The fine print in Maryland's gambling expansion bites us again

In November, Marylanders voted overwhelmingly to erase some of the fine print they had missed when they voted 10 years before to legalize slot machine gambling. It seems people had gotten the impression that this new money would go toward enhancing Maryland’s public schools — understandable given that the biggest chunk of the money was earmarked for a newly created Education Trust Fund. It took a much deeper dive into the details than most folks gave it to realize that not a dime more would go toward schools than the law otherwise would have required; the slots money merely freed up existing tax dollars to fund other things.

If you’re a regular reader of Sun editorials, we aren’t telling you anything you don’t already know. We’ve been shouting that from the rooftops for years. But there’s another bit of casino fine print that you could be excused for having missed or forgotten, and it’s about to crop up again in the 2019 General Assembly session.

When Marylanders voted to legalize table games and allow a sixth casino in Prince George’s County in 2012, part of what they approved was a reduction in the tax rate Maryland’s existing casinos would pay once the new MGM casino came on line. Because of increased new competition, the Horseshoe Casino in Baltimore would get an immediate break of 7 percent, and Maryland Live would see its slots taxes reduced by 8 percent. (Some of Maryland’s other casinos, while more distant from National Harbor and thus less susceptible to a loss in market share because of MGM, have nonetheless seen adjustments in their tax rates over the years, too.) That’s part of the reason why the vast majority of the new revenue to be generated by the gambling expansion was projected to go to the casinos, not the state.

But the 2012 referendum didn’t stop there. It gave the state another chance to adjust slots taxes for Maryland Live, the Horseshoe and the Hollywood Casino in Perryville a few years later if necessary because of competition from MGM or other factors, and the deadline for the Maryland Lottery and Gaming Commission to suggest any further reductions is Jan. 1, 2019. At a meeting this month, it recommended increasing the take for all three casinos by the maximum amount the law allows, 2 percent for Live, 3 percent for the Horseshoe and 5 percent for the Hollywood.

By law, the money has to be used on marketing or facilities improvements, things that should theoretically increase the casinos’ business and hence soften the loss for the state. However, a report for the commission notes that “current expenditures in these areas are already far greater than the amounts in question; therefore, this condition is not a constraint nor does it have any impact on casino operations or plans.” The report does anticipate minor increases in the casinos’ business because of the tax rate reduction but nowhere near enough to offset the loss for the Education Trust Fund, which it pegs at $13.6 million a year.

That may not be much in comparison to the $$496.6 million million Maryland’s casinos sent to the ETF last year, but it’s not nothing either, particularly given that the state just voted for the “lockbox” amendment to help position us for a major new investment in K-12 education..

There’s no question that business is down at Live and the Horseshoe since MGM opened — gross revenue gaming revenue for them was down by 8.7 percent and 20.3 percent, respectively, in the first five months of this fiscal year compared to the same period before MGM opened in December, 2016.

But the story is complicated. As the report notes somewhat euphemistically, the Horseshoe faces special challenges as Maryland’s only urban casino (read: suburbanite fear of Baltimore crime). And Live has felt the effects of MGM in its table game business much more than slots. Gross slots revenue is actually slightly higher at Live than it was before MGM opened, and because of the previous reduction in slots taxes, the casino’s take from the machines is up a whopping 20 percent in the last two years. A casino’s split between table games and slots is not an immutable fact of nature; it has to do with business decisions and market positioning, and casinos can make adjustments based on what’s most profitable. Given that the cost to operate slot machines is far lower than table games, the gross revenue numbers give an incomplete picture of how MGM has affected Live’s bottom line.

The General Assembly now has the chance to adjust (or reject outright) the commission’s recommendations if it so chooses, and it should consider the matter carefully.

As for Maryland voters, keep watching the fine print. The gaming commission’s report noted all manner of competitive pressures from other states — sports betting, new mini-casinos in Pennsylvania, ever-changing tax rates. This won’t be the last we hear from the gambling industry. You can bet on that.

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