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Bear Sterns: Government, Racetracks Can Benefit from Slots

11 December 2002

NEW YORK--(Press Release)-- The Sport of Kings could use a slot arm to lean on and so could some state governments. Slow to change and under pressure from more sophisticated gambling methods and flashy casinos, a new Bear, Stearns & Co. Inc. report finds the racetrack industry could beef up attendance, revenues, and state coffers, by adding slots to its showcase. "Slots and other gaming devices would lure more people to racetracks, who once there, would likely spend money at the track's other attractions," said Jason N. Ader, senior managing director at Bear Stearns. "If racing and gaming combine successfully, the next step would be to develop full-scale entertainment facilities, similar to regional casinos or even destination resorts. These type of `racinos' would also create more tax revenues for states looking to shore up their deficits."

According to the report, Gaming and Racing: A New Breed of Entertainment, as many as 40 states could face budget shortfalls next year, some in the area of $1 billion. States like California, Pennsylvania, New York and Texas have already considered or are implementing gaming expansion to pay for their deficits. "Gaming is clearly an important source of tax revenue for most local governments so we wouldn't be surprised to see more states legalize `racinos'," said Christa Short, co-author of the report. "We're keeping a close eye on about 15 states that could give `racinos' the green light in the coming years, especially if the economy remains weak." But hurdles do exist. The report suggests some regulators and gaming commissions may be reluctant to support expanded gaming at racetracks because of regulatory concerns.

A major winner in any gaming expansion scenario? The gaming equipment manufacturers. "Any new market that develops is a boon for the companies that make the slots and video-based games that fill casino floors," said Short, who added that the equipment makers continue to benefit when operators replace and refresh games. "Even if only half of the 15 states expand `racino' gaming, the replacement market for these machines could double in the next few years," concluded Short.

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