In the fall of 2007, Maryland Gov. Martin O’Malley (D), signed legislation that permitted voters in the November 2008 general election to decide whether to amend the state constitution to allow up to five video lottery terminal (VLT) operator licenses to be granted and a maximum of 15,000 VLTs to be distributed to specific geographic locations throughout the state. On election day, Maryland voters overwhelmingly voted in favor of the amendment. After the election, the Video Lottery Facility Location Commission (VLFLC) was quickly established to oversee the request for proposals from companies wanting to be awarded one of the five VLT operator licenses. Speculation ran rampant about which company was going to bid on which location and the number of VLTs each company was going to request. High hopes, intertwined with inflated expectations, dominated the VLT discussions.
The day after the Feb. 2, 2009, deadline for request for proposals, reality started to settle in. The outcome was a lackadaisical response from most of the gaming industry. It was obvious the well-educated and well-intended political proponents of the VLTs had made terrible miscalculations, believing that a 67 percent tax rate on profits generated from the VLTs and a high VLT operator license fee would be the answer to a state budget that lacked funding. Their imagined VLT solution turned out to be just that: imagination. There were an initial six bids for five locations, with two bids considered unacceptable due to incomplete applications. Ultimately, only four bids were accepted and one of the incomplete applicants appealed the decision of the VLFLC.
The Anne Arundel County location received bids from The Cordish Companies Inc. and Magna Entertainment Corp.’s subsidiary, Laurel Racing Association, setting the stage for a potential battle between two of Maryland’s gaming Goliaths, both equally determined to win.
The Cordish Companies has a long established operating history in Maryland. Some consider The Cordish Companies as strongly connected to Maryland because its headquarters is located in Baltimore City and it has been active in the Maryland business community for years. It has a time-honored reputation for providing unmatched quality entertainment. One of its most noteworthy developments is the Seminole Hard Rock Hotel and Casino in Tampa, Fla. This project is able to successfully amalgamate dining, retail, live concerts and gaming into one venue. The Cordish Companies placed a bid for the Arundel Mills Mall area, requesting a total of 4,750 VLTs, the maximum number allowed at a single location. The Cordish Companies promises to develop a project that will be spectacular. Considering the history of The Cordish Companies, I believe there is little doubt that if it is successful in its bid, its promises will not go unfulfilled.
Magna, not to be outdone, also shines in Maryland because its subsidiaries control two successful and popular horse racetracks: Pimlico Race Course and Laurel Park. Pimlico Race Course started racing in 1870, making this racetrack the second oldest in the country. Pimlico is also the home to the Preakness, a Triple Crown race as popular in Maryland as the Kentucky Derby. The Laurel Park racetrack first opened its doors in 1911. Both racetracks have a reputation for providing valuable and surprising entertainment with popular horse races. Moreover, the racetracks have a powerful economic impact on the state, employing many Marylanders. Maryland considers the racetracks to be cemented into its history. The Laurel Racing Association submitted a bid for the Laurel Park racetrack, also requesting a total of 4,750 VLTs.
The collision between the two companies may be avoided for now. When Laurel Racing Association submitted its bid, the company did not include the required licensing fee by the deadline date, arguing that there is no stated mechanism for a refund of the fee if its bid is unsuccessful. The VLFLC determined the bid did not meet the requirements at time of the application deadline and, therefore, considered it unacceptable. However, Laurel Racing Association appealed the VLFLC’s ruling and entered into an agreement with the VLFLC, which stipulates that Laurel Racing Association’s bid will remain unaccepted but that the VLFLC will retain and not return the bid pending a circuit court ruling. (As of CEM’s press date, the ruling was expected any day.)
Even if Laurel Racing Association fails in its attempt to have its application considered, there is no guarantee that The Cordish Companies will be the automatic successful bidder. The powerful State Senate President Michael Miller has expressed concerns about having VLTs near Arundel Mills Mall, saying, “I think this business of machines in the shopping center, no one anticipated.” Miller added “that he has wanted slots to be out of the view of children.” 1
Community organizers may grab Miller’s statements and coordinate a campaign to lay landmines all around The Cordish Companies’ plans. In addition, a couple of elected officials singing a tune of completely starting the bidding process over may spread into a song sung by a choir of elected officials. This would require all the bidders to resubmit bids, under a new application, imposing a new deadline and implementing new procedures.
The Cecil County site received one bid from Penn National Gaming, requesting only 500 VLTs, the minimum number allowed. Penn is highly regarded in the gaming industry and has experienced exponential growth within the past two decades. Penn’s potential penetration into the Maryland market would be evidence of the company’s continued growth. However, on Feb. 24, at the Pennsylvania Gaming Congress, Timothy Wilmott, president and chief operating officer of Penn, expressed deep concern over Maryland’s 67 percent tax rate on the profits from VLTs as well as the high cost of licensing fees. Wilmott also alluded to the high tax rate and the high licensing fee as the culprit behind the gaming industry’s lackluster response. He seemed, however, cautiously optimistic that Penn would be successful in obtaining a VLT operator license in Maryland in the fall of 2009.
The Worcester County site received one bid, from Ocean Enterprises LLC, to place 800 VLTs at the Ocean Downs Racetrack. William Rickman, the owner of Ocean Downs Racetrack and a principal with Ocean Enterprises, also owns Delaware Park, a racetrack and VLT operator in Wilmington, Del. Rickman is well known on the eastern shore of Maryland for providing quality entertainment, and he has several years of experience in managing and operating gaming facilities. The other principals of Ocean Enterprises include William Fasy and Andrew Gentile. If its bid is successful, I believe Ocean Downs will grow at an impressive rate.
The Baltimore City Entertainment Group LP placed a bid for the Baltimore city site. The principals who formed this business have been very successful in other forms of businesses, and most of them are well known within Baltimore. The principals are Kevin Johnson, president of Commercial Interiors Inc.; LaRian Finney, chief operating officer of Visionary Marketing Group Inc.; Paul Shelton, partner of McKennon, Shelton & Henn LLC; and Michael Moldenhauer, president of Moldenhauer Developments, a Toronto residential and commercial developer. All are eager entrepreneurs looking to enter the gaming industry. Their bid only sought 500 VLTs, effectively dropping a bomb on the city’s plans to raise revenue by leasing the land to the company for millions each year. The city based its lease value on the company holding 3,750 VLTs. Sheila Dixon, mayor of Baltimore stated, “If it doesn’t meet the goals that we’re trying to accomplish … then there is potential for us not to have it.”2 There is a possibility that the low number of VLTs in their bid and skepticism about their experience in the gaming industry may undermine the strength of their bid. However, I believe these business leaders have overcome turbulence from other business venture obstacles before, so their success in this process is likely.
The final location is Rocky Gap, a state park located in western Maryland, which received one bid, from Empire Rocky Gap LLC. The principals include David Hanlon, Michael Leahy and Vincent Tagliabucci. All are or have been successful in various business ventures. They submitted a bid for 750 VLTs. However, the VLFLC decided to not accept the bid because Empire Rocky Gap also did not submit licensing fees by the application deadline and made its bid contingent on the state substantially changing the 67 percent tax rate imposed on all profits generated from VLTs. It is possible that in the near future, the VLFLC may reopen the bid for the Rocky Gap location and that Empire Rocky Gap may re-bid on the location.
No one knows for certain what caused the number of low bidders. Many believe the 67 percent tax rate imposed on the profits generated from VLTs and the high licensing fee created obstacles that dissuaded companies from submitting bids. Others counter that the economy is undergoing a terrible economic tsunami that is swallowing up customers, leaving VLT operators without a profitable customer base. With all these factors combined, I believe Maryland is now located in the eye of a perfect storm that has greatly reduced the amount of expected tax revenue once envisioned by elected leaders. Maryland should hope that the companies that have submitted bids are willing to ride out the storm.
Footnotes
1 Wagner, John. “Md. Senate President: Slot Bidding Process in ‘Disarray,’ ” The Washington Post, Feb. 5, 2009.
2 Linskey, Annie. “Mayor says city might reject slots parlor,” The Baltimore Sun, Feb. 5, 2009.
David Placher is a licensed attorney in Florida, Maryland and the District of Columbia. Placher specializes in government affairs and is in the process of forming the Maryland Gaming Association, a nonprofit trade association. Please visit www.marylandgaming.org for more information or contact Placher directly at info@marylandgaming.org or (410) 258-2850.
Comments
Post new comment