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Slots bill is seen as no guarantee for Pimlico

The Baltimore Sun

For decades, the notion of opening Maryland to slot machine gambling has been billed as the salvation of the state's historic - yet flagging - horse racing industry.

But the compromise bill before the General Assembly, while providing lucrative benefits for the sport and the tracks, is not nearly as rich as previous proposals. Supporters of Baltimore's Pimlico Race Course wonder whether the measure will be enough to guarantee the track's future - an assertion critics dismiss as a bargaining tactic.

While the legislation - which will be debated by House and Senate committees in a hearing today - provides an annual subsidy of as much as $140 million a year for race purses, breeders and track improvements, it also calls for a slots parlor in Baltimore, but not at Pimlico.

Laurel Park, which, like Pimlico, is run by the Maryland Jockey Club, is eligible for a license. But Toronto-based Magna Entertainment, which bought the Jockey Club five years ago, agreed then to share some of the proceeds of future slots revenue with previous owners based on a sliding scale.

According to two analysts' estimates, Magna might retain only $10 million to $20 million after operating expenses and paying out past owners, an amount that some believe won't be enough to keep the tracks afloat.

"If somebody cannot run their racetrack profitably, then there's not going to be any racetracks in the future," said Tim Capps, a former Jockey Club official who is now executive-in-residence at the University of Louisville's Equine Industry Program. "If they can't do what tracks in West Virginia, Pennsylvania and Delaware can do, Maryland will wake up one day with a lot of purse money and nowhere to race."

Others bristle at the notion that a $140 million state subsidy to the industry isn't enough, and they criticize Magna and its supporters for continually threatening to move the Preakness from Pimlico every time slots legislation is debated.

"I suppose that when corporate interests smell a subsidy, there's every incentive to whine that it's not enough, so I expect that they will whine right up until the ink is dry on the deal," said Del. Steve Schuh, an Anne Arundel Republican.

Gov. Martin O'Malley's slots plan calls for the state to buy or lease machines through Maryland's lottery agency. The plan identifies five sites for slots licenses, with a limit of 15,000 machines. The sites are in Laurel and Baltimore City, as well as the counties of Allegany, Cecil and Worcester.

According to O'Malley's plan, gross revenue from the slot machines would be distributed according to a formula. The operator of a slots parlor would keep 30 percent, while 2.5 percent of the total, up to $40 million a year, would go toward refurbishing the tracks.

Half would be set aside for public education. Six percent - up to $100 million a year - would go toward funds for the benefit of horse breeders and the purses paid to the owners of winning horses. Local governments where slots are located would get 5.5 percent, the lottery agency would keep 5 percent to cover administration costs, and 1 percent would go to a minority- and women-owned business investment account.

One expert estimated that Laurel's slots alone would generate $542 million a year, leaving the operator with $162 million.

The track would benefit from its location in the densely populated and wealthy Maryland and Virginia suburbs of Washington.

Senate President Thomas V. Mike Miller, a slots proponent who has aggressively promoted allowing them at racetracks to help the racing industry, said the legislation was designed not to be "a windfall for any one individual or any group of individuals," but to "maximize the benefit to the state of Maryland."

But in structuring a proposal that doesn't enrich track owners, administration officials might have produced a plan that won't generate enough money to save Pimlico, said Miller, a Democrat who represents parts of Prince George's and Calvert counties.

"Laurel's going to remain in existence," he said. "But with this bill, I believe Pimlico and Bowie [Training Center in Prince George's] get closed, and the Preakness goes."

O'Malley's bill states that licensees must also maintain the same number of live racing dates authorized in 2004 and that the tracks' operator would lose the purse subsidy and track improvement funds, should the Preakness be moved out of Maryland.

That would go against one of the main rationales for legalizing slot machine gambling in Maryland, one mentioned prominently by O'Malley on the campaign trail as he pushed for "limited slots" at racetracks, and more recently when he began unveiling his tax and slots proposals in September.

A key reason most lawmakers believe slots legislation had a chance this year is that it ostensibly would not "make billionaires out of millionaires," one of the driving factors in House Speaker Michael E. Busch's longtime opposition to the idea. Past proposals have been rejected because of how lucrative they would have been for the De Francis family and other previous owners of the Maryland Jockey Club.

Magna recently bought the remaining interest in both Baltimore-area tracks for $18.3 million, ending local ownership of them.

Under the terms of Magna's purchase, disclosed in 2002 filings with the Securities and Exchange Commission, Joseph A. De Francis and the other previous owners would take in 65 percent of Magna's slots profits for the first five years, 50 percent for the next five and 40 percent for the next decade.

That would leave Magna with between $10 million and $20 million a year in profits after operating expenses and those payouts, according to separate estimates from the Maryland Tax Education Foundation, whose chairman supports O'Malley's plan, and an industry consultant.

The winner of the Laurel license would face a minimum capital investment of $127.5 million, according to state legislation, although several gambling industry analysts said it would cost $200 million to build an attractive slots operation. That would leave an already debt-laden Magna with $10 million to $20 million in slots income and $200 million in debt.

And Busch, an Anne Arundel Democrat who has shown tentative support for O'Malley's proposed referendum on slots, said Magna isn't guaranteed the Laurel license. The legislation was written this way because Magna has struggled financially, and because of its previous decision to "flip" a past gambling license, or sell it for profit, he said.

Beyond those financial feasibility concerns, executives at the Maryland Jockey Club say a Baltimore slots facility would diminish foot traffic and horse-betting revenue at Pimlico and slots revenue in Laurel.

The club had long lobbied for slots to be allowed to shore up falling profits at Pimlico and Laurel. The Baltimore track made $1.36 million last year, down from $3.5 million in 2005, and Laurel lost $3.6 million, compared with a $41,499 loss the year before, according to documents filed with the Maryland Racing Commission.

But Baltimore officials ardently opposed adding slot machines at Pimlico because of the proximity to a residential neighborhood. City leaders favor a proposed complex south of M&T; Bank Stadium that would allow them to collect rent from developers and a potential slots operator in order to lower the city's property taxes. That site falls within the very specific guidelines proposed in the O'Malley administration bill that will be discussed today.

"Having a [new slots] location just north of Laurel will have a huge impact should a bill come to fruition" that includes the Baltimore site, said Lou Raffetto Jr., president and chief operating officer of the Maryland Jockey Club.

But he stopped short of saying that could mean closing Pimlico and moving the Preakness.

"There's a sincere doubt that we can generate enough money with such a low return," Raffetto said.

But Frank Trigeiro, a former chief financial officer of the Maryland Jockey Club, said "They ought to be ashamed of themselves for talking like that."

"They're just trying to sell this whole thing," Trigeiro said. "The Preakness is not going anywhere."bradley.olson@baltsun.com

Sun reporters Philip McGowan and Sumathi Reddy contributed to this article.

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