Cheating With Slots

Many millions of dollars are gambled in bars and convenience stores using video poker machines that experts say are illegal in Maryland. Officials look the other way as operators pay little or no tax on their revenue.

Maryland's debate over whether to allow slot machines is purely academic.

Truth is, slots are already here. Thousands of them are hiding in plain sight in bars and other businesses in Baltimore City and County.

This gambling machine industry has been thriving for decades, producing many millions in largely untaxed dollars for their operators. The machines, also known as video poker machines, are slot machines without slots.

The Baltimore City and Baltimore County governments even license them on the pretense that they are amusement devices. During the 1990s they proliferated, appearing in unlikely locations for gambling - gas stations, convenience stores, check cashing businesses, political clubs, cigarette stores, pawnshops and bowling alleys.

Operators skirt gambling laws by paying winners with cash hidden behind the bar. The payouts are the only incentives to play the machines.

There is ample evidence that such machines have been in operation for decades. State investigators and reports in The Sun have detailed their existence since 1980.

In a new study commissioned by the Abell Foundation, this writer measured the growing scope of video gambling and, with the help of law enforcement experts, estimated the lost state and local tax revenue.

Counting the machines was no easy feat in a business where the devices are scattered in hundreds of locations and co-mingled in registration records with real games. As part of the study, the Baltimore City and County governments' tolerance of the gambling devices was contrasted with the attitudes of counties that ban them, such as Harford, Carroll and Anne Arundel.

A master list of the names of known video gambling machines (such as Cherry Master, Cadillac Jack, and Fruit Paradise) was collected with the help of an FBI gambling expert. The gambling machine names were then cross-checked with those of "amusement devices" recorded in the city and county registration offices.

The total was 3,500 gambling machines - 1,000 more than the number of legal slots at Dover Downs in Delaware. (There are more in the city that are not registered and thus could not be counted.)

Former bar owners, as well as city and county vice detectives who count cash confiscated in raids were consulted to estimate income from the machines. Numerous police reports included accountings of money seized. FBI gambling expert James Douglas Dunlap, a retired Baltimore County vice detective, assisted in the effort.

The sources said the machines take in an average of $500 to $1,000 a week ($26,000 to $52,000 a year). Based on that estimate, the operators of the 3,500 machines would take in $91 million to $182 million a year.

(Broken down by jurisdiction, the income estimate came to $55 million to $110 million in Baltimore City and $36 million to $72 million in Baltimore County.)

Determining the taxes owed on the machines, including state and federal income tax, is more difficult. But the Admissions and Amusement tax is a straight 10 percent tax on gross receipts. It is collected by the state comptroller, but handed over to the city and county.

This tax offered an opportunity to estimate how much of the gambling machine revenue is not being reported. The comptroller's office reported collecting $1.3 million in game revenue for the city and $1.5 million for the county.

Those numbers reflect $28 million in reported gaming income - far short of the $91 million to $181 million estimate.

In addition to many millions of dollars in lost local, state and federal taxes, there is substantial documentation from local police and federal seizure warrants that the machines are illegal, used as slot machines - with bartenders or store clerks paying gamblers.

A 1985 decision by Maryland's highest court found the machines illegal by design, whether or not there is proof of payout. Harford, Anne Arundel and Carroll counties use the decision to keep out the machines.

"They're illegal as far as I'm concerned. ... I think they should really be gotten rid of," said Harford County State's Attorney Joseph I. Cassilly.

Since the release of the Abell Foundation report last month, response from government agencies has been mixed.

Baltimore County Executive James T. Smith Jr. has appointed police chief Terrence Sheridan and Timothy M. Kotroco, director of permits and development management, to form a study committee and report to him by March 1.

In Baltimore, "the Law Department is reviewing the issue and has had initial conversations with Baltimore County concerning a regional approach," said Mayor Martin O'Malley's spokeswoman, Raquel Guillory.

She said the mayor opposes legislation before the City Council that would amend zoning laws to increase the number of "amusement devices" allowed in city bars and other businesses.

Maryland Comptroller William Donald Schaefer has made no public statement about the Abell study and declined to comment for this article.