DUSTING OFF THE GAMING EXPANSION THESIS

With the political shift over the last few years it looks like we are going to give Keynesian economics yet another shot at success.  We've got a view on how that will end but in the meantime, state governments need more cash.  Legalized or expanded gaming is a surefire way to raise cash for the states.  There are almost always winners and losers among the operators when a state legalizes or expands gaming.  The slot suppliers always win.

 

Here are some of the opportunities:

 

  • Illinois - 45,000 machines? Probably not, but 30,000 looks doable. The video poker bill that passed the Illinois Congress and is likely be signed by the Governor is underrated in terms of its impact to IGT. These are video poker machine, not video lottery machines. The difference is important because IGT's video poker market share is probably 80%. The quick math says 80% of 30,000 is 24,000 machines at about $0.01 per 1,000 would yield $0.24 in EPS to IGT. Not bad
  • Ohio - It will happen eventually. MyOhio and PENN are supporting a measure that would allow for 4 casinos in the state with 20,000 machines in total. The votes appear to be there in Congress but Governor Strickland may be opposed.
  • New York - Aqueduct and its 4,525 machines looks like a go again and could open as early as 2011.
  • Maryland - Cordish Company has a bid for 4,750 slots at Arundel Mills Mall in Arundel County. Baltimore City Entertainment is looking to use up the full amount, 3,750, of slots available by state law in their proposed Baltimore City slot parlor. There is a bid in for 800 slots at Worchester County, with an option to expand to 1,500. Penn National bid for 500 machines at Cecil County, with an option to expand to 1,500. We don't expect these slots to come on line before 2012.
  • Massachusetts - The Massachusetts Senate recently rejected a proposal to add slot machines at racetracks but we remain convinced that an expansion of gaming, in one form or another, is on the way in Massachusetts. There is a dire need for revenue and the departure of anti-gaming former House Speaker Salvatore DiMasi of Boston is another major plus for gaming. Current Senate President Therese Murray has given strong indications that the Senate will likely debate gaming in the fall and has been cited, along with other prominent lawmakers in Massachusetts, as supporting expanded gaming. Mohegan Sun is proposing a resort casino in Palmer, MA and welcomes the rejection of slots at racetracks. They hope to win the gaming debate this fall.
  • Texas - Not this year but a huge potential market.

 

Bottom line is that slots could and should become a growth industry again.  Illinois could be the catalyst.  IGT should be the winner.  IGT typically gets a higher market share in the new/expansion slot market than replacements.  Illinois alone could add $0.24 to IGT's bottom line.  Even over 2 years, that number is meaningful to the current sub $1 run rate.  Throw in the other states over time and a normalizing replacement demand and the slots business starts to look growthy again.