California Cuts New Gaming Deal

The state reaches an agreement with a second group of Native American tribes to expand slots.
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Casino fever continues to grip California, with Gov. Arnold Schwarzenegger announcing agreements that will allow five Native American tribes to add thousands of slot machines.

The agreement is similar to one reached with five tribes back in June, with the state of California allowing tribes to expand the number of slot machines past the current state-mandated 2,000-machine limit. In exchange, the tribes will share up to 25% of their profit and adhere to certain state regulations.

Gaming stocks were unmoved by the news of the expansion, with the Dow Jones Gaming Index off slightly.

International Game Technology

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, which is expected to benefit the most from the expansion of slots, was off 10 cents, or 0.3%, to $29.89, while rival

Alliance Gaming

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was up 10 cents, or 0.7%, to $29.89.

While Schwarzenegger's new deal must still be ratified by the state legislature, it would pave the way for the state's first urban casino -- one whose number of slot machines will rival Las Vegas' in size. Under the agreement, the Lytton Band of Pomo Indians plans to build a six-to-eight story casino with at least 4,000 slot machines in San Pablo, Calif.

Two months ago, the state allowed five tribes an unlimited number of slot machines in exchange for a $1 billion upfront payment and up to $275 million a year in additional payments. With another round of agreements, California is in the midst of another speculative boom, creating a market that could rapidly become the world's largest. (For more on the tribal deals from June, please read "

California's Next Gold Rush.")

Already, analysts estimate that California takes in between $4 billion and $6 billion a year, not far from Las Vegas, and casino operators like

Caesars Entertainment

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Station Casinos

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have formed partnerships to capitalize on the trend.