The family that recently sold Maryland's two largest racetracks disclosed yesterday that before relinquishing a majority stake in Pimlico and Laurel Park, it retained the right to keep 18 percent of any future profits from slot machines.
Joseph A. De Francis and his sister Karin De Francis signed the side agreement with the buyer, Magna Entertainment Corp., under the assumption that slots would become legal in Maryland and dramatically increase profits at the two horse-racing venues.
Portions of the agreement were released by Magna yesterday, providing the first glimpse at the complex web of deals that are already being forged as Maryland lawmakers begin to discuss the legalization of slot machines.
Just how the 18 percent would convert into dollars depends entirely on how lawmakers and Gov.-elect Robert L. Ehrlich Jr. (R) decide to divvy up the proceeds from slots should they become legal.
Several of Maryland's legislative leaders said yesterday that they believe dividing the proceeds will be the subject of intense lobbying from horse breeders, track owners, casinos and the array of other interests that stand to profit from expanded gambling.
If too much money lands in the pockets of a small collection of wealthy track owners, public support for slots could evaporate, they said.
"The idea of creating bonanzas for individuals out there is not something that we as elected officials should be entertaining," said House Speaker Michael E. Busch (D-Anne Arundel). Busch opposes expanding gambling but said that if it happens, "it has to be controlled, owned and operated by the state of Maryland."
Across the country, as states have increasingly turned to slots at horse tracks as a new source of revenue, the question of how to tax slots and then divide the stakes has been resolved in various ways. New York's law gave track owners and horsemen 12.5 percent of the proceeds each, a share that left owners so dissatisfied that they decided not to install machines. In Delaware, which introduced the terminals in 1995, the state takes 40 percent, the tracks get 49 percent and the horsemen receive 11 percent.
During his campaign, Ehrlich gave a rough outline of his vision for slots, saying that the state would impose a 50 percent tax on the estimated $1.6 billion in annual revenue they would generate. That would leave the remaining 50 percent to be split among track owners, horsemen and vendors.
But the General Assembly's position, both Busch and Senate President Thomas V. Mike Miller Jr. (D-Prince George's) have said, would be to try to claim even more money for the state.
Busch envisions a system in which slot machines would be an extension of the state lottery and the vast majority of money would go to the state treasury. Miller said he believes that some money must return to owners to pay for promotion and capital improvements.
"The tracks have costs," Miller said. "But the intent of any legislation is to benefit the taxpayers and the schoolchildren of the state and not any one individual or corporation."
Sue Floyd, a spokeswoman for Magna, said Joseph De Francis and Magna decided to release details of their arrangement yesterday after receiving media inquiries about how much the De Francises stand to profit if slots are legalized in Maryland.
De Francis and his sister were sizable donors to the gubernatorial campaigns of both Ehrlich and Lt. Gov. Kathleen Kennedy Townsend (D).
Until yesterday, Magna, the De Francises and state officials have kept secret the details of their contract. The Washington Post requested copies of the contract from the Maryland Racing Commission, which reviewed them before approving the sale of Pimlico and Laurel Park.
But the Maryland attorney general advised the commission against releasing it.
The information released provides only a sliver of how the proceeds from slots would be divided. Others with a potential stake include Maryland Jockey Club attorney Martin Jacobs and two limited partnerships, known as LUK-Flats LLC and the Laurel Guida Group, records show.
Floyd said she did not know how those shareholders would profit from slots.
In an interview this month, Miller said that he had heard that Magna and the Jockey Club had signed a deal splitting potential slots proceeds but worried that such agreements might make it harder to sell the public a proposal to legalize gambling.
"I'd like the state of Maryland to be in control of this operation," he said. "We need to know at all times who our partners are in this operation. I'm concerned if someone is already selling licenses to run this."
Busch said he has even deeper reservations about a deal that involves too many players. Without tight state control, he said, "outside influences" would lobby government entities in search of ways to grow or weaken enforcement of their industry.
"To me, it's starting to look like an issue that would create a lasting legacy that we might regret for a long time," Busch said.