Pennsylvania Jockeys for a Slot

The spread of slot machines to Pennsylvania could have a big impact on fiscal 2006 earnings for gamemakers. Susquehanna estimates that IGT could see 2006 earnings increase between 20 and 25 cents a share, while Alliance -- which could use a catalyst now that the deployment of its slots has been delayed in New York -- could see earnings rise by as much as 10 cents.

The move is also good for some casino operators, namely Penn National (PENN Quote), which owns two racetracks in the state, and Harrah's Entertainment (HET Quote), which Thursday received approval from the Pennsylvania State Harness Racing Commission to acquire a 50% stake in Chester Downs and Marina. But it could be bad for others, especially those who are concentrated in the nearby Atlantic City market, namely Trump Hotels and Casino Resorts (DJT Quote).

"While this may be a negative to the Atlantic City market, both Harrah's and Caesars are well positioned to capitalize on any expansion in Pennsylvania," said Marc Falcone, analyst at Deutsche Bank Securities, in a note. "Caesars owns 32 acres on the Delaware River outside of Philadelphia, while Harrah's is well positioned in Pittsburgh."

And with neighboring states considering similar legislation, the spread of gaming to Pennsylvania could be the tip of the legislative iceberg, so to speak.

Committees in the Rhode Island Senate and House of Representatives this week approved bills to allow a state referendum to allow Harrah's to build a casino in West Warwick, R.I. The Rhode Island effort is expected to fail because Gov. Don Carcieri is opposed to gaming and likely to veto the bill, but as Pennsylvania's effort proves, persistence pays off.

With Ohio, Maryland and Delaware all giving serious consideration to legalizing slots, Pennsylvania's move could be the start of a trend.

"In addition, we would expect the pressure will now be on neighboring Maryland to call a special legislative session on slots, as well as pushing Ohio to reconsider slots next year, leading to a domino effect in the Northeast," said Falcone.