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Casino revenues tumble

ANNAPOLIS — While state officials wrestle over a high-stakes, politically dangerous deal on expanded gambling, two of the state’s three operating casinos are watching their revenues decline.

A work group considering expanded gambling could not agree on a reduction of the tax rate on slot machines last week, preventing the group from closing what has been characterized as a narrow gap in negotiations. The majority of the group wanted to recommend a special legislative session that could have put a casino at National Harbor in Prince George’s County.

Gov. Martin O’Malley and the presiding officers of the General Assembly are trying to reconcile differences between the House of Delegates and Senate on the tax issue.

Meanwhile, current and prospective casino operators are working under a cloud of uncertainty, and — in the case of some — with thinning profit margins.

Hollywood Casino in Perryville, the first of the state’s five already-approved casinos to open in 2010, is already losing 20 percent of its business as mega-casino Maryland Live at Arundel Mills mall sees thousands of customers — some former Hollywood patrons — each day.

On the Eastern Shore, William Rickman — owner of the Casino at Ocean Downs in Berlin — has already predicted that his 800-slot facility will fail if the state’s 67 percent tax on slot machines isn’t lowered.

The market is already cannibalized, the operators say, and the tax rate must be adjusted — especially if a casino at National Harbor is ultimately approved by the legislature and Maryland voters.

Bill Hayles, vice president and general manager at Hollywood Casino, told the Maryland State Lottery Commission last week that Hollywood — with a 5 percent increase in monthly revenue from May 2011 to May 2012 — had likely experienced its last year-over-year improvement for a while.

“We are feeling the impact of Maryland Live,” Hayles told the commission, calling that impact “significant,” but not unexpected. Hayles said the casino had budgeted knowing that a rush to Maryland’s newest — and largest — casino would have a negative impact on revenue in Perryville.

Stephen L. Martino, director of Maryland State Lottery Agency, also had expected such a decrease.

“I think this was anticipated, it doesn’t make it any less painful, especially if you’re the operator,” Martino said. “They have budgeted for a reduction.”

Karen Bailey, a spokeswoman for Hollywood operator Penn National Gaming Inc., said Perryville’s revenue is poised to decrease even more when a casino eventually opens in Baltimore.

The only casino pleased with its earnings these days is the state’s newest and largest.

Rob Norton, general manager of Maryland Live, told the lottery commission that the casino was outpacing its projections and, by late last week, had already generated $11 million in revenue for the state.

But Martino said the pace might slow at Maryland Live as some patrons return to the Perryville facility.

“After, kind of, the initial shock and awe of the opening of Maryland Live passes, will some of that come back?” Martino wondered aloud. “Are they losing people just initially who want to go down there, see Maryland Live, what it has to offer [and] once they’ve been there for a time or two, it’s more convenient for them to go to Perryville? Is that going to be the location they use?

“That’s something we’re going to have to look at and answer over months, not here in the next couple weeks.”

What will be addressed over the next several weeks is whether legislators can agree on a plan that would allow a sixth casino, legalize table games and reduce the tax rate.

The plan presented by the work group would have lowered the rate for a future Baltimore facility, Maryland Live and National Harbor but would have forced other casino operators to apply separately for a 5-to-10 percentage point reduction in the state’s 67 percent slots tax.

The group depended upon data produced by a joint PricewaterhouseCoopers and state Department of Legislative Services study.

But Bailey said Penn National had serious concerns about that study — concerns also previously voiced by executives for Maryland Live, who could not be reached for comment for this article.

Bailey said analysts never contacted Hollywood Casino as they prepared the report’s revenue projections, which showed that every state casino would make more money if table games were legalized and the tax rate was lowered. Bailey also noted that state fiscal analysts have incorrectly calculated the market for casinos before.

“Based on this history and on the incorrect assumptions made by DLS in this report, the matter of tax rate reduction cannot be agreed upon since the baselines provided by the report are flawed,” she said.

MGM Resorts International Inc. has expressed interest in building a casino at National Harbor if allowed. A Caesars Entertainment Corp.-led group could receive a license to build in Baltimore by late July.

In a statement, Caesars Executive Vice President Jan Jones said the company was glad the state wasn’t through with the gambling debate this summer. She cited analysts’ projections that an expansion would create 4,500 jobs between National Harbor and Baltimore and that $223 million could be raised annually or the state’s Education Trust Fund.

“If Maryland wants to maximize revenues to the state and education and to be competitive with surrounding states that have casinos, we would urge the legislature act and give the citizens of Maryland the right to vote on this issue,” Jones said.