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Archive for September, 2010

Maryland’s Gaming Situation

Posted by jkarmel on September 23, 2010

I’m back from my writing hiatus – I’ve been busy with our new baby (6 months old), other projects and the early semester professor stuff. But the first casino in Maryland – Penn National’s Hollywood Casino in Perryville – is set to open on September 30, just up the road from me off I-95: hence my return.

There’s plenty of current gaming news around the mid-Atlantic, including the opening of SugarHouse in Philadelphia today and ongoing developments in the Atlantic City gaming saga. But, this post is dedicated to my home state, where gaming has had an interesting ride since votes approved 15,000 VLTs at 5 locations in 2008.

As any Marylander within earshot of a television in the past few months knows, there’s a heated fight over the Cordish Company’s proposal for a Maryland Live! casino at Arundel Mills Mall. I haven’t seen any recent polling as to which way Anne Arundel county voters will vote – but I’ll speculate anyway. I think the anti- side is winning. They have a lot more ads out and they are fairly well-done for the purpose. They effectively resonate a simple message, whether you agree or not with it: voters should block the casino because mall-going families and casinos don’t mix. The commercials are slick and simple and well-produced. By contrast, there have been only a few commercials on the pro- side and (apparently) not as much resources expended to this point.

Last week, there was a report that the state might investigate Penn National’s (PN) funding of the anti- Arundel Mills campaign and possibly delay the opening of that firm’s Hollywood Casino in Perryville on Sept. 30: but that doesn’t appear likely right now. I can’t find anything in the Maryland legislation prohibiting such an effort, so I’m not sure how there would be any legal case for the postponement.

However, PN’s involvement as a partner with Magna Entertainment to block the Cordish proposal certainly will complicate matters if the group succeeds in stopping the Arundel Mills casino. Maryland’s gaming legislation seems clear enough: no operator can have more than one site license. From the statute, often referred to as “S.B. 3” for Senate Bill 3:

(C) A LICENSE ISSUED UNDER THIS SUBTITLE IS NOT VALID AT A
GEOGRAPHIC LOCATION OTHER THAN THE GEOGRAPHIC LOCATION OF THE VIDEO LOTTERY DESTINATION LOCATION AT THE TIME THE LICENSE IS ISSUED.
(D) (1) IN THIS SUBSECTION, “OWNER” INCLUDES ANY TYPE OF
OWNER OR BENEFICIARY OF A BUSINESS ENTITY, INCLUDING AN OFFICER, DIRECTOR, PRINCIPAL EMPLOYEE, PARTNER, INVESTOR, STOCKHOLDER, OR BENEFICIAL OWNER OF THE BUSINESS ENTITY AND, NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS SUBTITLE, INCLUDING A PERSON HAVING ANY OWNERSHIP INTEREST REGARDLESS OF THE PERCENTAGE OF OWNERSHIP INTEREST.
(2) AN INDIVIDUAL OR BUSINESS ENTITY MAY NOT OWN AN
INTEREST IN MORE THAN ONE VIDEO LOTTERY FACILITY.

So, if/when Magna-Penn National applies for the Arundel site license, there will need to be a legislative fix to allow it to go through. As well, anybody else could jump in with a new site application- including Cordish – if the referendum passes.

There was almost a precedent for a legislative fix that would allow one firm to operate more than one casino in last year’s legislative session. The Assembly almost passed a bill allowing for an existing licensee to operate a Rocky Gap casino (western Maryland) as a satellite operation.

The provision didn’t make it into the final bill, which otherwise slightly lowered the overall tax rate for the Rocky Gap site in an effort to attract a bid for the gaming license: from 67% to 64.5% for the first five years of operations. We’ll know soon how well that worked when the Maryland Lottery re-bids the site in November.

But while it didn’t make it into the final bill, the Rocky Gap proposal could provide a precedent of sorts to allow PN a way to operate both Hollywood Perryville and a new Laurel casino. In that event, Penn National would be the majority gaming operator in Maryland for the foreseeable future. Of course, that would take us into questions about the implications of market consolidation in Maryland gaming: a good topic for a future post.

Update: I just heard from a good source that the Assembly did, in fact, update the terms of the Rocky Gap site license to allow for a business entitiy other than the owner to manage the property. Theoretically this would allow an existing licensee to manage that property via some contractual arrangement, Penn National for example. This is a relatively common feature of the gaming industry: various Indian casinos have management agreements with external entities, for example. Here is the operative legislative language:

….AN INDIVIDUAL OR BUSINESS ENTITY MAY ENTER INTO A MANAGEMENT AGREEMENT TO OPERATE A FACILITY LOCATED IN ALLEGANY COUNTY THAT IT DOES NOT OWN, SUBJECT TO THE APPROVAL OF THE VIDEO LOTTERY FACILITY LOCATION COMMISSION AND THE STATE LOTTERY COMMISSION.

jk

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