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Tony Batt

U.S. Supreme Court: Tribal Gaming Boosted by Ruling

2 March 2004

and Rod Smith

Stephens Washington Bureau and Gaming Wire

WASHINGTON -- Nevada-based slot makers and three major Las Vegas casino operators could be big winners from a legal contest settled Monday by the U.S. Supreme Court.

The justices denied appeals by the Justice Department to review the legality of electronic gambling devices used by Indian tribes in Nebraska and Oklahoma.

The court's rejection of the appeals without comment may lead to the expansion of electronic bingo, pull tabs and other forms of Indian gambling that do not require state approval.

"It removes much of the uncertainty regarding Class II gaming, and may allow for greater proliferation of Class II gaming," Goldman Sachs analyst Steve Kent said in a statement.

Fulcrum Global Partners, an independent Wall Street investment research firm, estimated the decision could mean an increase in orders for another 50,000 to 100,000 new electronic bingo devices, or Class II slot machines.

That would add revenues of up to $1 billion a year from leased devices, half of which likely would go to Reno-based International Game Technology, the world's largest slot maker, data in an investors' advisory showed.

IGT spokesman Ed Rogich said his company had already announced its plan to enter the market and had started showing electronic market devices.

However, he said the ruling clears up "the uncertainty (about the legality of Class II machines) and gives us a clear path on how to go forward," he said.

Justice Department spokesman Blair Rethmeier declined to comment on the rulings, which upheld the legality of gambling operations by the Seneca-Cayuga Tribe of Oklahoma and the Santee Sioux Tribe of Nebraska.

But Deutsche Bank analyst Marc Falcone said the decision came as a surprise for investors and served as a catalyst for manufacturers stocks, especially International Game Technology, Alliance Gaming and WMS Industries.

Falcone said previous regulatory and legal issues had scared traditional suppliers away from the market and, with the legal uncertainty now eliminated, they will now enter the Class II gaming markets most of them have kept as sidelines rather than risk their gaming licenses.

"We also think this outcome for Class II gaming could open the door to more Native American management contract opportunities for public gaming companies, especially Harrah's (Entertainment) and Caesars (Entertainment)," he said.

And if compact renegotiations in California are unsuccessful, "we would anticipate a rapid deployment of Class II games, which would be especially beneficial to Station (Casinos) at Thunder Valley," Falcone said.

Under the Indian Gaming Regulatory Act of 1988, tribes are allowed to operate bingo, pull tabs and other non-casino games without a state compact. But these games, which are classified as Class II gaming, are regulated by a federal agency known as the National Indian Gaming Commission.

Casino games, such as slot machines, are considered Class III gaming and require state regulation.

Phillip Hogen, chairman of the National Indian Gaming Commission, said the Supreme Court's action should help clear up confusion between games classified as Class II or Class III.

"Those earlier (court) decisions formed the basis of regulatory steps the National Indian Gaming Commission has taken recently to distinguish Class II devices that tribes can use in the absence of compacts (with states)," Hogen said in a statement. "Further progress in this area can now be made, and hopefully, soon, the controversies in this area will be put to rest."

Falcone said lifting the legal cloud should propel proliferation, especially in Oklahoma, New York, Texas, Florida and California, where competition for Reno and Laughlin is particularly important.

"These decisions will bring long overdue finality to this issue, and provide tribal governments nationwide with legal stability needed to invest in other forms of economic development," Ernie Stevens Jr., chairman of the National Indian Gaming Association, said in a statement.

IGT closed at $41.59, up $2.35, or 6 percent, for the day. Alliance closed at $27, up $2.74, or 11.3 percent, and WMS closed at $28.29, up $1.72, or 6.5 percent. All three companies experienced four times normal trading volumes.