Perryville casino seeks to cut slot machines by a third

Even as the General Assembly prepares to return to Annapolis this week to discuss the expansion of gambling, one of Maryland's three casinos has asked its oversight agency to take back about a third of the slot machines because of declining revenue.

Penn National Gaming Inc., which operates Hollywood Casino Perryville, is "prepared to unconditionally return between 400 and 500 of our machines to the State, without any expectation of a licensee fee refund or any right to reclaim those machines," wrote Carl Sottosanti, a Penn National vice president, in a letter last week to the Maryland Lottery's director.

The Cecil County casino's business has softened since the June opening of Maryland Live Casino at Arundel Mills mall, Sottosanti wrote. Perryville operates 1,500 video gambling machines.

Penn National's request adds to the cacophony of conflicting messages about gambling that Maryland lawmakers will try to process during the special session set to begin Thursday. Just last week, the operators of the future Rocky Gap casino won state approval to reduce the size of its gambling floor. Yet the Maryland Lottery reported Monday that the state's casinos produced record revenue in July.

Legislators, returning at the behest of Gov.Martin O'Malley, will decide whether to add a sixth casino, inPrince George's County, and table games at all casinos. The discussions also may include the legalization of online betting, according to Democratic leaders who are pushing for an expansion to increase the tax haul from gambling.

For some legislators, the news out of Cecil County is another reason to maintain the status quo.

"There is only so much gambling money to go around, and they're going to continue to cannibalize everyone that's already open," said Sen. Nancy Jacobs, a Republican who represents Harford and Cecil counties. Perryville's management sent her a letter at the end of last week informing her of their intention to cut back.

The revenue decline at Perryville was "a perfect example" of what would happen to Maryland's existing casinos if the General Assembly allows a new gambling destination at National Harbor in Prince George's County, she said.

Perryville's July 2012 revenue decreased by $3.3 million — 32.4 percent — from July 2011, according to Maryland Lottery numbers released Monday.

In spite of Perryville's recent decline, the state's three casinos collectively had a record month in July. Perryville, Maryland Live and the Casino at Ocean Downs in Worcester County took in just over $48 million last month in gross terminal revenue, the Maryland Lottery announced Monday. The state collects two-thirds of that revenue in taxes, most of which goes to public education.

In July, Maryland Live generated $35.4 million and the Casino at Ocean Downs, which has 800 slot machines, generated $5.75 million, 7.6 percent more than in July 2011. Maryland Live operates 3,702 slot machines and is expected to add about another 1,000 machines by mid-September.

"We saw a pretty immediate impact from Maryland Live, which we expected," Bill Hayles, vice president and general manager for Hollywood Casino Perryville, said in a phone interview Monday.

Hayles said Perryville's management always expected that there would be some adjustment in the number of machines at the casino after Maryland Live's opening. But they anticipated cutting back by 100, not 400 or more, he said.

Penn National's request must be reviewed by the Maryland Lottery Commission, said Carole Everett, a lottery agency spokeswoman. Because the commission has never considered a request to remove gambling machines, it may take some time before the panel decides how to proceed, she said.

The commission meets monthly, and its next scheduled meeting is Aug. 23.

So far, Hayles said, Maryland Lottery's staff does not oppose Perryville's request for a reduction. Penn National isn't "panicking" about the request, he said: "It will right-size the property."

The Perryville facility reaches capacity only a few days a year, he said. Getting rid of idle machines would improve patrons' perception of the facility, Hayles said.

Plus, the move would save Penn National at least $170,000 that it would have paid to the state next year — a $425 per machine annual fee that supports the state's gambling addiction programs, Sottosanti's letter said. Perryville would like to return the machines to the state by Dec. 31.

There also could be substantial savings for the state by taking back several hundred machines, Penn National argues. Because the state owns or leases all of the slot machines and electronic table games, the Maryland Lottery could reuse machines from Perryville at Maryland Live or another casino.

"We're turning in machines in one place and allowing more facilities somewhere else? To me that makes no logic," said Del. Frank Turner, a Howard County Democrat who chairs the House subcommittee on gambling issues. The news from Perryville doesn't help the cause of gambling expansion, he said.

Even without approval of a sixth license, the up-and-running casinos have their share of problems, say some legislators and casino operators.

"When Baltimore opens, it's going to get even worse," Hayles said of the Harrah's casino approved last week for the city by the state's Video Lottery Facility Location Commission. Less than an hour's drive from Perryville, that casino is scheduled to open in 2014 and is authorized for 3,750 slot machines.

At the same commission meeting, the panel voted to let Evitts Resort LLC substantially revise its plans for a $62 million casino and hotel complex at Rocky Gap. Evitts couldn't get adequate financing for its original proposal.

Instead of installing 850 machines in an addition to the existing resort, Evitts now intends to put 500 machines in a renovated conference space. A deal to transfer Rocky Gap to Evitts from the Maryland Economic Development Corp. was completed last week, said Randall Shields, MEDCO's controller.

Del. Samuel I. Rosenberg, a Baltimore Democrat and vice chairman of the committee that handles gambling-related bills in the House, expressed concern over the Perryville numbers but also noted that Penn National has other reasons to oppose gambling expansion in Maryland.

"We obviously need to be very aware of the possibility of oversaturating the market in terms of how many machines we allow," he said. But Penn National also owns a large casino in Charles Town, W.Va., that could feel the impact of competition from a casino in Prince George's County, he said.

In a filing withU.S. Securities and Exchange Commissionlast week, Penn National reported that it anticipates Maryland Live to adversely affect revenues at its Hollywood Casino in Charles Town.

Penn National, which owns and operates more than 20 horse-racing tracks or casinos nationwide, expects revenues to decline even more sharply at the Perryville and Charles Town locations if a sixth casino is approved at National Harbor in Prince George's County, the filing said. During the special session, the company plans to continue lobbying the General Assembly to approve the sixth license for Rosecroft Raceway, which is several miles east of National Harbor, according to the filing.

"There's a possibility that we're reaching a saturation point as far as Maryland gaming goes," said James Karmel, a gambling analyst and associate professor of history at Harford Community College.

But, he cautioned, more analysis needs to be done before legislators know for sure what is causing the revenue decline at Perryville.

"It's still an open question as to why Hollywood Casino Perryville's numbers are down so much," he said.

Perryville's declines could be a result of Maryland being surrounded by states that allow table games, he said. The legislature, he added, may not have enough time during the special session to ascertain the cause of Perryville's losses.

"Theoretically, the General Assembly might want to call for consideration of table games regardless of a casino at National Harbor," Karmel suggested.

Sen.Edward J. Kasemeyer, chairman of the Senate committee that will consider the gambling expansion bill, said he doubted that the developments in Perryville and Rocky Gap would influence action on gambling expansion. Kasemeyer, a Democrat who represents Howard and Baltimore counties, said that in the case of Rocky Gap, the decision to scale back had been expected.

"I just don't see it factoring into ... this week," Kasemeyer said.

Slot machines in Maryland

Casinos currently operating and their number of slot machines:

Hollywood Casino Perryville, Cecil County: 1,500

Casino at Ocean Downs, Worcester County: 800

Maryland Live Casino, Anne Arundel County: 3,702 (4,750 by mid-September)

Casinos authorized to open:

Harrah's Baltimore, Baltimore City: 3,750

Rocky Gap Lodge & Golf Resort, Allegany County: 500

Source: Maryland Lottery, the Cordish Cos.