGill said. "The $500 loss limit has been talked about for years and was thought to have held back revenue at its two casinos (in St. Charles and Kansas City). It will now be up to Ameristar to drive the additional revenue to increase its (cash flow)."

McGill said Pinnacle's Lumiere Place in St. Louis is now on a level playing field with casinos across the river in Illinois, which didn't operate with a loss limit.

LaFleur said the election of Democrat Jack Markell as Delaware's new governor might help the state legalize sports wagering. Delaware, along with Nevada, Oregon and New Jersey, are exempted from a 1992 federal law banning sports wagering. Only Nevada casinos operate legalized race and sports books.

Markell told the state's media he would consider sports wagering as a revenue source and LaFleur thought the issue might come up next year in the Delaware Legislature.

Slot machine makers, such as Bally Technologies, International Game Technology and WMS Industries, are expected to cash in on the Maryland vote, which my take several years to implement. The facilities will need to be built, and approval by local governments is also required.

Still, once the market is up and running, the annual effect on earnings per share could be anywhere from 7 cents to 10 cents per share, depending upon a company's market size. Each of the five casinos could add 3,000 machines.

"Additional slot capacity in the northeast gaming market from Maryland could pressure existing gaming operators in Atlantic City and West Virginia," Deutsche Bank gaming analyst Bill Lerner said.

Penn National Gaming, which has been seeking to expand its casino footprint, owns a potential slot machine location in Maryland.

Gaming issues failed in two other states. A proposal by Lakes Entertainment to build a casino in Ohio was soundly defeated by voters. In Maine, voters rejected a referendum that would have allowed Las Vegas-based Olympia Group to build a casino in Oxford County.