Long lines marked opening night at the Horseshoe Casino last summer in Baltimore. The casino has not lived up to expectations, which some analysts say were overly optimistic. (Bill O’Leary/The Washington Post)

An earlier version of this story misspelled Chad Barnhill’s name. The story has been corrected.

There were great expectations for Horseshoe Casino when it opened in Baltimore last August. Crowds surged, music blasted, festivity reigned. Big-dollar optimism was in full force as well, as casino industry consultants hired by the state predicted monthly gambling revenue in the $28 million range for Maryland’s fifth gambling destination.

A year later, industry watchers are dialing down the enthusiasm.

Horseshoe is trying to find its footing in one of the most concentrated casino markets in the country. It hasn't been easy — and there will be even more competition when MGM National Harbor opens its much-anticipated $1.3 billion casino and resort on the banks of the Potomac River next year.

Horseshoe is a smaller gambling palace. Monthly revenue is averaging just over $23 million at the $442 million casino. If it maintains its monthly average rate, Horseshoe will pull in about $60 million less than projected in its first year of operation. And for Maryland, that means about $20.4 million less in tax revenue for the state’s Education Trust Fund.

So, what’s going on?

Industry experts say that the projections for Horseshoe were overly optimistic and didn’t fully take into account how saturated Maryland and the Mid-Atlantic had become with gambling options.

Gamblers brave lines for the first glimpse of Horseshoe Baltimore

It didn’t help that one of Horseshoe’s primary owners, Caesars Entertainment, was on the verge of declaring bankruptcy of its casino operations, which it did in January. And when riots broke out in Baltimore in mid-April, the ensuing curfew curtailed operations at the 24-hour facility for a week and ate into revenue and momentum.

For their part, Horseshoe executives reject the notion that the casino is underperforming, saying that the early projections by others were not in keeping with their own. They point to the 5 million customers who have walked through the door since its opening and the hiring of 1,900 employees, 60 percent of whom are Baltimore residents, as signs of a vibrant first year.

“Our revenues are strong for a market of this size, and they continue trending in a positive direction following the unrest that we experienced in the spring,” says Chad Barnhill, Horseshoe’s senior vice president and general manager. “There’s no question that our performance is improving in the wake of the city’s challenges, and I expect that to continue to do so.”

Not everyone agrees. And some critics say that Horseshoe’s location not far from the Ravens’ M&T Bank Stadium gets in the way of a better performance.

“The biggest reason, in my opinion, is that city casinos do not do as well as people think, especially when there are choices outside the city,” says Alan Woinski, president of Gaming USA and the author of syndicated newsletters on the gambling industry. “Casinos in New Orleans, Cincinnati, Cleveland all have underperformed. . . . It is not a coincidence that no city casinos have met projections.”

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Horseshoe has to go up against Maryland Live, the three-year-old casino next to the Arundel Mills Mall just 12 miles south of Baltimore. The state's largest casino, Maryland Live did better than analysts expected in meeting the challenge from Horseshoe and even exceeding revenue expectations. It has been averaging more than $50 million a month this year, or double the gross gaming revenue of its neighbor up the road.

“When [Horseshoe] Baltimore opened up, everyone thought that Maryland Live, given that it was no longer the shiny penny, would lose a little bit of that luster, and we really haven’t seen it,” says Chad Beynon, a gaming industry analyst with Macquarie Securities. (A separate part of Macquarie Securities has helped Caesars secure financing while in bankruptcy.) “The old adage or thinking is that people who live in the suburbs like to stay in the suburbs. And they traditionally don’t go into the city because it’s a dark, scary place.”

Horseshoe’s Barnhill acknowledges that the riots had an impact but points out that in July the casino experienced its second-best revenue month — $24.4 million — since opening and its best month since March.

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“The disturbance that happened earlier this year, I hope that is not something that keeps people from coming downtown to this great city and all that this great city has to offer,” Barnhill says. “I’m sure it’s in the back of some people’s minds, but Baltimore is on a great track in terms of making sure that we’re doing everything we can as a city and obviously as a property to get people comfortable in coming back downtown.”

Horseshoe can’t afford to look back. Looming on the horizon for Horseshoe and Maryland Live: the scheduled opening of MGM, which is expected to draw gamblers from Maryland and Northern Virginia as well as nationally.

Maryland Live is clearly gearing up for the challenge. On Tuesday, it announced plans for an 18-story hotel and convention center. Barnhill says that Horseshoe also has plans for growth and development that “we continue to take a good, hard look at.”

“There’s a wide variety of options,” he says. “And fortunately for us, there’s a wide variety of land parcels around us that we can discuss with the city as well.”

In the expectations game, Horseshoe will really begin feeling the pressure in its second year as the initial monthly gambling revenue projections by the consultants to Maryland’s State Lottery and Gaming Control Agency jump to $35 million a month. Analysts, too, expect to see a better showing.

“We’d like to see that $20 to $25 million gross gaming number get above 30,” says Beynon of Macquarie Securities. “Once you’re above those levels, given the numbers of employees you have to employ and the overall tax structure and operating expense environment, I think that’s enough to keep the property afloat and operate at a pretty healthy state. But once you’re in the 20s, from a gross gaming standpoint with a tax rate that high, that’s where it becomes a little more difficult for the operator to make a profit.”

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Whether Horseshoe can get there is an open question, but Barnhill is optimistic.

“Whether we start off in January at $35 million, or we’re able to get there later on throughout the course of the year,” he says, “I feel very positive about our continued growth in that direction.”

Maryland is an interested party in Horseshoe’s progress as 34 percent on average of gross gambling revenue at the state’s casinos goes to the Education Trust Fund. But Horseshoe’s performance so far is not yet a cause for great concern, says Del. Eric G. Luedtke (D-Montgomery).

“We know that projections are always going to be a little bit off, and in our budget process, we account for some variability,” says Luedtke, the House chairman of the Joint Committee on Gaming Oversight. “From the state’s perspective, we’re less concerned about how one casino is doing than on how the entire casino and lottery program is doing together. From that perspective, the state’s doing pretty well.”

Still, there is concern from industry watchers about Horseshoe. And for now, all eyes are on Baltimore to see if the young casino can shake off its sluggish first-year showing.

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