State's gambling future taking shape

Thank you for supporting our journalism. This article is available exclusively for our subscribers, who help fund our work at The Baltimore Sun.

Through the first three years of the state's slots program, the opportunity to build a casino in Baltimore drew only one bidder — and that investor was disqualified after failing to make payments and meet deadlines.

But now the city slots license is being sought by an eclectic — and well-heeled — group that includes a powerful mix of Baltimore entrepreneurs and national names. Headlined by Caesars Entertainment, the partnership includes NBA team owner Daniel Gilbert, Baltimore health care pioneer Michael Bronfein and former Rouse Co. executive Anthony Deering.

It also includes the Stronach Group, which owns the Pimlico Race Course and Laurel Park thoroughbred tracks, and whose chairman, Frank Stronach, has tussled with state officials, horse owners and trainers.

Their application to build a 3,750-machine casino on Russell Street south of the sports stadiums has delivered a much-needed jolt to Maryland's gambling program, a year after the first of the five proposed slots parlors produced lukewarm revenue for the state.

With casinos now operating in Cecil County and on the Eastern Shore, another under construction at Arundel Mills mall, and bidders competing to build slots parlors in Western Maryland and Baltimore, the state's venture into gambling appears to be settling into its final shape.

"It's certainly good news for Maryland and Marylanders," said James Karmel, a gaming analyst and a history professor at Harford Community College. "In the big picture, the Maryland delays aren't that extraordinary when you consider the time it takes states in general to operate from the point of legislation to the point of opening."

But with only two of the five casinos approved by voters in 2008 now operating — and revenues at the two, Hollywood Casino Perryville and Ocean Downs, coming in below state expectations — the slots program remains behind the schedule officials had envisioned. The state had expected to have all five casinos operating by last month.

And even when all casinos are open, analysts and some operators say, Maryland's nascent gambling industry still faces challenges.

The state's tax rates on slots revenues, which range from 50 percent in Rocky Gap to 70 percent in Baltimore, are among the highest in the country.

And Maryland's casinos face stiff competition from operations in Delaware, Pennsylvania and West Virginia, which offer table games such as poker and roulette in addition to slots.

"Maryland is slots-only, and people will still drive to play table games," said Steven M. Wieczynski, an analyst at the financial services firm Stifel Nicolaus in Baltimore.

The General Assembly is expected to consider legislation next year to expand the state's menu of gambling options.

In Baltimore, Caesars would manage the casino on behalf of the investors. The gambling giant already has a partnership with Gilbert's Rock Gaming LLC to develop casinos in Cleveland and Cincinnati under its Horseshoe Brand.

A spokeswoman for Rock Gaming said Baltimore fits into the company's model of building casinos in urban areas alongside existing entertainment venues and businesses.

"If you have a critical mass of people coming to the casino, you're connected to other downtown attractions and encouraging a back and forth," spokeswoman Jennifer Kulczycki said. "It's good for the whole city and good for the casino, too."

But Stifel's Wieczynski was skeptical about the prospects for Caesars in Baltimore, given the 70 percent take for the state and city.

"I don't think you'll see a lot of profitability come out of this market until they take that tax rate down or they implement table games," he said.

Caesars reserves the Caesars name for its high-end casinos. Wieczynski said he could see the company applying its Harrah's brand to the Baltimore operation.

Caesars is not revealing the group's plans for Baltimore.

When bids were announced last week, some observers were surprised to learn that the Stronach Group was participating.

Canadian auto parts and horse racing magnate Frank Stronach had sought a license to operate slot machines at Laurel Park. But he was disqualified from bidding when his then company, Magna Entertainment, failed to pay required license fees.

The company challenged the state slots commission's decision to award the Anne Arundel County casino license to developer David Cordish in a legal fight that moved from the courts to the ballot box. County voters last fall affirmed Cordish's right to build the mall at Arundel Mills.

Belinda Stronach, Stronach Group's president and chief executive officer, who is Frank Stronach's daughter, is listed as a principal under the Caesars bid. Frank Stronach is the company's chairman. The Stronach Group did not return a phone call.

John Franzone, a longtime member of the Maryland Racing Commission, said he hopes that Stronach's involvement with the Baltimore casino improves the prospects for a downtown racetrack.

The head of Stronach's track business told the racing commission in July that the company wants to build a modern facility to better highlight the Preakness Stakes, which now is run at Pimlico. Greg Avioli said downtown Baltimore is a strong possibility for a new racetrack.

Other investors associated with the Caesars bid include Bronfein, a co-founder of NeighborCare who now runs Remedi SeniorCare in Rosedale; Theo Rodgers, a Baltimore developer known for urban projects; and Deering, the former chief executive of the Rouse Co., which sold itself to General Growth Properties, the operator of Harborplace and other Baltimore area malls.

The three investors did not return a call or could not be reached to comment.

A second Baltimore City bidder, Baltimore City Casino LLC, did not submit the required $22.4 million license fee and is likely to be disqualified, officials said.

Of the three bids for Rocky Gap, the best-known is by Nathan Landow, a former Democratic state chairman who tried unsuccessfully to buy bankrupt Rosecroft Raceway. Landow had planned to lobby for slots at the Prince George's County harness track.

The other bidders include Evitts Resort LLC, whose investors include Paragon Project Resources in Dallas, and a partnership between Allegany Entertainment Group and Potts Gaming LLC.

After two rounds of bidding failed to produce an applicant for Rocky Gap, officials sweetened the deal, waiving some fees and lowering the tax rate from 67 percent to 50 percent.

Hollywood Casino Perryville, the state's first casino, celebrated its one-year anniversary this week.

The casino at Ocean Downs, on the Eastern Shore near Ocean City, opened in January.

The Perryville facility has generated $101 million in gross revenue, which represents money taken in by the 1,500 machines after winners are paid out.

That means the casino averaged about $199 daily per machine, about 5 percent less than the $210 average the state had projected.

Still, owner Penn National says the facility has met the company's expectations. The casino posted an operating profit of $6.8 million for the first six months of 2011, according to financial statements filed by Penn National.

"We've been pleased with the performance at the Perryville property and when we look at our revenue over the past year, it's been right at what we expected," said John Finamore, senior vice president of regional operations.

Bill Hayles, Perryville's general manager, said the casino's first year has provided a window into the rhythm of the business. He said June, for example, was a slow month because of activities such as proms, graduations and weddings, while Sundays during the football season were quieter.

Hayles said the casino has attracted most of its customers from Baltimore, Cecil and Harford counties. The facility also draws motorists along Interstate 95.

Because the casino is a smaller venue than the larger, resort-style gambling facilities Penn National operates in neighboring states, Hayles said, it has been easier to get to know customers and create more of a "family" environment.

As the Perryville facility enters its second year, officials expect competition to heat up. The Arundel Mills casino is on track to open partially by June 2012.

Finamore, the Penn National executive, said the company is still evaluating how the new casino would affect Perryville.

But the reality, he said, is "there's a lot of competition in the Mid-Atlantic region, whether it's Pennsylvania, West Virginia, Delaware or Maryland."