As they prepare to open bids for slots licenses today, Maryland officials are casting a wary eye on Kansas, hoping that recent history will not be repeated.
In Kansas, two gambling development companies won the rights to build "destination casinos" near Kansas City and in the southeastern part of the state - projects that the state was relying on for an economic boost. But in the face of the recession, the companies have withdrawn their bids, leaving Kansas officials hanging, and delaying the flow of gambling dollars.
The two development firms - The Cordish Cos. of Baltimore and Penn National Gaming Inc. in Pennsylvania - have said that they plan to be among the bidders for Maryland's five slots licenses. Bid submissions will be unsealed in Annapolis today, the most recent step in a years-long effort to bring slot machine gambling to Maryland.
Donald C. Fry, chairman of a commission that will award up to five Maryland gambling licenses, said there was "pent-up expectation" and plenty of uncertainty in Annapolis as the deadline neared. "We have no idea what this [bidding process] is going to produce," said Fry, a former state legislator from Harford County and current president of the Greater Baltimore Committee. "We'll have to see whether or not it produces the results they anticipated and hoped for."
The license-award process is launching amid a painful economic downturn that means less discretionary income for gamblers and less money for construction. Multimillion-dollar gambling projects in Las Vegas and Atlantic City are on hold, and big operators such as Donald Trump are facing bankruptcy.
Last week, Maryland's House speaker, Michael E. Busch, expressed "great concern" about the effect of the recession on the state's gambling future and said the slots commission should "absolutely" look into Kansas' experience for guidance and lessons.
The recent failure of Kansas to successfully launch a statewide gambling enterprise offers a sobering reminder of the potential pitfalls, experts say.
"Maryland could have a similar problem," said Jeffrey C. Hooke, a Bethesda-based gambling analyst. "Possibly in Ocean City, Cecil County and Western Maryland."
But Cordish and Penn National executives say they remain bullish on Kansas and confident that they are well-positioned to win over the Maryland slots commission. State officials, meanwhile, say they are heartened by recent reports of well-known casino companies interested in investing in Maryland, such as Orlando, Fla.-based Hard Rock International. The Maryland Jockey Club plans to hold a news conference today to discuss its expected bid for a slots casino at Laurel Park.
"I'm very optimistic we're going to get applications for licenses," said Maryland lottery director Buddy W. Roogow, though he stopped short of predicting serious interest at all five locations. The lottery agency is regulating the state's foray into slot machine gambling.
The stakes are high. Gov. Martin O'Malley and the Democratic leadership in Annapolis are counting on about $600million in annual slots-related tax revenue to partly close a projected $2billion budget gap. After years of state deadlock, Maryland voters approved a constitutional amendment in November allowing 15,000 slot machines at five sites situated in Baltimore City and in Anne Arundel, Cecil, Worcester and Allegany counties.
As in Maryland, Kansas saw the legalization of casinos as a way to stem the flow of gambling dollars out of state and to generate hundreds of millions of dollars in tax revenue.
"There was a feeling that there was a lot of money leaving Kansas that we would like to keep here," said Stephen Martino, executive director of the Kansas Racing and Gaming Commission, which recently announced layoffs because of the stalled casino initiative. Kansans now gamble aboard Missouri riverboats and in Oklahoma tribal casinos, as well as in Iowa and Colorado.
In 2007, the Kansas Legislature passed a measure authorizing slots parlors at greyhound and horse tracks, and full-scale casinos at four "gaming zones" across the state. The winning proposals, selected by a commission, were grandly conceived.
The Cordish Cos. promised a $705 million Hard Rock Casino and Cafe at Kansas Speedway in Kansas City. Las Vegas-based Harrah's Entertainment promised a $535 million casino-hotel-amphitheater-golf complex near Wichita. Penn National was to build a $225 million destination casino in sparsely populated southeastern Kansas.
As of last month, all three projects had been withdrawn, casualties of the economy. Of the four winning proposals, only the smallest - an $88 million casino in Dodge City - is moving forward. No slots parlors at racetracks have materialized.
Blaming the recession, Cordish withdrew in December, hours before scheduled final approval by the Kansas Racing and Gaming Commission. In November, Harrah's withdrew its application. A month earlier, Penn National balked, saying that it could not compete with a new tribal casino in Oklahoma.
Ed Van Petten, director of the Kansas Lottery, said the withdrawals were mostly related to the economic meltdown and that Maryland officials should not look askance at bidders because they pulled out of Kansas. "All the people we dealt with were very honorable and very cordial, and I would love to see them come back to Kansas," he said.
David Cordish, president of The Cordish Cos., said he intended to reapply for the Kansas City contract but this time would propose splitting the project into smaller phases. "We ... feel extremely optimistic we will win again," Cordish said in an e-mail, adding that he is "optimistic about the strength of our application in Maryland. ... We are fortunate to have liquidity and capital."
D. Eric Schippers, a spokesman for Penn National, said competition from nearby Oklahoma, not the recession, was the main obstacle in Kansas. Schippers said the company was considering a bid on the Wichita-area gambling contract that Harrah's walked away from. He also said last week that Penn National still intends to apply for a license to operate a slots parlor in Cecil County.
Since the economic crisis took root, Kansas officials have moderated their expectations, though they are still counting on legalized gambling as a way to boost distressed areas.
"I am cautiously optimistic we will see more proposals," Martino said. "But I think they will be significantly smaller."
The state has reopened the bidding for casino proposals and set an April deadline. The tax proceeds from future casinos - once estimated at about $200million a year - will go toward infrastructure projects, reducing state debt and lowering property taxes, Martino said.
Van Petten said there is increasing talk that the Kansas Legislature might consider lowering the tax on gambling operators. Full-scale casino operators in Kansas would now pay an effective 27 percent tax rate, while slots-only racetrack operators would pay the equivalent of a 60 percent tax, he said.
Under Maryland's law, operators would pay a 67percent tax on slots proceeds, one of the highest rates in the country.
With a slots-related windfall in Maryland appearing tenuous, some lawmakers are looking beyond today's bidding to changes that the General Assembly might make.
Senate President Thomas V. Mike Miller, an ardent slots supporter, said the more remote sites approved for Maryland gambling, such as in Allegany County, should be moved to population centers. And he has suggested sweetening the pot for developers by lowering the tax rate.
Noting that Kansas, with its relatively low tax rate, has had trouble luring major casino developments, Martino said that Maryland's tax structure could limit interest from bidders.
"I think that 67 percent is extremely steep," he said. "The question is whether you'll be able to get an operator to build the facilities that you want ... and have them be economic engines. I'm not sure that can happen at that tax rate."