The Maryland Lottery has just completed the process for obtaining slot machines for the Hollywood Casino in Cecil County, slated to open this fall. While much has been written about this complicated endeavor, there has been a considerable amount of confusion and misinformation with respect to the amounts paid per slot machine by the state. I would like to correct the record and explain just how much was spent to procure the slot machines for Hollywood Casino.
Despite what has been written, the Lottery did not pay $46,542 per slot machine. Rather, all slot machines purchased by the Lottery cost between $18,000 and $25,000, depending on the manufacturer and type of machine. Last week, independent gaming analysts in Las Vegas and Baltimore both reported that the cost of the slot machines paid by the Lottery is consistent with the costs paid by private casino companies. In other words, the Lottery paid market rate for the Cecil County slot machines.
It is important to note that the contracts approved by the Board of Public Works are for five years. As part of those contracts, slot machine manufacturers are required to provide maintenance for their machines. This includes fixing disabled machines within 90 minutes of notification; reimbursing the state for lost revenue from an inoperable machine; changing out the game theme in the first year of operation if the machine isn't generating adequate revenue; and standard preventive attention and cleaning.
The costs for maintenance are not capitalized but will be paid with revenue generated from the machines over the five years of the contract. Unfortunately, when news stories combine the cost of maintenance over five years with the cost of the slot machines, it grossly — and inaccurately — bloats the perceived cost per machine.
Of the 1,500 machines approved by the Board of Public Works, 267 will be leased. The balance will be purchased. In the case of every slot machine, the Lottery requested prices to buy, as well as prices to lease. (In some limited cases, machines are only available for lease. Manufacturers often will not sell their best machines, preferring instead to get a share of the daily revenue.) We then looked at what would be a better deal for the state during the five-year life of the contract. Where it was cheaper to buy, we did; where it was a better use of state resources to lease machines, we took that action. In every case, we were careful stewards of tax dollars and worked tirelessly to get a better price from slot manufacturers than they offered. We believe we negotiated the very best deal possible for the state.
On June 17, the Union Gaming Group in Las Vegas and Stifel Nicholaus in Baltimore — both independent gaming industry analysts who are not compensated by casino companies or slot manufacturers — stated that the Lottery's slot machine purchases had been appropriate. Said Union Gaming, "They have paid roughly $18,000 to $25,000 per slot, which we would consider market rates and in line with [average selling price] expectations for the major gaming equipment manufacturers." Stifel Nicholaus concurred: "We believe the Maryland Lottery paid in line prices."
There are people who will read this and understand that the Lottery got the best deal possible. Yet, those same people may still be wondering why the state would buy or lease slot machines in the first place. The answer is simple. It's because that is what the people of Maryland overwhelmingly voted for and what the General Assembly included in the law. In 2007, when the law governing gaming was passed, conditioned on successful passage of the 2008 referendum, the legislature required that all slots be owned and/or lead and maintained by the Maryland Lottery. The state is simply following the law as it was passed.
The state of Maryland receives 67 percent of the gaming revenue generated at the slot facilities, the second highest percentage in the country. In return for receiving such a high percentage of the gaming revenue, the General Assembly balanced the financial impact by having the state purchase the machines. It was believed that greater transparency and integrity would be attached to the slots program if the state was in charge — instead of casino companies and slot machine manufacturers.
Maryland is in an extremely competitive gaming region, surrounded by casinos in Delaware, West Virginia, Pennsylvania and New Jersey. We must be strategic about providing a wide selection of state-of-the-art slot machines that will attract people to Maryland's gaming facilities and, ultimately, generate much-needed revenue for the state of Maryland. That has been and will continue to be our focus at the Maryland Lottery.
Stephen L. Martino is director of the Maryland Lottery. His e-mail is director@msla.state.md.us.