Supreme Court decision clears way for Class II game growthGaming device manufacturers, faced with the mouth-watering prospect of supplying a new category of electronic games to Indian tribes with Class II facilities, are expected to see revenues rise as a result of a recent Supreme Court decision in favor of Class II gaming on Indian reservations.
J.P. Morgan reported that it expects the number of Class II machines to grow by 100,000 as a result of the decision. The investment banker also said IGT could be one of the biggest benefactors of this decision. The slot machine company could gain half of the market share for Class II games, which would net between $550 and $730 million in marginal revenues. This would add almost 50 cents earnings per share to the company's stock.
Another winner in the wake of the Supreme Court decision is Multimedia Games, which specializes in Class II games. That company registered double-digit gains in its stock after the decision was made public.
At issue in the Supreme Court case, settled in March, were two laws governing gambling. The first, enacted in 1951, bars the use of "any gambling device" on federal land, including Indian territory. The other, enacted in 1988, creates an exception allowing tribes to use gambling devices under a tribal-state agreement.
The Bush administration argued that video machines for dispensing pull-tabs were a "gambling device" under the 1951 law and could not be used by tribes that lack a tribal-state agreement for casino gambling.
The government sought to stop tribes from using electronic devices resembling video slot machines to dispense paper pull-tab tickets. However, the court left intact rulings favoring the tribes.
The disputed games were basically a video machine that dispenses pulltab tickets but are designed to look and act like a slot machine. A player can insert a dollar into the machine and play the video screen game, but win or lose he or she still only receives a paper pulltab ticket. No jackpot is dispensed from the machine.