Slots bidders seeking less than half of available licenses
Fewer machines and omitted licensing fees could mean less revenue than expected
ANNAPOLIS — The state has received far fewer bids for slot machines than first thought, including some that do not provide the licensing fee required by the legislation, an omission that could cause those proposals to be rejected.
The state commission charged with determining the locations of the machines believed Monday that they had received bids for a total of 10,500 machines but revised that number on Tuesday after discovering conflicting information from bidders and discovering that two bidders had not fronted the proper licensing fees.
The commission has received six bids for five locations. But only four bidders have submitted licensing fees, totaling $39.3 million for 6,550 machines.
In November, Maryland voters approved a constitutional amendment to authorize 15,000 machines at five locations. If bids included all the machines, the state expected $90 million in licensing fees.
Some of the bidders are considering adding machines at a later date. But opening slots parlors with only about 44 percent of the approved machines could significantly cut into the roughly $600 million in projected revenue from slots.
"Without question, the legislature and the governor's office are going to have to deal with the situation that currently you do have less than $90 million from the licensing fees," Donald Fry, the chairman of the Video Lottery Facility Location Commission. "And in the out years when there have been projections for up to $600 million for fiscal 2013 when they're fully implemented, without that full complement [of 15,000 slot machines], it's going to be difficult to plan on that sort of money."
The six bids received by Monday's deadline are:
-Laurel Racing Association/Maryland Jockey Club for 3,000 machines at Laurel Park in Anne Arundel County.
-Power Plant Entertainment (PPE) Casino Resorts Maryland, LLC for 4,750 machines at Arundel Mills Mall in Anne Arundel County.
-Baltimore City Entertainment Group, LP for 500 machines, with the possibility of expanding to 3,750 or 4,750 in Baltimore city.
-Ocean Enterprises, LLC, for 800 machines at Ocean Downs in Worcester County, with the possibility of expanding to 1,500.
-Penn Cecil Maryland, Inc., for 500 machines at the Interstate 95/Route 222 interchange in Perryville in Cecil County, with the possibility of expanding to 1,500.
-Empire Rocky Gap, LLC, for 750 machines at Rocky Gap State Park outside of Cumberland in Allegany County, with the possibility of expanding to 1,500.
Under the licensing legislation, each application required a $3 million licensing fee per 500 machines. The commission did not receive the fee for the Laurel Park or Rocky Gap proposals.
Senate President Thomas V. Mike Miller Jr. said the state should prepare for less than it expected to see from slots.
"All the slots revenue, we've got to recognize, they're not going to materialize," he said.
He criticized the Laurel Park bid for not including the licensing fee.
"To me, it's as egregious as the CEOs paying themselves bonuses while they receive bailout money from the federal government," said Miller (D-Dist. 27) of Chesapeake Beach.
A proposal from the Baltimore city group initially appeared to request licenses for 3,750, Fry said. But upon discovering other documents in the bidder's filing and contacting the bidder late on Monday, commissioners realized the group is asking for just 500 machines, he said.
Rumors that the Laurel Park bidders would wire the money to the commission on Tuesday proved hollow.
"As we sit here today I have seen nothing," Fry said.
The commission cannot say the proposals would be eliminated from consideration without first consulting with the attorney general and others, he said.
"But it appears that these do not meet the basic requirements," Fry said.
The missing fees will be discussed at the commission's next meeting Feb. 12 in Annapolis. The lottery commission is also soliciting a professional consultant to conduct a background investigation on the bidders.
"We certainly would not deposit any money at this stage," Fry said.
The Rocky Gap bid is contingent on the state changing the amount of revenue that it takes from the machines. At 67 percent, bidders have said the state's take is well above the national average, making it costly to operate in Maryland.
Changing the split would be up to the legislature, Fry said.
Empire Rocky Gap also proposes adding to the existing resort building at the state park, "which does not appear to be permitted under the statute," Fry said.
The commission could reopen the proposal for a license at the state-owned Rocky Gap and has the authority to reallocate some of the machines to another location, he said.
The Laurel Park bidders, headed by Frank Stronach, the chairman of the board of Magna Entertainment, owner of Laurel Park and Pimlico Race Course in Baltimore city, are looking for partners, Fry said.
Penn National Gaming on Monday submitted one of the applications for bids for a 500-machine facility that it hopes to build on 36 acres in Perryville, said Eric Schippers, the company's senior vice president for public affairs.
The $75 million Hollywood-themed facility would be "readily scalable" to accommodate up to 1,500 machines, Schippers said.
Whether the company would add machines depends on the answers to several questions it has posed to the state Lottery Commission and the facilities commission, he said.
Those include questions about the regulatory process, land-use issues in Cecil County and what type of machines the commission will be procure.
There is an April 15 timeline for submitting supplemental information for the applications but no other timeline in place for moving forward with the casino, Schippers said.
Buddy Roogow, director of the Maryland Lottery, which is staffing the commission, said that the lottery told potential bidders at a preproposal conference that the lottery is interested in making the facilities as competitive as possible.
"If we don't put machines that are competitive there, then the facilities themselves won't be competitive," Roogow said. "Particularly in Cecil County, which is located very close to Delaware."
Delaware, which borders Cecil County, has legalized slot machines; Pennsylvania and West Virginia have as well. A 2007 study by the state found that Maryland was losing hundreds of millions in revenue to out-of-state slots parlors.
Penn National's Hollywood-themed casino, similar to those in other states, would possibly have fewer themed amenities than elsewhere, given that 67 percent of slots revenue is to go Maryland, he said.
The Hollywood memorabilia at Penn National's casino in Mississippi includes a full-scale model of the Titanic from the movie of the same name, a Batmobile and extensive dining options — "Things that are difficult to justify in [a] significantly high tax jurisdiction," Schippers said.
"The economy certainly has had some impact on these submissions," Fry said. "However, I think that many of these companies, if they look at these situations presented to them, recognize that this is a business opportunity that would go for 15 or 25 years."
Miller said he wants the commission to look at the situation carefully and come back to the General Assembly with recommendations.
There could be a change in the arrangement within the next two years, probably next year, Miller said, adding that he would like to see a slots in Cambridge, at Rosecroft Raceway in Laurel, at National Harbor in Prince George's County and at Pimlico.
"I can't imagine a slots parlor or casino at Arundel Mills," Miller said.
House Speaker Michael E. Busch defended the state's legislation in comments to reporters before Tuesday's announcement of bidders.
"I think we did a good job of outlining the legislation," said Busch (D-Dist. 30) of Annapolis. "Obviously, these are tough economic times. A couple of bidders in Maryland pulled out of the state of Kansas, as you know. Capital is very tough to come by. So I think you have to get the commission and particularly the professional consultants to come back and give the specific facts that are taking place out there before you would evaluate anything. I believe that you have to leave it in Mr. Fry's hands and the professional consultant's."
Staff Writer Alan Brody contributed to this report.