Maryland slot machine operators will pay one of the nation's highest casino tax rates - effectively 70 percent - if voters approve Gov. Martin O'Malley's plan to legalize the devices, and some industry analysts say that would mean low-end facilities catering mostly to the local population.
"It's going to limit how much you can give away to customers because the margin is so thin, and it will limit how much you can invest in the enterprise," said Lawrence Klatzkin, a gambling industry analyst and managing director of Jefferies Equity Research.
The margin is so tight, Klatzkin said, that Maryland would end up with "a lower-cost product with much more limited offerings" than slots casinos in surrounding states provide to their patrons.
"It doesn't mean that they won't make money," Klatzkin said, "but some of the richer, higher-quality customers will likely go to Dover, Del., or to West Virginia for more comps and giveaways and much better amenities."
Other analysts said the high tax rate is appropriate given how lucrative a slots license can be.
"This is by far the most innovative and taxpayer-friendly proposal set forth in the 50 states," said Jeffery C. Hooke, a Chevy Chase investment banker who studies the gambling industry nationally.
Hooke, who has criticized previous slots proposals in Maryland as a giveaway to racetrack owners, said the O'Malley administration "did a good job of addressing the enrichment problems that have bedeviled other states."
Although the administration defined sites so specifically that it is likely to limit competition for licenses, Hooke said, those awarded licenses won't be getting a huge windfall.
"They're not going to be minting money," Hooke said.
Legislators, who are meeting in special session, have been asked by O'Malley to put the slots issue on the November 2008 ballot as a constitutional amendment. Bids for licenses would be due the following February.
O'Malley's slots plan calls for the state to buy or lease machines through Maryland's lottery, which would hook them to a central computer monitoring system similar to Delaware's. The plan identifies five sites for slots licenses to be awarded through competitive bidding, with a limit of 15,000 machines.
The plan calls for slots operators to keep 30 percent of "gross gaming revenue," the money left after winning players are paid. From that, they have to pay to build, maintain, staff and operate the slots facility.
