June 25, 2009|By James Karmel
In recent months, there's been discussion about expanding Maryland's nascent gaming project. Some Marylanders - including some political leaders - are paying attention to neighboring states' activities and correctly wondering whether Maryland's new casinos will be stillborn amid intense regional competition. Marylanders in the gaming industry and the state's leaders in Annapolis should be paying attention and calling for a review of Maryland's gaming statutes.
They understand that the new Maryland gaming industry will only succeed in raising projected revenues for public education and other programs if it is in a strong position to draw customers from Maryland and other states. The success of Maryland's slot machines - or video lottery terminals, as they're officially known - for raising state revenue is tied to the ability of the gaming operators to make money. The state should be doing everything possible to ensure this success, beyond the careful vetting system under way by the Video Lottery Facilities Location Commission.
Maryland gaming has suffered from very unfortunate timing. The local, national and international economies changed drastically between November 2007 (when the General Assembly approved the referendum and companion statute) and February 2009, when the applications for the five slots licenses were due.
In particular, the financial crisis hit gaming companies hard in the second half of 2008. An industry that relies heavily on investment banks for expansion was in full contraction mode by October - lending sources had virtually dried up - and that did not bode well for a robust, competitive bidding process in Maryland.
However, the legislative decision to levy a 67 percent tax on gaming revenue was a major problem. Legislators also added a $425 per machine annual tax along with high licensing fees and upfront capital investment requirements.
Certainly, Magna Entertainment Corp.'s financial troubles are well-known and help explain the problems with bidding for the Anne Arundel license. But the factors listed above also help to explain why there was a lack of competitive bidding for the sites.
The tax rate is the most significant issue and should be reviewed by state officials and legislators as soon as possible. Maryland's gaming tax will be the second highest in the nation. Only Rhode Island - with two small, struggling facilities - will have a higher rate.
Mid-Atlantic gaming in the 21st century typically comes with a high tax rate, but Maryland's 67 percent tax is 12 points higher than both West Virginia and Pennsylvania, at 55 percent, and significantly higher than Delaware at approximately 60 percent. New York recently lowered its gaming tax rate from 71 percent to approximately 57 percent (depending on revenues raised and venue) in response to the struggles of that state's gaming operators after legalization in 2001. Many other gaming states have far lower tax rates.
Legislators and gaming industry leaders in other states are already jumping to respond to the competitive threat posed by video lottery terminals in Maryland. The Delaware gaming industry is moving forward by adding a sports betting lottery to its racinos. Barring a major shift in political momentum, Delaware properties will probably add table games in the near future. Pennsylvania legislators are currently considering adding them to the Keystone State's slots-only venues. Both Delaware and Pennsylvania casinos have already added electronic table games.
Two panhandle West Virginia properties added table games in 2008, to lucrative effect. In Jefferson County, W.Va., legislators are beginning to investigate the possibility of another referendum to add table games at Charles Town Races and Slots. Jefferson County voters rejected them in a 2007 referendum, but the revenue picture there (and everywhere) has changed considerably in two years.
There's no magic formula to guarantee either the successful development of Maryland casinos or gaming revenues once they open. However, now that state voters have approved casino gaming, state leaders have a public obligation to maximize the chances that gaming succeeds in the state.
There are clearly difficult questions that need to be addressed, such as how to proceed with cutting the gaming tax. These will take careful consideration and public input in coming months and years. But when it comes to gaming, Maryland leaders should recognize that what's good for the Maryland gaming industry is also good for all Marylanders.
James Karmel, an associate professor of history at Harford Community College, is author of "Gambling on the American Dream: Atlantic City and the Casino Era" and a consultant for the Maryland Gaming Association. He analyzes developments in mid-Atlantic gaming at his blog: www.gamingatlantic.com.
