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September 16, 2014

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Tax incentive for gaming company raises questions

A company that manufactures and distributes slot machines has won tax incentives to expand its operation in Las Vegas through the state program designed to promote diversity in the economy -- prompting questions as to whether more slot manufacturing is really economic diversification.

Konami Gaming Inc., a subsidiary of a giant publicly traded conglomerate based in Tokyo, will receive $132,817 in tax incentives through the Nevada Commission on Economic Development sales and use tax and personal property tax abatement programs designed to stimulate economic development and diversification in the state.

The company, licensed to sell slot machines in more than 150 gaming venues, qualified for the incentives with its plan to triple the size of its Las Vegas operation by becoming the world headquarters for Konami's gaming division.

Presently, the company manufactures slot machines in a 60,000-square-foot operation south of McCarran International Airport. But Konami is developing a 120,000-square-foot facility at the Hughes Airport Center, including 60,000 square feet of additional manufacturing and 60,000 square feet for office and administrative space. The company plans to relocate its gaming research-and-development operation to Las Vegas from other locations worldwide.

Konami Corp. has several businesses with domestic and overseas divisions in the computer and video game, toy and hobby, health and fitness and amusement sectors in addition to gaming. In Konami's most recently completed quarter, the company reported net income of 264 million yen ($2.4 million U.S.) compared with 4.2 billion yen ($37.6 million U.S.) for the same period a year ago.

Konami qualified for the tax incentives in Nevada with its plans to provide 16 new primary jobs, an average wage of $25.84 an hour and a capital investment of $7.8 million. The statutory minimums to qualify for incentives for an operation of Konami's size is 13 new employees, an average wage of $16.49 and a capital investment of $379,034.

Not everyone is in agreement that the approval of Konami's tax incentive package is what state lawmakers had in mind for economic diversification.

Commission Executive Director Bob Shriver said Thursday that because Konami is a manufacturer that exports most of its products and it complies with state qualifications, it is eligible for tax breaks.

"It's considered a manufacturer and most of its business (sales) are outside the state," Shriver said.

He said with the proliferation of tribal and racino gambling outside Nevada, the company anticipates future sales in California and Pennsylvania.

"Many of our incentives go to manufacturers," he said. "This just happens to be a gaming equipment manufacturer."

Shriver noted that other gaming equipment manufacturers could similarly qualify for incentives if they meet the state criteria.

"If IGT were to come in, we would consider them the same way," he said.

But a professor at UNLV said that's probably not what lawmakers had in mind.

"One could argue that this is not the kind of diversification the state intended with those tax incentives," said Tom Carroll, a professor of economics at UNLV.

"There are good reasons why you would want to diversify the economy," Carroll said. "Right now, gaming is expanding and things look good. But if the gaming boom should end, then having put resources in a manufacturer of gaming equipment would not benefit the state. It seems to be a misuse of resources."

Somer Hollingsworth, president and chief executive of the Nevada Development Authority, said not only should gaming equipment manufacturers be offered tax incentives, but they should be encouraged to apply for them so that Nevada can show them that it doesn't want them to go elsewhere.

"It's a great coup for us," Hollingsworth said. "We're not going to bring a hotel company here for (incentives). But if it's manufacturing in any way, shape or form, they should be eligible for incentives. When Konami moves their world headquarters (for the gaming division) here, it'll offer technology that can really be used outside the gaming industry."

Hollingsworth agreed that IGT should also eligible for incentives, even though the company has generated record earnings in its most recent quarter. He said at Wednesday's Economic Development Commission meeting that he has heard that IGT is looking to consolidate its multiple Las Vegas locations into one operation and possibly expand its Southern Nevada holdings.

The company has not announced plans for expansion in Las Vegas and a spokesman for IGT had no comment on the report.

"You have to look at the long run of what a company is going to create," Hollingsworth said. "IGT sells its product all over the world. Nevada is no longer the only market they have. We should offer incentives to companies like Konami and IGT because they're being hit by other states (to locate elsewhere). It's like we have to go in and do some preventive maintenance. We have to say, 'We care about you guys and we want you to stay here.' "

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