Auction of licenses to operate slots urged

State could get $1.5 billion in fees, policy group says

September 28, 2002|By Greg Garland | Greg Garland,SUN STAFF

Maryland could get as much as $1.5 billion in licensing fees if it auctions the right to operate slot machines across the state, instead of giving licenses to horse track owners, a nonprofit tax policy group says.

"In our densely populated region, the right to operate slot machines is a license to print money," said Jeffrey C. Hooke, a Chevy Chase investment banker who is working with the Maryland Tax Education Foundation on the issue.

The group's goal is to make sure that Maryland gets a fair deal if slots are approved for the state, Hooke said at a news conference in Baltimore yesterday. "If you just hand [licenses] over to the tracks, it is like giving away $1.5 billion," he said.

But horse racing interests say that allowing slots in places other than the tracks would doom the state's ailing racing industry. The idea is unlikely to garner public or political support, they add.

"If we want to destroy the Maryland racing industry, I guess that's one way to approach it," said Alan Rifkin, a lobbyist for racing interests.

Hooke based his $1.5 billion estimate on the offers made by casino companies for gambling licenses in Michigan and Illinois. Companies there also pay to the states a portion of the casino's "win," which is the money left after payoffs to players.

But such a large up-front fee would be unusual. Delaware and West Virginia, for example, did not charge their tracks such licensing fees.

Hooke says his group is not pro- or anti-gambling but believes taxpayers should get the best deal possible if slots are legalized. Over the past few years, he says, drafts of slots legislation, if passed, would have given the licenses to Maryland tracks for free, with the state collecting a percentage of the future "win" through betting taxes and other fees.

"Our goal is to have the state auction the licenses to the highest qualified bidder, while retaining ongoing betting taxes and fees," Hooke said.

He concedes such an auction likely would lead to proposals for slot casinos at sites outside the tracks, such as Baltimore's Inner Harbor.

Several Democratic legislative leaders have endorsed slots, as has Republican gubernatorial candidate Robert L. Ehrlich Jr. The Democratic candidate for governor, Kathleen Kennedy Townsend, opposes legalizing slots.

But proponents generally have focused on allowing slots only at four racetracks: Pimlico in Baltimore, Laurel Park at the northwestern tip of Anne Arundel County, Rosecroft in Prince George's County and a track planned near Cumberland in Allegany County.

Ehrlich spokesman Paul Schurick was skeptical of the idea for an open auction for slots licenses.

"We feel very strongly about the need to restrict slot machine activity to racetracks only," Schurick said. "Racetracks are the appropriate venue. They have the infrastructure in place for gaming and are able to handle large crowds and to ensure public safety."

Ehrlich has proposed a licensing fee of $200 million for the four tracks, collectively, but Hooke said that is a fraction of their true value.

Kate Phillips, a spokeswoman for Townsend, said Townsend does not favor slots at tracks or elsewhere, regardless of how much money they might yield. "We oppose them on principle because of [the problems] they bring with them," she said.

William R. Eadington, professor of economics at the University of Nevada-Reno, said slots franchises for selected regions in Maryland would be extremely valuable. He noted that from 70 percent to 90 percent of a casino's gaming revenues come from slots.

Eadington is director of the university's Institute for the Study of Gambling and Commercial Gaming and an expert on the business of gambling.

Asked about Hooke's estimate that four licenses would be worth $1.5 billion, Eadington said, "I would expect he's probably not going to be that far off."

He notes that an offer of $650 million was made for a casino license in suburban Chicago, even with a graduated tax on winnings that rose by increments to as much as 35 percent.

He says the idea of auctioning licenses, as Hooke's group proposes, has merit.

"The real policy isssue is who gets this substantial economic value of granting the franchise," Eadington said. "If it is put out to bid, arguably a good portion of that is captured by the state."

Joseph A. De Francis, president and chief executive officer of the Maryland Jockey Club, says Hooke's economic analyis is based on "spurious" assumptions.

The jockey club, which operates Pimlico and Laurel Park, has agreed to sell those tracks to Magna Entertainment Corp. of Canada, pending regulatory approval.

De Francis says it is logical to put slots at horse tracks, because they are existing gaming venues and polls suggest the public supports allowing them there.

Of Hooke's proposal to auction off licenses, De Francis said, "I don't think it's politically viable."

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