Potential bidders question terms of slots casino deal

Potential bidders for the license to run the slots casino proposed for Baltimore say the deal the state and city are offering would make it nearly impossible to make a profit.

When state officials unveiled the terms late last month, they touted incentives that they said would draw more applicants to build and operate the casino — and prevent a repeat of the debacle that occurred the last time they sought an operator.

But as the deadline for applications draws closer, some say the incentives are outweighed by the costs — including the rent they would have to pay the city for the site.

"I've spoken with a number of national and regional gaming companies [that] have decided to pass because of the economics," said Scott Marder, a Baltimore lawyer and gaming expert. "With the tax rate, the margins on the deal are razor-thin."

Slots commission Chairman Donald C. Fry said he has heard similar concerns about the state's other casino locations, but they still have drawn bidders — and, in the case of the two now open, generated profits.

"We have very few [slots] licenses left in the state ... just Baltimore and Rocky Gap" in Western Maryland, Fry said. "If you're interested in being in gaming in Maryland, this is one of the last potential chances."

About 50 people — including prominent local attorney William Hassan Murphy III and developer Patrick Turner — attended a meeting hosted by the state lottery commission Tuesday to address questions about the request for proposals for slots operators.

Potential bidders have until July 28 to put together plans to build and run the casino and to drum up the $22.5 million or more required as an initial licensing fee. City and state officials hope to receive multiple applications, unlike in 2009, when just one team, headed by a Canadian developer, submitted a bid.

Several attendees demanded to know how a tangle of legal cases involving the deal with The Baltimore City Entertainment Group would affect the current application process.

The group, headed by Michael Moldenhauer, filed suits against the state and city after it was denied a slots license. An appeals hearing in the group's case against the state is scheduled for Wednesday morning in Baltimore Circuit Court.

Lottery commission officials assured those at the meeting that their lawyers had cleared them to seek new bids. And state and city officials said the 17-acre site — on Russell Street near the city's stadiums and the Inner Harbor — offers a plum deal for investors.

"With the urban setting and the critical mass of folks we have in the area, it could be a very successful venue," said Kimberly Clark, executive vice president of the Baltimore Development Corporation, the city's quasi-public economic development arm. City officials are eager for slots revenue, which the law says must be spent on lowering property taxes and improving school facilities.

The morning meeting at lottery headquarters was equal parts question-and-answer session and mixer as investors, attorneys and contractors mingled with potential business partners after the discussion. Attendees traveled from Toronto, Las Vegas and Florida.

Turner, whose planned $1.5 billion Westport development sits less than a mile from the site proposed for slots, said he still is deciding whether to bid on the project.

"We want to look at the numbers," said Turner, who was flanked by several associates.

Murphy, who launched a group called Charm City Development and Gaming last fall, said he had concerns about the city's requirements for the project. The city's Board of Estimates approved the terms of the deal last month that all bidders would be required to sign before submitting an application.

"The [memorandum of understanding] presents some interesting challenges," said Murphy, who was joined by a phalanx of employees from his firm. "We're looking forward to talking with the city again."

The agreement requires operators to pay 2.99 percent of proceeds or $8 million — whichever is greater — to the city in the first year, $10 million in the second, $12 million in the third, $13 million in the fourth and $14 million in years five through 50. Those fees are on top of the 67 percent of profits that operators are required to turn over to the state.

Under an earlier agreement, Moldenhauer would have paid nearly $16 million rent in years three through 50.

Clark said bidders could work out a new agreement with the city only if the revised terms are more favorable to the city.

In response to a question from Turner, Maryland Lottery official Robert W. Howells said negotiations between bidders and the city concerning a new agreement would be kept confidential.

John Dougherty, an attorney for Baltimore City Entertainment Group, said the unresolved legal issues with his client complicated the process.

"Some of the questions asked today reveal the problems inherent in beginning one process when another one is not yet over," said Dougherty.

Still, Dougherty said, Moldenhauer's group is interested in submitting a new bid for the casino.

Howells, the Maryland Lottery's procurement director, hosted the meeting. The state lottery commission supervises background checks of those applying for licenses and oversees the management of the casinos; the slots commission awards the licenses.

"Our goal is very similar to yours: to get these facilities open and have them make money," Howells told attendees. "We want to get good proposals and we want to get a good facility."

Howells instructed potential bidders to address all questions about the casino to him — not to Fry's commission or city officials. He said answers to all questions about the application would be shared with all potential bidders.

"We don't want any perception of impropriety or any applicants having private conversations," he said.

Howells said the lottery commission had received many questions about the initial licensing fee due by July 28. Applicants would pay $22.5 million for the 3,750 slot machines required at the site, but could pay more if they wanted additional terminals. The eventual operator could have as many as 4,750 slot machines at the casino.

Howells said several potential bidders have questioned the terms under which the fee could be refunded — an issue also raised in Moldenhauer's suit against the state. Moldenhauer contends that the state should return the $3 million he paid as a licensing fee.

Howells said that question, and other technical matters, would be addressed in writing within the next few weeks.

Participants also questioned another legal cloud hanging over the property: an agreement that granted developer Samuel Polakoff and Baltimore Raven Ray Lewis the exclusive negotiating rights on a portion of the slots parcel. The city issued a letter terminating the deal last fall, but a dispute over the site, and reimbursement over the development team's expenses, has not been resolved.

Clark, of the Baltimore Development Corp., said "there have been no suits filed in the court" in that case.

"Have any been threatened?" asked Murphy, the lawyer.

"Oh, Hassan, they are always threatening," said Clark, with a laugh. "I live my life by lawsuits."

"So do I," he said.

julie.scharper@baltsun.com

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