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Rod Smith

Tribal Accords Would Mean $1 Billion Upfront for California

2 June 2004

Four tribal casino operators have reached agreements with California Gov. Arnold Schwarzenegger allowing for unlimited slots in return for promises to pay an immediate $1 billion to the state and $250 million more yearly, Wall Street analysts said Tuesday.

The tentative agreements in the current compact renegotiation and gaming expansion talks are good news for Nevada's slot manufacturers and Station Casinos, but are likely to up the competitive ante facing casinos in the Reno, Lake Tahoe and Laughlin areas, they said.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said the agreements would prove particularly damaging to Northern Nevada because they would both boost the number of slots at California casinos, and also encourage further development of tribal casinos that compete with those in the Reno area.

Under the deal, the Pala Band of Mission Indians and Viejas Band of Kumeyaay Indians, both near San Diego, and the Rumsey Band of Wintun Indians and the United Auburn Indian Community, both near Sacramento, would be allowed to install an unlimited number of slot machines in their casinos instead of the current 2,000 limit, analysts said.

An announcement of any deals with Schwarzenegger has been postponed while the state tries to reach agreements with other tribes, they said.

But UBS Warburg analyst Robin Farley rated the chances of gaming expansion in California at 95 percent, based on reports about the compact negotiations.

Deutsche Bank analyst Marc Falcone said the prospects for new compacts, including the unlimited slots provision, is bad news for some markets like Reno, Lake Tahoe and Laughlin, but should have no meaningful impact on Las Vegas.

The pending agreements also bode well for manufacturers as well as the state of California and the tribes, he said.

Greff said the new compacts bode particularly well for Reno-based International Game Technology because they should boost leases for progressive slots in higher class tribal casinos as well as traditional slot sales.

Falcone stressed that the news is also good for Las Vegas-based Station Casinos, which manages Thunder Valley Casino in partnership with the United Auburn Indian Community, he said.

Station Casinos also has three other management contracts with tribes in California, Falcone said.

"While the governor has not released official word, reports out of California indicate that the tribes would be granted unlimited slots, doing away with the current cap of 2,000," he said.

The tribes would also get 10 to 15 years added to the 20-year compacts they signed in 1999 and retain their exclusive control over Las Vegas-style casino gaming in California.

In return, the tribal casinos would help Schwarzenegger bail California out of its budget debacle.

"We have reported recently that the governor's new budget had a $500 million-plus line item to be filled by additional revenue from Indian casinos. That figure now seems light, as the four tribes in the tentative deal have agreed to give a one-time $1 billion payment to the state against future gaming revenue," Falcone said.

The deal would also provide about $250 million per year to the state, he said.

"With the position limit ready to be lifted from the current cap of 2,000 slots at each facility, the manufacturers are also going to benefit," Falcone said.

Schwarzenegger's office declined to comment on the reported negotiations.