Nevada slot bills revised, unveiled

Tuesday, March 23, 1999 | 11:13 a.m.

CARSON CITY -- Some big Las Vegas Strip casinos say International Game Technology (IGT) has a virtual monopoly on electronically linked slot machine networks, such as Megabucks, and the state must step in to even the playing field.

IGT says the state should keep its nose out of the private contracts between the world's largest slot machine maker and the casinos.

Bills sought by the Nevada Resort Association to curb the power of IGT were introduced Monday by the Senate and Assembly Judiciary committees. Assembly Committee Chairman Bernie Anderson, D-Sparks, said, "How far these bills will go, I don't know. We had hoped they would have settled this among themselves."

But they didn't, and now a fight involving millions of dollars between big money interests has been thrown to the Nevada Legislature.

Gov. Kenny Guinn isn't sure this issue should be before the lawmakers.

"The governor has no appetite to referee internecine warfare," said Peter Ernaut, Guinn's chief of staff. "My guess is it will be negotiated. The bill will change a lot."

Ernaut said, "I'm not sure this is the proper venue for business disputes. It's something for the board rooms."

The legislation has changed since first unveiled. Initially, casinos wanted to ban "participation" deals in which IGT leases the machines to casinos in return for a percentage of the win.

The original proposal would have required IGT to sell the machines to casinos. But that has been scrapped from the bills because there wasn't unanimous agreement among Strip casinos.

The bills now would allow IGT to continue to lease games such as Megabucks, but also would require the company to offer the games for sale at a fixed price.

Jim Mulhall, vice president for government relations for the Nevada Resort Association, said the free market can't function because IGT dominates the wide-area-progressive market with such networks as Megabucks and Quartermania.

And because 94 percent of the market for linked casino slots is controlled by IGT, which also has 71 percent of the standard slot machines in Nevada casinos, the company can dictate terms, he said.

Mulhall said Bill Gates at Microsoft would be envious of the penetration that IGT has in the market.

But Sam McMullen, lobbyist for IGT and other slot makers, said it's not the business of the Legislature to arbitrate disputes between private businesses.

The bills, AB651 in the Assembly and SB516 in the Senate, will do three things, according to Mulhall.

They would require IGT or other companies with a linked network of machines to pay the 6.25 percent gaming tax on their share of the gross win. Mulhall said the casinos now are paying the full tax bill. "There are no new taxes," he said. "Basically we have been paying their taxes," referring to IGT.

IGT lobbyist McMullen said tax payments are already factored into the contract price with the casino. And he said if the taxes are shifted the IGT, than the lease price to the casinos would have to be raised.

This item in the bills, McMullen said is actually a benefit for IGT because it means the measure will need to get a two-thirds majority in both houses of the Legislature because it deals with taxes. Any bill adjusting taxes must be approved by two-thirds.

Mulhall indicated it may not require the "super majority" since it wouldn't change the amount of taxes collected -- only who is paying them.

The bills would require IGT to treat casinos equally in offering deals. For example, Mulhall said if IGT offers to sell 1,000 machines to a casino with a discount, it must offer the same deal to a rival casino if the other terms are identical.

Mulhall said that same type of restriction exists in the liquor and insurance industries. "It's a recognition that there is not a free and open market," he said.

McMullen said that appears to be price fixing. "Setting the same price for everybody across the board ... I don't know of any other time that's used."

McMullen said the contracts between the slot manufacturers and the casinos on progressive machines contain a 30-day cancellation clause. "They can take them out any time they want," McMullen said. So if they don't like the deal IGT offers them, casinos can remove the machines and look for other deals.

Mulhall said the bills also require the state Gaming Control Board to "ensure the integrity of the wide-area-progressive slots." There's a concern among some casino operators about how the meters increase or decrease on these machines as the jackpots build up. The casinos want more accountability on the revenues in these machines.

McMullen said the slot machine industry is behind growth in the gaming industry.

"That's because of the creativity and innovation the manufacturers show," he said. "This will stifle that kind of research and development of new innovations."

The bills also reflect a growing trend by casino operators to seek greater control over intellectual property rights in all areas of casino entertainment. Some have complained openly about paying license fees to inventors of games such as the popular Triple Play Poker, for example.

Others are demanding near-exclusive rights for staging theatrical productions.

"That demand for exclusivity and, in some cases with new shows, outright ownership, is something that makes Broadway dealmakers with up-and-coming talent, suspicious and reluctant," according to Variety reporter Claude Brodesser.

"Why should artists yield ownership of new material for a modest but upfront payout, when a hit on Broadway with subsidiary rights can take care of them for life?" Brodesser said.

If passed, the legislation would lead to a reduced level of slot play, McMullen predicted.

Without the new games and innovations, slot play might lag and add to the problems of the casino industry, which is now facing competition from Indian gambling, McMullen said.

But Mulhall said under the bills, IGT "could not use its powerful market position to distort the market place."

IGT stock was down 12.5 cents, to $14.50, in late-morning trading today, while shares of Anchor Gaming, its joint-venture partner in some participation games, was down 62.5 cents to $42.125.

The Sun's Gary Thompson contributed to this report.