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Slots buying could move to casinos

By now, most interested spectators know that Gov. Martin O’Malley’s gambling work group is seeking an answer to whether it is wise to build a casino at National Harbor and legalize table games at every state casino.

But also at issue when the group meets for the second time Tuesday morning is whether to shift the responsibility of buying slot machines to the casino licensees — a change that state fiscal analysts predict could save the state $110 million annually, starting in fiscal 2014. Currently, the state owns or leases the slot machines in every facility.

Such a shift would likely be accompanied by a reduction in the tax rate on slot machines, which at 67 percent, is the highest in the nation. Authorization of a Prince George’s County casino would also be likely, as the state’s share of revenue from that casino could offset the lower tax rate.

The scenario is one of several related subjects in a study conducted by PricewaterhouseCoopers, which is scheduled to present its results to the work group Tuesday.

Jan Jones, senior vice president for Caesars Entertainment Corp., said the casino giant — which is bidding to build a Harrah’s Casino in Baltimore — would welcome the opportunity to do the slots purchasing itself.

“It’s what we do. I really think the gaming companies are just better suited to negotiate those deals,” Jones said. “It makes more sense. It’s better for us, it’s better for the state. In concept, we’re certainly open to buying the machines.”

In return, Caesars would expect some sort of “economic incentive,” like a reduction in the state’s share of slots revenue, she said.

How large that incentive would have to be depends on the size of the casino. Larger facilities — like the one Caesars would build on Russell Street, with 3,750 slot machines — may need less of a tax break to make the deal work because they could get a better price buying so many machines.

Smaller facilities — like those in Cecil County, Worcester County and a future slots parlor at Rocky Gap Lodge and Golf Resort in Allegany County — would need a larger break, according to executives with Penn National Gaming Inc., licensee for the Hollywood Casino Perryville.

The rate cut would have to be about 2.5 percent for large casinos and 4 percent for small casinos for the shift to be acceptable to licensees, said Steven Snyder, a Penn National senior vice president.

In written testimony, Snyder said it was also important to consider how the state’s existing casinos — Hollywood Casino, The Casino at Ocean Downs and Maryland Live at Arundel Mills mall — would deal with floors already filled with state-owned or leased slot machines.

“Do those contracts get canceled?” Snyder wrote. “Are existing operators now stuck with the product they currently have while new operators can purchase their own product?”

Jones, the Caesars senior vice president, hoped questions like that could be answered by the PricewaterhouseCoopers study. Until a specific plan to shift costs is authored, Jones said Caesars didn’t know what kind of incentive it would need to make the deal a good one.

The shift itself may be part of a larger effort — still in its early stages, and dependent upon the results of the PricewaterhouseCoopers study — to get the General Assembly out of the casino business. Sen. Richard S. Madaleno Jr., D-Montgomery, the Senate Budget and Taxation Committee’s point-person on gambling issues, has advocated for the creation of a gambling commission to oversee regulation of the industry.

Madaleno is not alone. Del. Frank S. Turner, D-Howard, who grew tired of the gambling debate as the legislature’s regular session dragged to a close in April, said forming something like the Public Service Commission — which regulates public utilities in Maryland — could be in the state’s best interest.

“I think it is a good idea to do an ongoing group,” Turner said.