Dueling studies released on proposed gambling expansion

Originally published in the Daily Record

MPPI in the News Alexander Pyles | Daily Record Business Writer Oct 9, 2012

Up to $1.6 billion in Maryland money has been spent at a West Virginia casino in the last decade, according to a study paid for by proponents of expanding gambling in the Free State, making it vital that voters approve table games and a sixth casino.

But an independent study by the Maryland Public Policy Institute, acquired by The Daily Record on Monday, questions the fiscal sense of the expansion bill passed by the General Assembly and signed by Gov. Martin O’Malley in August.

The first study, by Sage Policy Group Inc., estimates that Penn National Gaming Inc.’s Hollywood Casino at Charles Town Races in Charles Town, W.Va., would capture between $1.1 billion and $1.5 billion more from Maryland residents in the next 10 years unless Question 7 is approved in November’s election. Penn National has poured more than $18 million into anti-expansion advertising.

A “yes” vote would legalize table games such as blackjack, allow the construction of a casino in Prince George’s County and keep casinos open 24 hours a day, seven days a week.

But according to the Maryland Public Policy Institute study, the potential expansion is more of a jackpot for casino companies, most of which will enjoy a reduction in their tax rate, than for the state and its Education Trust Fund, wrote Joseph V. Kennedy, a visiting fellow with the institute.

“Despite the wording of both the 2008 and 2012 referenda, the primary purpose of expanding gaming in Maryland has switched from raising tax revenue for education to expanding the size of the gaming industry for its own sake,” Kennedy said. “We can clearly see a significant shift in the distribution of gains, indicating that gaming interests rather than the public interest are calling the shots.”

The reports come as the fiercely fought referendum battle speeds toward Nov. 6, when Maryland voters will decide gambling’s immediate fate.

Kennedy writes in his 19-page study that “over 72 percent of the additional gross gaming revenues created by the bill goes to the owners,” mostly due to compensation given casino owners that would be forced to compete with a new facility in Prince George’s, most likely at National Harbor near Oxon Hill.

Anirban Basu, chairman and CEO of the Sage Policy Group, stressed in his study that there was still sizeable benefit for the state coffers if voters approve the expansion of gambling, because it could recapture hundreds of millions of dollars that leave Maryland each year.

“The state’s gambling program, to date, has not been that effective,” Basu said, surrounded by television cameras at his cluttered office in Washington Hill. He said the Charles Town gambling site was one of the “sources of leakage” inherent in the existing program.

The Sage study said that more than 30 percent of the West Virginia casino’s revenue came from Maryland residents. He said Maryland’s five already-approved casinos are probably not located where they need to be in order to draw players away from Charles Town.

But part of the problem with the state’s casinos is that they have largely failed to draw non-Maryland residents. To change that, Maryland needs true destination facilities, Basu said, because West Virginia, Pennsylvania and Delaware — with a head start in the casino industry — have already established loyal customers.

“Maryland is the last entrant in this market … so we have to have the best facilities,” Basu said. “They’re not nice enough to change peoples’ behavior.”

Owners of the state’s largest facility, Maryland Live Casino at Arundel Mills mall, have frequently said that its market extends into Washington and Northern Virginia. But, according to Sage’s study of license plates outside the casino, only between 10 and 15 percent of players come from outside Maryland.

“It has not been good enough,” Basu said of the casino in Hanover, owned by The Cordish Cos.

Kennedy, in his report, does not debate whether a casino at National Harbor would be successful.

But, if approved, he questions whether a casino is the best use of prime real estate on the Potomac River. National Harbor is believed to be favored for the casino’s location because it has the support of Prince George’s County Executive Rushern L. Baker III and Senate President Thomas V. Mike Miller Jr., two powerful Democrats.

MGM Resorts International Inc. has made a deal with National Harbor developer The Peterson Cos. to build a 3,000-slot casino, if ultimately selected by the Video Lottery Facility Location Commission.

But a casino at Rosecroft Raceway — owned by Penn National — could also be successful, Kennedy said, allowing the National Harbor parcel to be used for some other development.

“Each of the criteria that make National Harbor the optimal site for a mega-casino also make it the more attractive site for almost any other major development that might occur there,” he said. “Indeed, the National Harbor site is one of the most attractive locations in the region.”