gaming atlantic blog

a casino gaming blog

Archive: Markets, Taxes & Maryland Casinos

Posted by jkarmel on May 27, 2010

[Note:  This is an archive version of GA’s original post-  published November 1, 2010]

In recent days, there’s been some discussion about the possibility that Maryland’s tax rate (67%) may be too much to attract desirable gaming operators. I think there’s some validity to these concerns, having spoken with various people in the know and having studied this a lot over the past year. This is especially the case if major gaming firms remain in constriction mode for a while if the market stays soft.

In an article from the Oct. 31 Baltimore Sun, an MGM Mirage executive underscored the potential difficulties facing the problematic market timing of Maryland’s nascent gaming industry:

Alan M. Feldman, senior vice president for public affairs with MGM Mirage, scoffed at Maryland’s proposed tax rate as incompatible with the type of high-end developments civic leaders are hoping for. “Clearly, the state of Maryland has decided … they want boxes with slots in them,” he said. “That’s all you could do at that tax rate.” A national crunch has “tightened up credit incredibly,” Feldman said, causing MGM to suspend two $5 billion projects in Atlantic City and Las Vegas.

Now, the likes of MGM Mirage, Las Vegas Sands or Wynn Resorts were very unlikely to bid on one of the projects anyways, with only a few thousand VLTs allowed. More importantly, the high tax rate may limit the interest of mid-size players like Penn National or dynamic, expansion-oriented operations like Mohegan Sun and Foxwoods, both of which have now expanded to Pennsylvania. Remarkably, yesterday’s Sun piece quoted MD House of Delegates Speaker Michael Busch – a powerful gaming critic- on the potential for legislative flexibility with regard to the tax rate depending on the bids that do come in.

Yet, so far, the high tax rate hasn’t prevented interest in the Maryland facilities and its doubtful that Magna Entertainment owner of Laurel & Pimlico, would have kicked in $2 million for the pro-slots campaign if it didn’t see great revenue potential regardless of the high tax.

This may have to do with the great locations of at least 3 of the Maryland properties just off I-95 (Laurel, Baltimore & Cecil County) AND the reality that Maryland will be creating a closed market, so that once-established firms need not be concerned about competitors moving in to carve up the market share — at least in the short term, maybe 3-5 years.  As of this writing, I’m aware of at least two potential bids for the Baltimore site from solid players and one for the Cecil site (Penn National). And this is what will be good for the state and the industry: a genuinely competitive bidding process for the five licenses.

However, a big question mark is the extent to which the Rocky Gap site will attract good bids with its current limitation of 1,500 VLTs.  That’s a relatively small property and with the requirement of $25 million investment for every 500 VLTs may be viewed by firms as simply not worth the price.

What’s vital for Maryland voters to realize is that what’s good for the gaming firms that do invest in the state is also good for Marylanders. If voters decide to commit to gaming on Nov. 4, they should also be prepared to take measures to support the industry’s viability: the more succesful the companies are, the more revenues come in and the more money the state has for it’s budget- the entire point of the venture in the first place.

What’s clear amidst the ambiguity above is that Tuesday’s vote is really just the beginning of this process, even if it has a culminating feel given the many years it took Maryland to evevn get to this point.

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