Please ensure Javascript is enabled for purposes of website accessibility

3 firms interested in 3rd round of Rocky Gap slots license bidding

The taxes are lower, the incentives are higher and more developers are interested this time around, but building a casino in Western Maryland remains a risky bet, would-be casino owners said.

A state commission plans to try its luck again Monday, offering up the Rocky Gap Lodge & Resort gaming license for a third time. The first two attempts, in 2009 and 2010, failed to drum up serious interest in what is expected to be the toughest gaming market in Maryland.

“In other casinos, you can afford to make a slight error,” said Kevin Flynn, president and founder of The Flynn Co. “Here, you can’t do that. If you make a mistake, you may never recover.”

Still, state officials said they expect better results this time.

“There have been nine, 10 parties that have been in contact with us,” said Robert C. Brennan, executive director of the Maryland Economic Development Corp., the state body that owns the resort. “We should have some very qualified bidders, some very viable proposals.”

Three developers have publicly expressed interest — Philadelphia-based Flynn, Sunway Hotel Group of Kansas, and Paragon Project Resources Inc. of Texas, all of them drawn by sweeteners from the General Assembly.

To avoid being left at the altar again, lawmakers lowered the tax rate on gaming revenue from 67 percent to 50 percent for the first 10 years. In the legislation approved in the spring, up to $3 million in license fees would be waived, and the eventual winner of the license will have to purchase the resort.

“We had been looking about it from afar. We knew there had to be some changes because Rocky Gap does have some challenges,” said Ivan Lanier, an Annapolis lobbyist representing Paragon. “We believe it certainly can be an economic engine for the state, and our intention is to make it a destination resort.”

Sunway Senior Vice President Linda Smith declined to discuss the project’s specifics, but confirmed the company’s interest.

The eventual holder of the license will have to overcome a location outside of the urban and suburban centers of the state and without heavy vacation traffic.

In 2007, before West Virginia, Pennsylvania and Delaware upped their antes in the already crowded mid-Atlantic casino market with table gaming, state analysts predicted each slot machine at Rocky Gap would bring yield $115 in daily revenue.

Flynn said his company’s projections peg the win per day figure, a key industry measure of market viability, at closer to $100, well below the $207 figure posted by Hollywood Casino Perryville in May, and even the $159 at Casino at Ocean Downs.

The state expects the two largest casinos, in Baltimore and Anne Arundel County, to post win-per-day figures of $315, and the other Flynn gaming project, Harrah’s Chester Downs, just south of Philadelphia, consistently averages better than $250.

If you were going to stick pins in the map and say, ‘Are you going to put a gaming operation here?’ you’d probably say no,” said Flynn.

Indeed, the gaming operation was linked to Rocky Gap first to prop up, and now to unload, the resort.

“It hasn’t produced what people have anticipated it should,” said State Sen. George Edwards, a Western Maryland Republican who pushed the legislation reforming the tax structure.

Rocky Gap lost $3 million in both fiscal 2008 and 2009, and another $3.8 million in 2010.

Private bondholders are owed about $32 million, but Brennan said the actual debt is around $60 million, including ground rent due the Department of Natural Resources and investments made by MEDCO and the Department of Business and Economic Development.

“Rocky Gap was built to stimulate tourism,” Brennan said. “To that extent we’ve done a tremendous job. The problem was we were creating a market where there was none. It’s been a challenge getting people to drive west instead of east.”

The casino developer will have to negotiate the retirement of the debt with bondholders — Flynn and Lanier said their firms have already opened those discussions — as part of the purchase of the resort.

Donald C. Fry, chairman of the Video Lottery Facility Location Commission, said the request for proposals will likely include a set of minimum requirements for those deals, as well as agreements with DNR and other state agencies.

He said the commission would likely approve a framework of the RFP Monday and a final version would be distributed about a week later. Bids would likely be due in September, Fry said, and a winner chosen by the end of the year.