Doubt raised on slots parlors

With next week's slots vote coming at a time of economic upheaval, state leaders are acknowledging that they might have to sweeten incentives for gambling companies to attract quality developers.

MGM Mirage, one of the biggest brands in the casino industry, said yesterday that it has no interest in bidding on one of the five proposed Maryland casino sites that would be authorized if voters approve a constitutional amendment next week. A big reason: the state's plan to take 67 cents on every dollar collected by the operator, and a requirement of huge upfront investment.

House of Delegates Speaker Michael E. Busch and Senate President Thomas V. Mike Miller said this week that if the ballot question passes, the General Assembly might have to lower the tax rate if not enough attractive bids come in. Their comments underscore the vulnerability of a gambling industry hampered by plummeting consumer spending.

"You might have to go back and adjust," said Busch, suggesting that tax rates could be lowered in jurisdictions that do not receive desirable offers from gambling operators. "I don't think one size fits all."

Likewise, Miller said the slots licenses are among the "least lucrative" in the nation but contends that they are still valuable and expects at least a dozen applicants. "We might have to adjust, but I really think we did a lot of study and looked at the mistakes of other states and tried to avoid that," he said.

To be sure, a growing number of potential slots bidders are jumping on the pro-gambling bandwagon. The son of trial attorney and Orioles owner Peter G. Angelos and former Democratic leaders recently donated $100,000 apiece to the pro-slots cause, which has consistently drawn more support than the anti-slots movement in polls.

Gov. Martin O'Malley, a pro-slots Democrat who is counting on hundreds of millions in slots revenue to plug a hole in the state budget, opposes changes to the current terms. He has frequently characterized the proposal as "taxpayer friendly." Busch also noted that the legislature intentionally set a high tax rate to avoid unjustly enriching gambling companies.

Gambling companies have been struggling amid the economic downturn, as several have seen their revenue and stock-market value plummet and have laid off workers and cut costs. The economic volatility has added to the uncertainty hovering over the contentious slots proposal.

"No one can raise capital right now. It's a disaster," said Joseph Fath, a gambling analyst for T. Rowe Price Group in Baltimore. "I'm not sure who is going to come forward to bid on these licenses."

Maryland voters will decide whether to amend the state constitution to allow 15,000 slot machines at five locations throughout the state. Though voters would also have to ratify any expansion of gambling - such as new sites, more machines or table games - the General Assembly can alter the tax terms on its own.

Lawmakers, who have wrangled over slots for years, have considered a wide range of tax rates. The 67 percent that they approved during a special session last year is one of the highest in the country.

Alan M. Feldman, senior vice president for public affairs with MGM Mirage, scoffed at Maryland's proposed tax rate as incompatible with the type of high-end developments civic leaders are hoping for. "Clearly, the state of Maryland has decided ... they want boxes with slots in them," he said. "That's all you could do at that tax rate."

A national crunch has "tightened up credit incredibly," Feldman said, causing MGM to suspend two $5 billion projects in Atlantic City and Las Vegas.

W. Minor Carter, a lobbyist who has fought slots proposals in Annapolis for years, predicted that if voters approve slots, lawmakers will seek to improve the terms for gambling operators after their annual 90-day session begins in January. Under the law, slots bids are due in February, in the middle of the session.

"Once this passes, the state becomes a partner with these people, and to a degree the state loses its bargaining power," Carter said. "The powers that be said we need this money, and they told the people they are going to get this money. If it passes and the operators say they won't do it unless the terms change, what are they going to say, that they're not going to do this after all?"

John B. Franzone, chairman of the Maryland Racing Commission, said he thought that while "lesser companies" might not be financially strong enough to bid for a Maryland slots license, there will be plenty of interest.

"By hook or by crook, successful companies will be able to find the financing to get these projects done," Franzone said. "These are definitely wild economic times, but it's still a lucrative endeavor here in Maryland. ... We can make this work."

A number of prospective bidders have signaled their interest - and given money to the pro-slots ballot committee that's advocating for the ballot question's passage. They include Penn National Gaming and Magna Entertainment Corp., which may bid on slots licenses for Cecil County and Anne Arundel County, respectively. Penn has donated $1 million, while Magna has given $2 million.

Louis F. Angelos, the son of Peter G. Angelos, gave $100,000 in the last week, two sources familiar with the situation confirmed. Wayne Rogers and a family trust for Nathan Landow, both former state Democratic Party chairmen, each gave $100,000 as well, the sources said.

The group of businessmen may bid for a slots license, though the tax rate, the capital investment required under the law and uncertain credit markets would have to be considered before moving forward, one source said. The Washington Post first reported their contributions and interest as bidders.

Louis Angelos is a lawyer in his father's firm; his father would be limited from having an ownership stake by Major League Baseball rules.

slots revenue
The average Maryland slot machine would return at least 87 cents in winnings for every dollar played. The remaining revenue is subject to a 67-percent tax, meaning gambling companies keep 33 percent of their machines' "wins-per-day." Here's how the state tax revenues would be divided:

•Up to 51 percent: public education

•7 percent: horse race purses and breeders (capped at $100 million annually)

•5.5 percent: local governments

•2.5 percent: racetrack improvements (capped at $40 million annually)

•2 percent: State Lottery

•1.5 percent: small businesses