Who says politicians can't agree on anything? Lawmakers in Pennsylvania gave a bipartisan thumbs-up yesterday to a bill that would greatly expand gaming in the Keystone State. Leaders in both the state House and Senate endorsed legislation that, if approved, would allow for tens of thousands of slot machines to be put in operation statewide.
The measure, which could be voted on as early as next week, would grant 14 licenses throughout the state, with most licensees operating as many as 3,000 slots each. Slot manufacturers International Game Technology (NYSE: IGT), Alliance Gaming (NYSE: AGI), and WMS Industries (NYSE: WMS) reacted well to the news, each moving strongly to the upside.
Penn National Gaming (Nasdaq: PENN), which operates 14 racetracks and off-track betting facilities in Pennsylvania, also appears to be in the right place at the right time. The racing industry in general will receive 18% of all gambling winnings, and it's a safe bet that Penn National has an inside track to a few of the eight licenses that will be awarded to horse tracks.
In a radio address back in March, Governor Ed Rendell outlined a plan that might generate $1 billion in tax revenues to fund public schools and concurrently reduce dependence on property taxes. Legislators have ironed out a few points of contention along the way, such as the total number of slots involved, and have drafted a bill designed to keep Pennsylvania gamblers from straying to neighboring states.
According to surveys, more than 2 million residents take gambling trips outside the state each year, some to West Virginia and Delaware, but most to casinos such as Caesars (NYSE: CZR) and Harrah's (NYSE: HET) in Atlantic City. Ironically, those two companies already own property inside Pennsylvania, and Harrah's recently acquired a 50% stake in a harness racing facility south of Philadelphia.
One sure winner here is the state of Pennsylvania. With a $50 million up-front ante just to play the game, state coffers will rake in $700 million at the start, with a 34% cut after that. Slot manufacturers are hoping that action in Pennsylvania will spur other states to embrace gaming as a way of combating budget shortfalls. Churchill Downs (Nasdaq: CHDN), for example, has been lobbying for years to have slots put in its Kentucky and Illinois racetracks.
For now at least, the prospect of 37,000 new slots (possibly expanding to 50,000 in the future) in Pennsylvania has gaming equipment companies salivating, particularly IGT, which typically lands 70% of new product sales.
Fool contributor Nathan Slaughter prefers blackjack to slots, red to black, and odd to even. He owns none of the companies mentioned.
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