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MGM was the right bet [Editorial]

Casino and Gambling IndustryPersonal ServiceCordish Cos.Tour Operations Industry

Maryland's Video Lottery Facility Location commission faced a much harder decision in awarding a license to a Prince George's County casino than it had for any of the licenses before. This was the first time that the commissioners had a choice between three qualified proposals by well-heeled bidders. The decision was also the most fraught because it involves the expansion of a gambling program that has not yet fully come to fruition and the risk that the new competition will simply cannibalize existing business rather than adding meaningfully to the state's coffers. Under the circumstances, the decision to give the license to MGM Resorts for its proposed mega-casino complex at National Harbor was probably the right one.

MGM faced competition from proposals for a Parx casino on Fort Hill Road and for a Hollywood Casino at Rosecroft Raceway. Each of the three offered a different mix of slots and table games, proposed tax rates and sweeteners for the community. But the bottom line for the licensing commission was which proposal stood to net the state the maximum revenue, and consultants who studied the proposals concluded that MGM edged the others out.

Parx officials in particular have questioned that conclusion, and not without reason. It relies on such matters as a three-minute difference in drive time between the proposed casinos and a potential customer base in Northern Virginia. The consultant makes assumptions about how directly each facility would compete against existing casinos — particularly Maryland Live — based on their mix of slots and table games and likely amenities. The report also assumes no further changes in the gambling marketplace in the Mid-Atlantic, a dubious proposition given what seems now to be a perennial arms race among the states.

Moreover, the projected difference between MGM and Parx was negligible in the metric that counts most, which is the amount of taxes the state would net as a result when the Prince George's casino is fully operational. Consultants estimated that MGM would produce about $40 million more in net new gambling revenue in fiscal 2019 than Parx would, but because of differences in proposed tax rates between the two, that only meant a projected difference of $5 million or so for the state. (The Hollywood Casino came out much lower.) In the grand scheme of things, a difference of $5 million is a virtual toss-up.

The licensing commission voted 5-2 in favor of MGM, and ultimately, questions about what transportation improvements would be needed to make the Parx site feasible may have been the crucial difference. But there are other reasons why MGM is a slightly better bet.

Of the three proposals, it involved the largest investment in construction — it is to be a $925 million facility including a hotel, spa, shopping and celebrity chef-driven restaurants. That means jobs in Prince George's County. Of the three proposals, it was expected to do the best at drawing in tourists from outside the region, even if that is still a relatively small part of the business. Those are, in large part, customers who were not likely to patronize one of Maryland's existing casinos.

And finally, it follows the model that has made Maryland Live so successful. That casino has proven the value of building a facility in a place people are already attracted to — in its case, the Arundel Mills mall. The mall was already one of Maryland's biggest attractions before the casino came along, and it is much more so now. Rather than using a casino to shore up a troubled tourist attraction like a horse track, it added strength to strength. Business has been so good at Maryland Live — it just racked up its seventh month in a row of $50 million-plus in revenues — that its owner, the Cordish Cos., is proposing the construction of a new hotel and convention center complex there, plus a new intermodal transportation hub.

All that said, no matter which proposal the commission approved, the decision was going to be better for the new casino owners than for the state. That's already been the case with the state's expansion into table games. Total gambling revenue in November was up about $20.4 million over the same time in 2012 (factoring out Rocky Gap, which was not yet open a year ago). Of that new revenue, the state got $3.8 million, and the casinos got $16.6 million. When MGM is fully operational, existing casinos will have the chance to lower the tax rate they pay on slots further, tilting the deal even more in the gambling industry's favor. We have clearly reached (if not exceeded) the point of diminishing returns, and unless something fundamental changes, this new gambling license should be the state's last.

Correction: An earlier version of this editorial incorrectly reported the Maryland Video Lottery Facilities Commission's vote in favor of MGM. The vote was 5-2. The Sun regrets the error.

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Copyright © 2014, The Baltimore Sun
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