Pennsylvania's unprecedented attempt to create a layer of middlemen to supply slot machines to the state's casinos is beginning to bog down the introduction of gambling to the commonwealth and delay the promised stream of revenue to the state treasury and local school districts.

Pennsylvania Gaming Control Board Chairman Tad Decker has declared a "total impasse" among the board's seven members on whether to set up one, two or five regions for slot machine distributors, and Gov. Ed Rendell is starting to suggest that the entire notion of requiring middlemen might need to be scrapped.

"We're continuing to monitor [the dispute]," Mr. Rendell told reporters last week. "I don't know if you can legally split [the state] up into regions. I don't think that ever was the original contemplation.

"But if [gaming board members] don't move on this, you may well find that there will be legislation to do away with the distributor requirement."

Asked if he would support such a bill, Mr. Rendell replied, "Possibly."

The dispute stems from the gambling law's requirement that Pennsylvania distributors buy slot machines from manufacturers to sell to the seven racetrack/casinos, five stand-alone casinos and two hotel casinos approved under the 2004 legislation.

The distributors would deliver up to 61,000 gambling machines and maintain them 24 hours a day.

No such companies existed in Pennsylvania when the law was passed, and slot machine manufacturers say they normally sell directly to casinos and service their own machines. No other jurisdiction in the United States requires manufacturers to work through distributors to sell slot machines to casinos.

Casino operators and slot manufacturers opposed this aspect of the Pennsylvania gambling law, calling it costly and unnecessary. Proponents argued that setting up the distributorships would leverage from the gambling industry up to 1,000 additional jobs in Pennsylvania, especially for women and minorities.

At this point, the manufacturers have made their peace with the law and have started to organize distributors for their products. But, they say, these operations will employ no more than 50 to 100 Pennsylvanians, most of whom they would have had to hire anyway.

Even as the manufacturers and potential casino operators champ at the bit to start doing business in Pennsylvania, the gaming board is hung up on how many distributorships will be required. The law isn't specific on this point.

Mr. Rendell, the gambling industry and some members of the gaming board agree that the law was not intended to create separate distributor regions in the state. But some gaming board members, led by Jeffrey Coy, a former Democratic state legislator named to the board by House Democratic leader H. William DeWeese, D-Waynesburg, want the state broken up into as many as five regions to spread the jobs around. It is not clear, but this could force manufacturers to have as many distributors as there are regions, or merely to make sure that a single distributor has offices in each region.

As long as the gaming board is stalemated on the issue, the rest of the process of bringing slots gambling and the $1 billion in annual revenue it is expected to provide to lower school property taxes is forced into slow motion. Manufacturing licenses cannot be issued until distributors are chosen, and casinos cannot be licensed until the manufacturers are approved.

When the gambling law was passed, it was projected that at least some casinos would be operating by early next year and generating revenue for the state within months. Now, as a result of a court challenge and the delays in arranging for the slot machine distributorships, it is doubtful that any casinos will be in operation before the second half of next year, or that the state will see any slots revenue before 2007.

'Politics at its best'?

Ed Rogich, vice president of marketing for IGT Corp., of Reno, Nev., which made nearly 70 percent of the slot machines now operating in the United States, said that requiring his company to establish a statewide distributor in Pennsylvania would be a burden, but that breaking the state into regions would be far worse.

"We believe less is best, with no distributors the best scenario for us. We like to do business directly [with casinos] because it doesn't complicate the delivery of machines."

A top official for one gambling company who is familiar with negotiations over Pennsylvania's gambling law, but who feared reprisals if his name were published, called the requirement to set up distributorships "politics at its best." He said it allowed leaders in the Legislature to promise that gambling would bring hundreds of jobs to Pennsylvania, especially for women and minorities, when they knew that most of the relatively few jobs created would have been provided by manufacturers anyway.

It was a way to placate the Legislative Black Caucus, he said, which was given the understanding that many of the distributorships would be steered toward small women- or minority-owned firms.

He said every day that the opening of slots gambling in Pennsylvania is delayed cuts into profits for slots manufacturers and casino operators and into the property tax relief promised to taxpayers.

Christopher Craig, aide to Sen. Vincent Fumo, D-Philadelphia, who helped write the 2004 slots law, said he didn't think working out the regulations for slot machine distributors would significantly delay the casino licensing process.

"I don't see it as a big stumbling block. I am confident the board will resolve this," he said.

Mr. Craig noted that the gaming board had given casino operators until Dec. 31 to submit license applications, and said the distributor rules should be approved by then. Under the gambling law, at least 90 days must elapse between the time the supplier and manufacturer licenses are issued and the time the first licenses are issued for racetrack casinos.

As things now appear, the racetracks won't get their conditional, or temporary, licenses until at least April or May, and then they would need several more months to build and open their slots casinos. That would mean slots gambling couldn't begin until late 2006. Licensing for stand-alone and hotel casinos is expected to lag several months behind the racetracks.

Mike Manzo, aide to Mr. DeWeese, who, like Mr. Fumo, led the move to require slot machine distributors, said creating these new firms in Pennsylvania would help make sure smaller companies, including those owned by minorities and women, profit from the arrival of casinos.

"It doesn't do a thing for creating Pennsylvania jobs if out-of-state slots manufacturers sell machines directly to casino companies that are also based out of state," Mr. Manzo said.

"We expected potential casino and slots manufacturer licensees to squeal a little bit about this [supplier requirement], because none of them wants to see their profit margins eaten into," he said. "But we're not apologizing for that or for doing something to create jobs in Pennsylvania."

Mike Pollock, managing director of Spectrum Gaming Group, an international consulting firm based in Pennington, N.J., said the goal of creating more opportunities for minorities and women was laudable, but that increasing the costs for casino operators could hurt investment here.

"Essentially, if the return on investment to the operator is lower than otherwise it would be, then Pennsylvania is less likely to attract additional investment," he said.

'Everyone's frustrated'

Marcus Prater, senior vice president of marketing for slots manufacturer Bally Gaming and Systems, of Las Vegas, said his company understood that legislators wanted to spin off as much economic benefit from gambling as possible. But, "our preference would be to work directly with customers," he said.

"We're hoping it becomes the one distributor model vs. the regionalized approach. One distributor would be much better equipped to handle the service end required. The machines are very advanced. Computer-based machines require a certain level of expertise.

"Having multiple distributors dealing with the service issue would ultimately hurt our customers," Mr. Prater said.

Mr. Decker, the gaming board chairman, hopes to resolve the dispute over distributors by the time the board meets Thursday, but the matter is not on the agenda. Board member Mr. Coy suggested that, while he would prefer setting up five distributor regions, he would compromise on as few as two.

David Atkinson, spokesman for Senate Pro Tem Robert C. Jubelirer, R-Altoona, an opponent of gambling, said the controversy over distributorships highlighted inherent deficiencies in the gambling law.

"[Mr. Jubelirer] has been opposed to that particular provision ever since it came to light because it's an artificial construction that really has no particular advantage for Pennsylvania. It's a disadvantage insofar as people advocating slots seem hung up over how to carry it out.

"The irony is, it's not the opponents of slots slowing it down. At this point, it's the inability to achieve an agreement among the advocates."

Mr. Atkinson said the stalemate over suppliers, as well as "a host of other concerns," had provided gambling opponents hope of reopening various aspects of the gambling law.

At least three amendments are being pushed: One would eliminate the requirement for slot machine distributors, another would give the state attorney general more power to investigate allegations of gambling corruption, and the third would eliminate a provision that allows public officials to own up to 1 percent of a casino company or other gambling-related firms.

Eliminating the 1 percent provision and giving the attorney general more investigative powers enjoy broad support in the Legislature. Eliminating the requirement for distributors faces more opposition, but Mr. Rendell's newly stated willingness to consider the idea could help it along, especially if the gaming board remains deadlocked on the issue.

Mr. Prater, of Bally's, said that, whatever happens, it should happen sooner rather than later.

"Everyone's frustrated by the delays. It's time to get some momentum out there," he said. "I know start-ups in new markets take time. ... But if you don't watch out, it will drag on for way too long for everyone's best interest."