After a Long Fight, Slots Debate Might Have Blown Timing

By John Wagner
Washington Post Staff Writer
Saturday, February 21, 2009

Maryland resisted slot machine gambling for years only to launch a program this month at what could be the worst possible time, leaving state leaders divided about whether to simply ride out the recession or take more aggressive action.

As it stands, gaming companies are over-leveraged and short on cash. Borrowing money to build slots parlors is difficult with frozen credit markets. And the state has insisted on offering operators one of the lowest shares of revenue in the nation.

So it is that Maryland has only four bids to operate five slots sites and requests to use only 6,550 of the 15,000 machines that voters authorized in November.

As they try to regroup, state leaders are weighing whether to offer better deals to operators, lobby current bidders to accept more machines or even change locations where slots are allowed. But there appear to be no easy or quick fixes.

"If they had done this in 2005 or 2006, they probably would have done fine," said William Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada at Reno. But right now, "the whole industry is in a very bad position to be bidding on anything."

Although slots boosters say it is too early to write off Maryland's long-debated program, some consequences seem clear. A promised $660 million in annual funding for education will not be achieved as quickly as advertised, if ever. And the horse-racing industry, a driving force in legalizing slots, is bracing for lower subsidies from the program than the $100 million a year it was eyeing.

A commission set up to pick winning bids is expected to spend several months weighing the proposals it received: for a warehouse district in Baltimore, a megamall in Anne Arundel County, a small-town bluff in Cecil County and a horse-racing track in Worcester County. There were no qualified bids for a site in Allegany County.

Critics of Maryland's program say the state is partly to blame for the tepid response.

Under a bill muscled through the legislature by Gov. Martin O'Malley (D) in 2007, slots operators will keep 33 percent of revenue. Although O'Malley sold the arrangement as good for taxpayers, it clearly deterred some gaming companies.

"Many of them have quite a bit of experience with this . . . and what it takes to turn a profit with a slots floor," said David Katz, a gambling analyst with Oppenheimer and Co. in New York, who suggested the revenue splits were probably a larger factor than the economy.

Maryland's four bidders include just two companies with gaming operations in multiple states: Penn National Gaming, which is seeking the Cecil site, and Baltimore-based Cordish Cos., which has applied for the Anne Arundel site. Another bidder, William Rickman, who is seeking to bring slots to the Ocean Downs racetrack in Worcester, has machines at a track in Delaware.

Established gaming companies were not the only would-be operators to take a pass on Maryland. A group that included the son of Baltimore Orioles owner Peter G. Angelos and two former Maryland Democratic Party chairmen looked at the Anne Arundel and Worcester sites before concluding their plans were not workable.

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