August 09, 2012|By Douglas M. Schmidt
•Facts are relative. What distinguishes the long debate on gambling in Maryland has been the absolute consistency of projections used in favor of gambling. They have never been correct or even close. All decisions have been made on financial projections that don't materialize. The original projection from the Maryland Department of Legislative Services was for the state to net over $600 million per year by 2013 based on five locations using all of the allocated 15,000 machines, operating at an average take per machine equal to the best in the industry.
As we approach 2013, there are only three facilities up and running with Ocean Downs operating one-third of its allocated machines and Perryville operating with just over half of its allocation but trying to give some machines back to the owner. (That owner would be you, the taxpayer.) Projections have been revised steadily downward, until, like magic, Messrs. Miller, Baker and the gambling industry came up with the National Harbor idea. A Wayne Newton destination will save the day.
The fundamental problem with all this terrible guesswork is that gambling is a multi-variable equation where the inputs cannot be accurately defined. There are four nearby states that are constantly adjusting their offerings and economic models. The economy has gone from a protracted downturn to a slow recovery, making macro economic assumptions unreliable. People behave irrationally, so it is impossible to predict who and how many will gamble. And on and on.
Jack Welch, the renowned General Electric leader and guru to CEOs, had a philosophy that if you can't be No. 1 or No. 2 in an industry, you should exit. At last count, Maryland was No. 5 in the highly competitive Mid-Atlantic gambling business.
•The only winner will be David Cordish. There is a reason why he is a billionaire. He is smart, ruthless and a master tactician. And he has his allies in Annapolis. Already, Mr. Cordish has made a fool of the governor and Mr. Miller by co-opting the "Anne Arundel" license and putting far from Laurel Park, where they wanted it, and way up I-95 at Arundel Mills Mall. What a stroke of genius — food, shopping and gambling all in one outing.
Of course, the site is only 13 miles from the proposed Baltimore casino, which is why the Baltimore casino has had so much trouble launching. No one in the industry is eager to take on the Cordish retail machine with only 20 minutes separating Baltimore from his palace of pleasure. You can make all the plans you want for a Las Vegas on the Potomac, but my money goes on Mr. Cordish. Heads he wins; tails the legislature loses.
Ten or 15 years from now, this Maryland foray into gambling will be seen as many multiples the folly that Rocky Gap became. It is entirely predictable. Our planning is poor to non-existent. We are a late entrant into a crowded market. We have made gross tactical mistakes such as the state financing of slot machines. Our whole strategy is conceived and executed by Maryland politicians, with few professionals in sight. The gambling industry will not lose. At some point, it will cut its losses and sell, ultimately leaving Marylanders with an expensive gambling infrastructure and not enough players. If Mr. Cordish owns Maryland Live Casino in 10 years after Internet gambling has taken the wind out of the sails of brick and mortar slots, then I will eat my Orioles cap.
Douglas M. Schmidt is an investment banker and writer who lives in Maryland. His email is doug@chessiecap.com.
