Pa. board stuck on slots supplier question

Dan Nephin

Friday, June 3, 2005 | 9:42 a.m.

PITTSBURGH -- A dispute over whether to require slot-machine manufacturers to go through regional distributorships is holding up approval of the final licensing regulations for manufacturers and distributors.

Under the July law that created the board, any one of the four legislative appointees on the board can hold up board approval. One of them, former Democratic lawmaker Jeffrey W. Coy, is advocating dividing Pennsylvania into five regions to handle distribution of slot machines.

Coy said the plan might create more job opportunities for small businesses and those owned by women and minorities. But at a meeting Thursday -- during which a vote on the licensing regulations had been expected -- board consultant Lynn Stelle, who examined the idea, indicated that he believed that it wouldn't work.

"The reason why there was no vote is because Coy probably would have voted against it, and had he, it would have been defeated," spokesman Nick Hays said.

Coy contended that the distributorships were not the only disagreement among board members, but acknowledged that his vote is contingent on that aspect.

"Ninety to 95 percent of what has been recommended in those rules and regulations seems to be OK, and now we're down to one or two little disagreements, and this is one of them," Coy said.

The board is authorized to issue 14 licenses to operate slots parlors, half of which will end up in the Philadelphia and Pittsburgh regions with the rest scattered around the state. That allocation will leave an imbalance, Stelle said.

"Instead of five nicely balanced regions, you have two mega-regions and three very small ones," Stelle said. "This is critical when you look at the viability of these suppliers. Because the smaller regions, they just don't have enough work to make themselves viable."

Stelle's calculations are based on a total of 36,000 machines and assume that their makers would end up with the same market share in Pennsylvania as they have elsewhere.

Under that scenario, the regional distributor approach wouldn't work, he said, largely because three slot-machine makers control 90 percent of the market and many smaller companies vie for the remaining 10 percent.

"There's no chance for economies of scale" for distributors serving smaller manufacturers, he said. "There's no chance to improve the ability to perform."

Stelle cautioned that trying to manipulate the market by capping the number of machines a manufacturer could provide would be "a very dangerous way to go." New York tried that and isn't doing well, he said.

The only other state that has regional supplier requirements is Louisiana, but it has 2,600 locations with machines, Stelle said.

"I think the ultimate challenge is, do you create more jobs? And I'm not sure you can say that you do create more jobs with a regional supplier concept," Stelle said.

Coy maintained that the idea was worth considering.

"If there's a possibility of creating jobs at all, if there's a possibility for making minority or women entrepreneurs more accessible to this environment, I think we ought to err on the side of trying," Coy said.

He said, however, that he was open to modifying the idea and acknowledged that it might not work.

"If five doesn't work, maybe three will work. Maybe two will work. Maybe the entire concept doesn't work," he said.

The board also said it is continuing to interview for positions and is prepared to offer jobs to some 70 people if the Supreme Court rules in its favor in a challenge to the slots law. Its next meeting will be June 16 in Harrisburg.