And I dub thee: Sir Non-Slot.

by Jay Salomon

PWhen is a slot machine not a slot machine?

When the Attorney General of Arkansas says it’s not.

Right now, a joint venture between AmTote International Inc. (a major supplier of tote systems) and RaceTech LLC is producing significant profits with the state’s blessing—and promises a windfall if such slots-recalcitrant states as Oklahoma, Florida and Maryland (not to mention California) come on board.

Quick profits from Instant Racing?

The reason for the legal determination that “Instant Racing” (as the game is called) is not a slot lies in an interesting interpretation of the law. The machines are all linked in a common pool so that a willing state authority can proclaim them a “pari-mutuel” operation—and that is the precise kind of wagering allowed at race tracks in every state where gambling on traditional races is legal.

Currently, Instant Racing is only available at two outlets, both in Arkansas: Oaklawn, a thoroughbred track, and Southland Park, a greyhound venue. In the case of Oaklawn, it has meant financial salvation. This track, once one of the staples of American racing, had fallen on hard times. Traditional slots in nearby Louisiana have rejuvenated the moribund Fair Grounds, which runs a schedule similar to Oaklawn’s. As a result, some of the best stock in Arkansas was lured to Louisiana by the substantially higher purses. And the legalization of racing in Texas produced another stalwart competitor in Lone Star Park, just outside Dallas. The absence of a grass course further deprives Oaklawn of a substantial number of runners.

But the advent of Instant Racing has been such a success that purses have increased substantially this winter (the meet runs from late January through early April), even though only 60 machines are operating at the track and hours are limited.

High-tech horsies

At the outset, Instant Racing was ballyhooed as a marriage of horse racing and high tech. The joint venture owns a pool of around 50,000 videos of races, and these form the basis of the games. While it is true that players can find a correlation between the races and the outcome of the game, the connection is muted. In fact, the games themselves, as presently constituted, are a bizarre mÈlange of video racing and traditional slots.

But, as anyone who has visited a slots parlor can testify, players don’t seem to care what the game is—so long as the traditional bells and whistles keep pealing and tooting.

And these machines provide decibels as deafening as any traditional casino or gaming center.

The only real downer for a slots lover is that these are “Video Lottery” games and pay off in vouchers—no jingling quarters or silver dollars. But states that began their slots operations profitably with VLTs have seen really substantial revenue growth once the traditional machines were authorized. AmTote will certainly try for the conversion.

While the joint venture is private, opportunities may still exist for risk-takers to cash in elsewhere—and AmTote itself might be approachable to substantial investors. The company is located in Hunt Valley, Maryland, and was the originator of Totalizator wagering, the only kind permitted at all American tracks.

Taking a cut

Here’s how you might be able to cash in on the concept by other means: AmTote has a solid bunch of competitors, and one or two will likely get into the action if Instant Racing continues to show promise. The most prominent is Scientific Games Corp. (SGMS:NASDAQ) and its Autotote subsidiary. This company, recently rumored for takeover, may be a bit pricey at present—but is definitely worth keeping an eye on for growth well beyond a possible foray into the Instant Racing concept. Autotote supplies pari-mutuels to many of the nation’s leading tracks, and could possibly force its customers away from AmTote’s new game, especially if it develops its own version. Scientific Games is highly regarded, as well, for the depth and innovation of its lottery games. This is a dynamic and clever operation.

Another potentially powerful competitor could be International Game Technology (IGT:NYSE), the leader in slot machines. This company, now trading for even bigger numbers than Scientific, may have a special interest in new customers like race tracks, because of a fear that casinos could cut back on the company’s most profitable machines (currently leased or given to casinos in exchange for a cut of the profits).

The key to any investment in this fledgling gambling operation is the willingness of non-slots states to declare schemes such as Instant Racing to be tote-based, and thus legal. If this happens, the huge returns from the meager number of machines currently operating in Arkansas suggest a potential windfall in major population centers like California, Florida and Maryland.

Meanwhile, a quick update: in the October 2001 edition of Taipan, I suggested you buy MGM Grand (MGG:NYSE). We marked two official entry points in September, and on December 18 we took profits of 26% and 73%, respectively.