AGEM Index

The AGEM Index, a composite score of 17 global gaming suppliers, declined by double digits for the second consecutive month, reaching a value of 88.89 points by the close of June 2010 (down 14.69 points from May). The latest movement represents the largest monthly decline in 20 months, pushing the index to a level last seen more than a year ago. For comparison purposes, the broader equities markets closed down for the month, with the Dow Jones Industrial Average and Standard and Poor’s 500 Index shedding 3.6 percent and 5.4 percent, respectively.

A lack of confidence across global markets continues. Following weaker-than-expected reports in labor and consumer spending, investors took a step back to re-evaluate their positions as the pace of recovery is not moving as fast as predicted. Investment banks are doing the same with Goldman Sachs downgrading several global gaming suppliers to sell from neutral, indicating that revenue from replacement product will be relatively slow and that no material pickup in the market will occur in the near term.
Three positive contributors to the index during the month included:

• Astro Corp. (3064), posting 0.13 points to the index with a 15.2- percent increase in its stock valuation.
• Gaming Partners International (GPIC), reporting a 16.0-percent gain in its stock price, contributing 0.05 points to the index.
• Wells-Gardner Electronics (WGA), posting a stock price rise of 15.53 percent, adding 0.02 to the index.

Selected negative contributors to the index included:

• International Game Technology (IGT), witnessing its stock price fall 19.78 percent, contributing -5.77 points to the index.
• Bally Technologies (BYI), contributing -2.65 points to the index with a 23.79 percent decline in its stock price.

Gaming expansion continues across the United States with Pennsylvania casinos receiving their first table games during the month. The table games will become operational in early July and include blackjack, craps, poker and roulette, among others. The additional gaming positions will likely siphon off local players who currently travel to Atlantic City for table games, and the state is expected to increase its tax base with an initial 16 percent tax on table games revenue. Pennsylvania is following its neighbor Delaware, which installed its first table games in May.

The bidding process was restarted in New York to operate a casino at the New York Aqueduct Racetrack in Queens. Penn National Gaming, which has been looking to expand its presence in the gaming market, sent a letter of interest to bid on the slots-only casino.

During the month, Penn National Gaming was also granted approval for a gaming license in the state of Nevada. This puts Penn in a position to acquire a casino in the state where it has been rumored to be interested in purchasing several casinos, including Rio All-Suite Hotel & Casino and The Mirage. Earlier in the year, Penn bowed out of the auction to acquire Fontainebleau Las Vegas, which was later won in bankruptcy court by billionaire Carl Icahn.

It appears that interested parties in the state of Michigan are seeking voter signatures to place an initiative on the November 2010 ballot. A couple of groups are seeking to expand the footprint of casino gaming while one wants to legalize sports betting. It is unclear if the required signature thresholds will be met by the regulatory-mandated timelines, but expansions may be on the horizon.

In Massachusetts, following a House bill passed in April, the State Senate recently adopted its own bill, licensing three resort-style casinos. While the two bills are materially very different, particularly when it comes to the provision of slot machines, the chambers will have to reconcile the differences before sending a bill to the governor. In Ohio, adding video lottery terminals (VLTs) to racetracks is edging closer to reality as Gov. Ted Strickland has indicated he will let the courts determine if existing laws permit VLTs.

While many states have expanded gaming in the wake of declining tax revenue, Kentucky and Delaware will halt the idea of expansion of their gaming markets. During June, a two-year budget was passed in Kentucky and racetrack slot machines and standalone casinos were not included in the legislation. Additionally, Delaware will likely stall legislation that would allow standalone casinos in the state until next year.

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