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With distractions behind him, Md. lotto director is ready for casino

Stephen Martino will set foot in the state’s first working casino on Saturday, leaving behind for a few hours all the distractions the last five months have brought the new head of Maryland’s State Lottery Agency.

He has overseen a rollout of slot machine gambling beset by delays and squabbles. He parried tough, public criticism from a top state official. He was drawn into refereeing a fight between two casino operators over the most lucrative gaming license Maryland has to offer, and watched as the state tried to hit the reset button on two others.

Despite it all, the opening of Hollywood Casino Perryville on Sept. 30 will put the state’s budding gaming industry ahead of the schedule set when voters approved slot machines in November 2008.

“I certainly understand there has been some frustration, or expressed frustration, about the development of the program here in Maryland,” Martino, 38, said in a wide-ranging interview with The Daily Record. “Less than two years later from the passage of the referendum in November of 2008, you’re going to have a green field casino development up and operating in Maryland, which I think is very fast.”

Indeed, the state expected the first two of five planned casinos to open in February 2011. After Perryville, Ocean Downs, the harness racing track on the Eastern Shore, is scheduled to open Dec. 16. But the two casino locations expected to generate by far the most revenue remain in limbo.

At the “controlled demonstration” at the Perryville casino on Saturday, lottery officials will watch as the casino staff handles a crowd of invited guests pumping their own money into the 1,500 slot machines. The state will take its normal two-thirds cut of the revenue, and the casino’s share will be donated to two local charities, Martino said.

If the casino performs well, it will be granted a full license and allowed to open its doors to the public.

Martino said an opening before Sept. 30 is “possible, depending on how things go.”

“We’ve always reserved that right, depending on regulatory issues, making sure that all of our objectives were met,” he said. “We’ll open it when it’s ready.”

Martino said the construction at Ocean Downs, where a trackside building is being renovated to house up to 800 slot machines, is ahead of schedule, but doesn’t have much room for error or weather-related delays.

“I wouldn’t say that it’s a moving deadline, but we know that it’s very construction-dependent,” he said. “And I think the one thing to say about Ocean Downs is that there’s probably not a lot of forgiveness in their construction schedule.”

After Perryville and Ocean Downs, the future of slot machines in Maryland is far less certain. A ballot referendum in Anne Arundel County could decide the fate of the largest of the planned casinos. The state is seeking new bidders for a license in the Rocky Gap Lodge & Golf Resort in Western Maryland. And a state board will hear next week an attempt to wrest a license from the Video Lottery Facility Location Commission to build a casino near Baltimore’s professional sports stadiums.

The situation in Arundel

The situation in Anne Arundel has received the most attention of the stalled casino developments. Voters will decide whether or not to give The Cordish Cos. the zoning needed to build a casino next to the Arundel Mills shopping mall.

Cordish has asked the lottery to intervene in a dispute with Penn National Gaming Inc., the owner of the Perryville casino and backer of a coalition opposing the Cordish casino development in Anne Arundel. And the lottery asked the state attorney general’s office last week to clarify its jurisdiction and potential sanctions in the case.

Martino, who led the Kansas Racing and Gaming Commission before coming to Maryland, said the tiff hasn’t been much of a distraction.

“We can’t affect those things anyway that are going on in the political sphere. So I don’t get too caught up in it,” he said. “There are issues — they obviously are brought to the attention occasionally of the commission. But day in and day out, we’re focused on what does it take to make this is a high-quality facility that follows the law.”

He attributed the struggles in Rocky Gap and Baltimore to the lack of credit available during the economic downturn. The state did not receive any qualifying bids for Rocky Gap, and the slots commission tossed out a bid submitted by Baltimore City Entertainment Group in December after months of missed deadlines for updated plans and licensing fees.

The commission began looking for a new Rocky Gap developer this summer, and bids are due in November.

“Hopefully the economy is turning the corner as such that when the Rocky Gap [proposals come] in in November, we’ll have a couple of applicants for that facility in a true, competitive bidding environment.”

Martino said “there have been substantial conversations with a number of bidders, potential bidders, about what it would take to develop a facility at Rocky Gap.”

Finding a new developer for the Baltimore license will be more complicated. The Maryland State Board of Contract Appeals is scheduled to hear Baltimore City Entertainment Group’s appeal of the slots commission’s decision next week.

The lottery has been conducting background checks on BCEG’s principals through the summer. BCEG owes the state about $200,000 for the work.

The lottery, however, is holding the $3 million license fee that BCEG submitted last year.

“The state’s not going to be out any money through this process,” Martino said.

Facing competition

When — or if — those casinos open in Maryland, they will face competition from their counterparts in nearby states.

In Atlantic City, N.J., casino revenues were down $44 million, or 11.3 percent, in August compared to the year before. Once the only game in town for Mid-Atlantic gamblers, the Atlantic City has seen the take at its casinos slump as the field has gotten more crowded. Delaware, Pennsylvania and West Virginia have all recently legalized table games — poker, blackjack, craps, roulette — to keep their casinos competitive.

Martino said the lottery is well aware of the problem, but has little it can do to combat it. An expansion of gambling in the state would fall to the General Assembly.

“At some point in time, everybody is going to start cannibalizing from everybody else,” Martino said. “Certainly that’s what you’re seeing in Atlantic City. Atlantic City is distressed. Their numbers are down significantly.”

He predicted gambling to spread further as states seek to keep tax revenue from escaping across their borders. In 2007, as Maryland lawmakers contemplated legalizing slots, the state estimated that its citizens spent $230 million in Delaware casinos and another $170 million in West Virginia.

“At some point in time you probably reach an issue of mutually assured gambling proliferation because even people who don’t support gambling, who don’t think gambling is good public policy, become motivated by the fact that so many of their citizens are exporting their tax dollars to another state,” Martino said.

He said the state will keep the slot machines at Maryland casinos as fresh as possible to keep them competitive among slots players.

The lottery was criticized, most notably by Comptroller Peter Franchot, for the initial rounds of purchases and leases, which included less minority business participation than expected. Martino’s staff has since been working with slots manufacturers to find more minority subcontractors, and register some of their existing contractors in the state.

“We need to acknowledge that we set a very aggressive goal. And the lottery could have set a smaller goal. We could have set a 10 or 15 percent goal,” Martino said. “Instead we set a 25 percent goal, and we fell short.”

Lottery’s success

Maryland’s lottery revenues have grown for 13 straight years, according to recently released state figures, but that trend could be in danger, Martino said.

Revenues for the year that ended June 30 topped $1.7 billion, the first time that’s ever happened, Martino said. The state’s general fund saw $491 million of that, and more than $1 billion was paid out in prizes. In the two months following, the lottery has seen its numbers slip — sales and revenues were both about 4 percent lower than at the same point last year.

Martino said the economy was surely accountable for some of the slump, but he heaped most of the blame on a much diminished marketing budget.

“We may be beginning to see the first signs of how our failure to keep up with an adequate marketing budget is going to affect long term our sales,” he said.

The lottery’s marketing budget is $11.6 million for current year, a decline of more than 40 percent from the $19.8 million available two years ago.

“We know from the research that we do that the lottery’s games and products are not as recognized as they used to be,” Martino said. “We’re hopeful we can get that [issue] some attention next year during the legislative process and make the case for perhaps restoring some of those funds.”