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New casino may change the odds for other Maryland sites

David Cordish is quick to tell you that, when it opens on June 6, his Maryland Live! casino in Hanover will have more slot machines than any casino in Las Vegas or Atlantic City.

Workers install the first slot machines at the Maryland Live! casino in March.

With 3,250 machines, it will be larger than any other U.S. casino was at its opening. Another 1,500 machines set to be installed in the fall will give it the sixth-most slots in the country. Once up to full speed, the casino should generate $500 million a year in tax dollars for Maryland, he says.

But Cordish, chairman of The Cordish Cos., is also quick to tell you that adding another casino with 4,750 slot machines in Prince George’s County would be disastrous for his facility and perhaps for every other casino in the region.

“What the numbers tell the experts is that Maryland is already oversaturated, or at the brink,” Cordish says. “There’s an oversaturation train wreck coming down the pike.”

Just 20 months ago, there were no casinos in Maryland. Today there are two — Hollywood Casino Perryville in Cecil County and Ocean Downs in Worcester County. Cordish’s Maryland Live!, adjacent to the Arundel Mills mall, is next in line.

A casino with 850 slot machines is slated to be built in the next two years at Rocky Gap Lodge & Golf Resort in Allegany County, and the license for a 3,750-slot casino on Russell Street in Baltimore could be awarded to a developer in late June in hopes the facility would open by late 2013.

That would bring Maryland’s casino total to five, the maximum allowed by the state constitution.

But Gov. Martin O’Malley has named a work group to discuss adding a sixth casino license for use in Prince George’s County, most likely at the sprawling National Harbor development near Oxon Hill, a location touted by Prince George’s County Executive Rushern L. Baker III and Senate President Thomas V. Mike Miller Jr., D-Calvert and Prince George’s.

Baker and Miller want a billion-dollar resort casino built at National Harbor on the Potomac River, a location Miller has called the best in the country because of its proximity to wealthy jurisdictions just across the river in Virginia.

If Maryland does allow a casino in Prince George’s County, perhaps with as many as 4,750 slot machines, the state would have three of the 13 largest casinos in terms of slot machines in the country.

Eating into business

The state’s casinos are already eating into each others’ business, said Stephen L. Martino, director of the Maryland State Lottery Agency, He added that Maryland Live! is expected to take more than 20 percent of Hollywood Casino’s business.

David Cordish sees Maryland’s gambling strategy as a ‘unique experiment’ to see how many casinos can be placed so close together with the state taking 67 percent of the revenue.

“We expect Perryville’s numbers to go down,” Martino said. “I think the question is, we don’t know how long that’s going to last. I would expect an initial decline in the 20-to-25 percent range as new competition comes on line. Then we’ll have to see.”

Cordish said proponents of expanded gambling are failing to consider reality.

“With all due respect, President Miller is not looking at the word ‘saturation,’” Cordish said. “If you didn’t have Maryland Live!, then sure, look at National Harbor. … You really have this Alice in Wonderland [perspective] between Baker and Miller.”

James Karmel, a gambling analyst and history professor at Harford Community College, said Cordish’s cries of oversaturation aren’t overstated.

“I think this is a legitimate concern. You are going to have two fairly large casinos already in really close proximity,” Kramer said. “Add a third one in the same scope and size at National Harbor, and that does risk the market. They’re really digging into potential revenue.”

PricewaterhouseCoopers is working on a report it will present to the governor’s gambling work group that will examine the viability of adding another casino in the state. Gov. O’Malley has already said he expects to call lawmakers to Annapolis for a special session. The session even has a tentative start date – July 9.

That doesn’t leave the state enough time to seriously consider a gambling expansion, Cordish said. Members of the industry should have several months to examine the report’s conclusions, he said.

“There’s no way, in a couple of weeks, you can decide the future of Maryland,” Cordish said. “I applaud the consultants’ report. I think that’s the smartest thing.”

Other aspects of the state’s process — such as naming a work group that does not include a gambling expert — “leaves a very peculiar taste in my mouth,” Cordish said.

A deal is a deal

Miller says a casino at National Harbor would be a major tourist attraction and revenue generator because it would draw primarily from across state lines.

Karmel, the gambling analyst, doesn’t dispute that but said a casino in Prince George’s County made a lot more sense before the state decided to allow another casino to be plopped down next to the Arundel Mills mall.

“I think, originally, placing one at National Harbor might have been a good idea given the huge [Washington] market,” Karmel said. “My own inclination is you have to give the original program a chance to succeed and see how well that works.”

Any change in Maryland casino law would have to come in the form of a constitutional amendment, meaning that a bill passed by the legislature would have to be approved in a statewide referendum. Proponents are rushing to have legislation authorizing a change passed this summer, because the next general election after this fall is not until 2014.

When the state approved the construction of casinos in 2007 — with slots only and no table games — the constitution was amended to read that only five licenses would be awarded, with the southernmost being in Anne Arundel County “within 2 miles of MD Route 295.”

State fiscal analysts calculated that each casino would draw from a 50-mile radius. That means gamblers coming from Washington and Northern Virginia were originally intended to be an exclusive market for the Anne Arundel County and Baltimore casinos.

That’s the deal Cordish made, and that’s the deal he still wants.

The state’s tax rate on slots revenue is 67 percent, which makes losing part of a customer base especially devastating to casino owners. But Cordish doesn’t want his tax rate lowered to protect him from a potential loss.

“We just raised everybody’s taxes in the state, but you’re going to lower mine?” he asked rhetorically. “I don’t want to be taken care of. My deal is to pay 67 percent. … We made a deal. Stick to the deal, and let’s see how it works.”

Some state casinos, though, wouldn’t mind the helping hand. Maryland has a higher tax rate on slots than Pennsylvania (55 percent), Delaware (57.79 percent) and West Virginia (54.14 percent).

Cordish said “one or two points” of the 33 percent of revenue he is allowed to keep would be true profit after factoring in costs for electricity, labor, insurance, valet parking and health benefits for employees.

But he said he isn’t complaining and offered a baseball analogy to explain why such a slim profit margin is acceptable.

“That’ll be a nice, long single,” Cordish said. “There’s an expression, you hit enough singles, you’re in the Hall of Fame.”

With the most slot machines in the state, however, Cordish has more wiggle room than some other casino owners.

‘A unique experiment’

Marc DeLeo, the marketing director for Hollywood Casino Perryville, said his casino would happily accept a tax cut. He called the 67 percent rate “too high.”

Karmel agreed, saying the state depends too much on gambling to account for revenue shortfalls. Casino money should be used in a more targeted way — such as solely funding education — he said.

While the largest portion of the state’s take from casinos — 48.5 percent — goes to the Education Trust Fund, the rest is dispersed to the horse racing industry, local impact grants and other areas.

“Gaming was looked at in Maryland as a kind of cash cow for the state treasury,” Karmel said. “That’s why you got such a tax rate. Realistically, Maryland should come down on its tax rate for slots. If you want to be competitive, [you should be] in the 60 percent range.”

Cordish said he sees Maryland’s casino program as a test to see how many facilities can be placed so close together with such a high tax rate.

“What I call it is a unique experiment,” Cordish said. “The question is, does the experiment work? And I think it does.”

But Cordish has been left alone opposing a sixth state slots license. Representatives of CBAC Gaming LLC — a Caesars Entertainment Corp.-led group that is the lone bidder for the Baltimore slots license — have said they would be OK with the addition of a casino at National Harbor as long as the state also legalizes table games.

“Most important is table games,” said Jan Jones, a Caesars senior vice president. “Table games [are] the missing component that makes Maryland a destination market … and maximizes revenues.”

Cordish said he’s not against adding table games to Maryland’s gambling repertoire but it’s not worth further diluting the casino market.

“It’s not good for the state. It certainly wasn’t the rules,” Cordish said. “There’s never been a state that has ever orchestrated a [gambling] system that’s monkeyed with it prior to the original designees being open.”