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Supreme Court move benefits gaming companies
Tuesday, March 2, 2004

Shares of several gaming manufacturers rose on Monday after the U.S. Supreme Court announced it would not hear a case challenging the use of electronic machines at tribal casinos.

Multimedia Games Inc. (MGAM), the leading supplier of machines to tribes in Oklahoma, emerged as one of the clear winners. At one point, shares of the Texas company were up 11.6 percent and closed at $22.39, up 6.62 percent from the day prior.

Other companies that saw gains included Alliance Gaming Corp. (AGI), which supplies machines to a Florida tribe that benefits from the court's action, and International Game Technology (IGT), another leading tribal supplier. AGI closed at $27.00, up 11.29 percent from the day prior, and IGT closed at $41,58, up 5.99 percent.

Even companies that manage tribal casinos saw increases in their stock price. Harrah's Entertainment Inc. (HET) rose 2.9 percent to $53.45 a share while Station Casinos Inc. (STN) grew by 3.22 percent to close at $38.81.

The activity was attributed to the court's refusal to review two lower court decisions that were favorable to tribal interests. Gaming companies and analysts said the move brings legal certainty to the growing Class II market of casino machines.

"Since the Supreme Court has declined to accept these cases for review, the lower courts decisions affirming the right of the tribes to offer games such as those manufactured and sold by the [MGAM] as legal 'electronic aids' to bingo for the Class II market will continue to stand," MGAM wrote in a Securities and Exchange Commission filing yesterday.

Phil Hogen, chairman of the National Indian Gaming Commission, agreed with the assessments. "Further progress in this area can now be made, and hopefully soon the controversies in this area will be put to rest," Hogen, a Bush administration appointee, said in a statement. NIGC is working with tribal leaders to bring further clarity to the use of the machines, which can be operated without a tribal-state compact.

Lawyers at the Department of Justice took a different view in the matter. They said two decisions, one from the 10th Circuit and the other from the 8th Circuit, threatened regulation of the $14 billion and growing Indian gaming industry. Several states, including California, Texas, Nevada, South Dakota and Nebraska, also raised warning bells in a brief to the Supreme Court.

But for the Santee Sioux Tribe of Nebraska, the court's move was a bittersweet end to a long-running battle against the federal government. At one point, federal prosecutors froze the tribe's bank accounts and threatened to jail tribal leaders who installed electronic machines at the tribe's tiny Ohiya Casino.

"We're incredibly relieved," said chairman Roger Trudell. "Our members always believed justice was on our side, no matter how tough things got."

The tribe operates the Lucky Tab II machine, a product of Diamond Game Enterprises. The machine resembles a slot machine but is based on a pull-tab device.

NIGC classified the game as a Class III device, like a slot machine. But the 8th Circuit Court of Appeals, in March 2003, rejected NIGC's view and said the tribe could operate Lucky Tab II without a compact, which the state of Nebraska refuses to negotiate.

Similarly, the 10th Circuit Court of Appeals overturned NIGC's classification of the Magical Irish Instant Bingo Dispenser System, which is also based on pull-tab technology. The decision, handed down in April 2003, affected two Oklahoma tribes and one Wyoming tribe but the machine is no longer in play.

Oklahoma tribes have run into trouble in recent years for operating machines that NIGC says are illegal without a compact. But a bill before Gov. Brad Henry (D) would authorize a compact for certain machines. Several large tribes, including the Chickasaw, Cherokee, Choctaw and Seminole nations, lobbied heavily for the bill. The Chickasaw and Choctaw nations are MGAM's largest tribal customers.

The cases are U.S. v. Santee Sioux Tribe, No. 03-762, and U.S. v. Seneca-Cayuga Tribe, No. 03-740.

Order List:
Supreme Court (March 1, 2004)

Relevant Documents:
Petition: U.S. v. Santee Sioux Tribe | Petition: U.S. v. Seneca-Cayuga Tribe

Docket Sheets:
U.S. v. Santee Sioux Tribe | U.S. v. Seneca-Cayuga Tribe

Lower Court Decisions:
U.S. v. Santee Sioux Tribe (March 20, 2003) | Seneca-Cayuga Tribe of Oklahoma v. National Indian Gaming Commission (April 17, 2003)