State spends $50 million on slot machines

Comptroller calls contract a 'windfall' for industry

June 10, 2010|By Annie Linskey, The Baltimore Sun

The state's spending panel agreed Wednesday to pay nearly $50 million to buy about 1,000 slot machines for the planned Cecil County casino, overcoming the objections of Comptroller Peter Franchot, who called the contract a "windfall" for the gambling industry.

Members of the Board of Public Works were given just hours to review the deal, in which the state will spend an average of about $46,542 per video lottery terminal — an amount significantly higher than state and industry analysts say each machine should cost.

State lottery officials defended the contract, which authorizes the purchases of machines of widely varying cost from six separate manufacturers, saying it includes hard-won price reductions from the vendors. Also they stressed that the cost includes maintenance and transportation, among other expenses. But the contract shocked Jeffrey Hooke, an industry analyst who said the cost per machine should be closer to $10,000.

"I've just never heard of numbers that big for slots machines," Hooke said. "I'm dumbfounded. It is extremely high."

The state has put itself in the unusual position of purchasing the slot machines for the casinos it has licensed. Most states leave the casino operators they license to select and pay for the mix of machines they want.

The debate over the contract lays bare competing pressures on state officials: They want to scrutinize the industry but don't want to slow the program, which, when fully running, is supposed to contribute $600 million annually to state coffers.

Franchot, who cast the sole vote against the measure, sounded frustrated by both the content of the deal and its late arrival. He said his office did not receive the contract until Tuesday, which he said did not leave enough time to perform due diligence before the board meeting Wednesday morning.

"How can we be sure we are getting the best deal for the taxpayer?" he asked. On the face of it, he said, the contract is "an incredible windfall for the industry."

Gov. Martin O'Malley was not troubled. "I would like to see this," he said.

O'Malley said the recession has already "put a huge delay" on the state's plans for slots. Construction has begun on only two of the five locations approved for casinos; two others are mired in legal battles, and the fifth attracted no qualified bidders.

The governor's main challenger in the upcoming election, former Gov. Robert L. Ehrlich Jr., has signaled that he intends to make the O'Malley administration's management of the state's gambling program a campaign issue.

Adding to the pressure, Maryland State Lottery Agency procurement director Robert Howells told board members that a delay in approving the slots purchase would "put in jeopardy" the expected Oct. 24 opening of the Hollywood Casino Perryville.

Also dissatisfied with the purchase was Wayne Frazier, the president of the Maryland Washington Minority Contractors Association, who said it did not meet minority contracting goals.

In April, the board gave preliminary approval to spend $200 million over the next five years to buy slot machines. The contract approved Wednesday, which authorizes the purchase of 1,068 machines divided among the six manufacturers, marks the first installment on that plan.

A state lottery spokeswoman said the average cost of machines is typically between $19,000 and $21,000. Spokeswoman Carole Everett stressed that the average from Wednesday's is skewed because some more complicated machines cost significantly more.

Shuffle Master terminals cost taxpayers $116,000 per machine, according to details provided by the state lottery. On the low end are KGM machines, which cost $24,000 per machine.

Some manufacturers have spent a lot of money lobbying Annapolis over the past decade. IGT, which was the biggest winner Wednesday with $20 million in sales from the contract, has spent $800,000 lobbying key lawmakers. Spielo, which got $9 million, spent $87,000 on lobbyists.

The state is not done shopping: The casino will need another 438 machines to be fully operational. The lottery agency will seek approval for those machines this month, director Stephen Martino said. At the rate of $46,000 per machine, that would cost another $20 million.

Martino expects the state to purchase machines for the Ocean City casino over the summer. The state has authorized 2,500 machines for Worcester County, but plans for Ocean Downs call for only 800.

A story on the front page of Wednesday's Sun misstated the number of slot machines planned for the Ocean Downs casino. The number is 800. It also incorrectly identified the size of a master slots contract approved by the Board of Public Works. The Maryland Lottery Agency requested $600 million to purchase machines but the Board reduced the figure to $200 million.

The Sun regrets the errors.

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