Maryland might take tip from Del.

Slot machines

September 28, 2007|By Greg Garland and James Drew | Greg Garland and James Drew,sun reporters

Gov. Martin O'Malley's announcement that he will push for legalized slot machine gambling to help solve Maryland's budget woes was short on specifics, but he gave clues to his thinking that suggest he is exploring a slots program that would be similar to Delaware's.

While O'Malley said he favors "state ownership" of slot machines, that doesn't mean the state would build facilities and hire contractors to run them.

Maryland could, like Delaware, lease slot machines from vendors, link them to a central computer through the state's lottery and place the devices in privately run racetracks or other facilities.

Delaware put its slot machines at three privately owned racetracks. The track owners get a share of the profits in exchange for building, maintaining, staffing and managing the casino-like facilities.

Rhode Island and New York have similar slots programs, in which those states lease machines; Pennsylvania, West Virginia and many other states have regulatory and licensing systems but do not lease machines.

Charles Brooke, senior vice president of governmental relations for International Game Technology, a slots manufacturer, said past Maryland slots bills envisioned the state leasing the machines.

"The program that they've talked about is very similar to Delaware's and Rhode Island's," Brooke said.

Delaware Lottery Director Wayne Lemons said representatives of O'Malley's administration and some Maryland legislators have visited Delaware's racetrack casinos in the past few weeks to view their operations.

"We lease machines from the manufacturers," Lemons said. "The lease includes maintenance. They're hooked up to the lottery's computer system."

Steven M. Rittvo, chairman of the Innovation Group, a financial and marketing consulting firm that does work for the gambling industry, said it makes little difference whether the state or a racetrack/facility operator leases slot machines. If a state provides them, it just passes along the costs by taking a bigger share of the slots proceeds.

Lemons said that four vendors are licensed in Delaware to supply and maintain slot machines. Track owners decide how many of which brand they want, he said.

"Their revenue depends on how much gambling runs through their machines, so they have an incentive to keep the best machines on the floor," Lemons said.

In Delaware, track owners get a bigger share of what the gambling industry refers to as "net machine revenue" - the money left in the till after winning players are paid - than the state gets.

Under a formula set by the state legislature, the track owners received $270.2 million in the fiscal year that ended June 30, just less than half of the $585.2 million total take from slots after winners are paid, Lemons said.

The state's share was $207.8 million, or 35.5 percent, he said. An additional $64.6 million went to supplement purses paid on top-finishing horses in races, and $34.4 million was used to pay for leases of machines, maintenance and the central computer monitoring system, he said.

O'Malley has given few details of what kind of slots program he envisions for Maryland, including where machines would go and how revenues would be divided.

"We're going to introduce something very close to what the House did," O'Malley said, referring to a slots bill that passed in the House of Delegates in 2005 but died in the Senate.

"In the House plan, the machines were going to be state-owned," he said. "We'll have something in bill form in the not-too-distant future."

Disagreements over particulars have doomed past slots bills. House Speaker Michael E. Busch, who has said that he personally opposes slots legalization, has frequently battled with Senate President Thomas V. Mike Miller over the issue.

Miller said O'Malley's slots proposal is likely to percolate for a while.

"His staff will be working to draft a bill. The speaker will find some way to send it into oblivion," Miller said. "We'll wait and see. It is the governor's problem. It's a critical part of the governor's package."

The House bill that O'Malley said he plans to model his proposal on would have allowed 9,500 machines at locations near major highways in Allegany, Anne Arundel, Frederick and Harford counties. The sites and slots operators were to be decided through competitive bidding by a commission controlled by the legislature.

Jeffrey Hooke, a financial consultant who has studied the gambling industry, said auctioning off slots licenses - if done properly - would be "somewhat novel" and produce significant revenue for the state.

Other states have given away slots licenses or charged only nominal licensing fees, Hooke said, but their real value can be seen in what racetracks and other properties have sold for after the passage of slots legislation.

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