Three years after the voters authorized an expansion of state-sponsored gambling, Maryland finally got what the system was designed to produce: a competition between developers over who would provide the best deal for taxpayers in exchange for a precious video lottery terminal license.
But as with everything so far in Maryland's slot machine gambling program, there is a catch: The competition is over a license at Rocky Gap, the smallest and almost certainly least-profitable slots location in the state, a turkey of such magnitude that nobody had bothered bidding there at all until the state sweetened the terms for developers there. Now it has three bidders. But for the prospective casino in Baltimore — a much better location — just one bidder submitted the necessary licensing fees, the same story we saw at the slots locations in Anne Arundel County, Perryville and Ocean City.
Before we get another chorus from critics that Maryland has messed up a sure thing like slots, though, it's worth considering a few facts. Indeed, Baltimore's location got only one real bid, just as it had two years ago. But that time, the proposal came from an investment group with no previous successful casino projects, and the bid came with a license fee for only a fraction of the slot machines Baltimore is legally allotted. The group was never able to muster the fees for a larger number of machines, and between that failure and other problems, the bid was thrown out.
This time, the bidder is Caesars Entertainment, the biggest casino operator in the world, and its proposal came with a licensing fee sufficient for the city's full complement of 3,750 machines. Moreover, many of the details that have held up development of a city casino in the past have already been ironed out. Mayor Stephanie Rawlings-Blake's administration set out clear parameters in advance for the kind of rent the city would charge for a casino location, among other details, so far fewer obstacles stand in the way of slots actually coming on line in Baltimore. It certainly would have been better to have seen more of the companies that expressed interest in the city site actually submit qualified bids, but the one proposal Baltimore got looks solid so far.
The reason some prospective bidders decided to take a pass on the city site was that the state's already high tax rate on casinos — 67 percent — is exacerbated by the added costs of rent payments and profit sharing the city is demanding. The fact that Rocky Gap got three bids after the state dropped the tax rate there to 50 percent will surely lead critics to argue that Maryland would be better off if it had dropped the tax rate in Baltimore and elsewhere as well.
That's short-sighted. Consider this: During their first 11 months of operation, Maryland's casinos generated more than $88 million in tax revenue for the state's General Fund, horse racing subsidies, local impact grants and other purposes. If the tax rate on those casinos was at the same level as Rocky Gap, Maryland's take of the proceeds would have dropped by about $22 million.
And that's the difference in 11 months, from just two of the five casinos Maryland will ultimately have, and with one of them only open for about half of that time. Based on the average take so far from Maryland's two casinos, which are not expected to be the most lucrative locations, cutting the tax rate from 67 percent to 50 percent there and at the yet-to-open locations in Baltimore and at Arundel Mills mall would cost the state something on the order of $2 billion over the 15 years that the slots licenses will be valid.
It's too early, of course, to declare this round of slots bidding a success. The Video Lottery Facility Location Commission will need to pore over the proposals, and even a name like Caesars is no guarantee that the Baltimore bid will be successful. But the lack of competition for the license — and the unexpected bidding war in Rocky Gap — is no reason to conclude that the state should have changed the terms of its slots program. Lowering the tax rate might have attracted more bidders, but it certainly would have meant less money for the state.