By CARL STRAUMSHEIM
WASHINGTON—Maryland’s incursion into the world of legalized gambling is likely to bring the state millions of dollars in tax revenues, but industry experts predict the decision to allow table games will continue a decades-long tradition of states cannibalizing one another’s markets for personal gain.
Maryland voters on Nov. 6 approved Question 7, which legalized table games and around-the-clock gambling, and bumped the number of planned casinos in the state from five to six. The change means every mid-Atlantic state, except Virginia and the District of Columbia, allows some form of gambling, from virtual slot machines in New York to online gambling in Delaware.
“I never dreamed in a zillion years that it would be as prevalent as it is now,” said Jim Kilby, a gambling consultant and author who has spent 43 years in the business.
Maryland, in its attempt to reclaim the money gamblers have spent in neighboring states’ casinos, has shoehorned itself into an industry already straining from a user base fragmented across an ever-expanding playing field of gambling destinations.
A February 2012 market analysis by Business Research & Economic Advisers of Maryland’s emerging gambling industry showed the state could potentially gain about $200 million in tax revenues a year if voters approved Question 7.
After a historically expensive fall campaign fueled by about $90 million in advertising spending, Election Day resulted in a 52-to-48-percent win for casino proponents. The passage cleared the way for a casino to be built at National Harbor in Prince George’s County, which is likely to be operated by MGM Resorts International—the world’s second-largest gambling company.
“Most of the dire predictions about getting a gambling culture and the negative effects of gambling … is probably less than what was originally envisioned, so if people have a desire to gamble, then you might as well get a piece of that dollar and use it for productive purposes,” said Robert W. Burchell, director of Rutgers University’s Urban Planning and Policy Development Program.
Casinos of any kind were illegal in Maryland as recently as 2008. The decision to allow slots in 2008—and now table games—is likely to hurt the casinos closest to the state’s borders, where Maryland gamblers have spent millions of dollars.
“By far the most important factor is geography,” said Bill R. Eadington, the director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno. “Location is really the driving factor for an awful lot of customers.”
Eadington predicted the future casino at National Harbor would be successful because it will be better positioned to attract customers visiting Washington—which will in turn draw customers away from more rural casinos.
“Casinos that used to have a relative monopoly are going to find themselves losing market shares,” Eadington said. “It’s going to have a very dramatic effect, but nothing unusual compared to an industry where you introduce more supply.”
At Dover Downs Hotel & Casino in Dover, Del., visitors from Maryland in 2011 contributed about half of the casino’s gaming win, according to its annual report. The casino, which last year raked in over $217 million in gaming revenues and funneled $87 million into the state’s coffers, is Delaware’s most profitable. Gambling expansion in Maryland and other states is expected to have a “significant adverse effect” on its visitation numbers over the coming years, the report said.
Dover Downs president Ed Sutor declined to be interviewed for this article. None of the casinos closest to Maryland in Delaware, Pennsylvania and West Virginia responded to requests for comments on how Maryland’s gambling expansion could affect their business.
Yet the idea of losing half its gaming winnings to Maryland spells trouble for Delaware’s gambling industry, which has begun to sputter despite a 2010 expansion to allow table games, and this year, a first-in-the-nation legalization of online gambling. The state’s monthly share of video lottery revenues has dropped to its lowest level in eight years in 2012, and the addition of table games has so far not stopped the decline.
Another casino that could be hurt by Maryland entering the market is Hollywood Casino at Charles Town Races in Charles Town, W.Va.—about a 30-minute drive from Frederick. Table games, legalized in the county in late 2009, have already generated more than $100 million in tax revenue. The casino advertises extensively in the greater Washington metropolitan area to attract customers looking for a big score.
Fearing the threat against its bottom line, Penn National Gaming, which operates the Charles Town casino, waged a furious ad war against the ballot issue. MGM, hoping to capture the lucrative spot close to Washington, responded in full. Together, the two companies spent more than $80 million to persuade voters.
“They’re all competing for the same customers, and the more casinos you have, the revenues are going to go down,” Kilby said.
New Jersey in 1976 became the first state outside Nevada legalize gambling. Even though the state got a head start on its neighbors, Atlantic City—home to all of New Jersey’s casinos—was unable to become a gambling destination similar to Las Vegas. While visitors to Las Vegas arrived by plane and stayed in the city, Atlantic City’s proximity to other populous metropolitan areas that encouraged travel by car. One by one, those areas challenged New Jersey’s hegemony, Burchell said.
New Jersey’s tax revenue from the gambling industry has plummeted since hitting a $500 million peak in fiscal year 2006. Last year, casinos in the state generated less than half that amount.
In comparison, Pennsylvania’s booming gambling industry has produced over $6 billion in tax revenue since its first casino opened in 2006. The state collects more than half of every dollar spent on slot machines, and by opening casinos in the Philadelphia metropolitan area, Pennsylvania has siphoned visitors away from Atlantic City.
“There’s kind of a steady number of gamblers,” Burchell said. “Your demand is fixed. That’s going to be affected by bad economic times and the number of other players in the game.”
Delaware, Rhode Island and West Virginia legalized gambling in the 1990s. New York and Pennsylvania followed in the early 2000s. With the addition of table games in Maryland, casinos can now be found within a few hours’ drive for residents along the northern half of the I-95 corridor.
“Many of our patrons come by tour bus, which makes that able to be cannibalized by anyone who is going to open another casino that might be closer to the point of origin of those buses,” Burchell said.
In order to lure patrons, casinos often bundle the price of a tour bus ride with tokens and a free meal.
“But once you go there, they want to control everything—and they do,” Burchell said. “There’s just a finite amount of money to be spent.”
The result of increased competition, Burchell added, is that casinos will continue to up the ante by offering visitors lucrative deals that could sway them into picking one destination over another—a race to the bottom that could make the casinos more dependent upon visitors willing to press their luck at the tables.
Maryland and the rest of the gambling-friendly states on the East Coast may soon face more competition. New York Gov. Mario Cuomo earlier this year announced his support for expanded gambling, echoing the same message of job growth and tax revenue Maryland Gov. Martin O’Malley pushed to sell his own plan.
Gambling experts said that despite the already crowded market, there may still be some room for growth on the East Coast.
“Within five years, the big push for expansion will be over,” Eadington said. “Eventually you’re going to saturate the market.”
Should gambling expansion continue unfettered, however, Eadington said many states would be unable to meet their predictions of soaring profit margins and tax revenues.
“When you add more and more supply, you erode both of those factors,” Eadington said.
But Maryland’s gambling laws, which cap the number of casinos at six, could promote a sustainable gambling industry.
“If I had an opportunity myself to invest in a casino in Baltimore, I wouldn’t have any second thoughts about it,” Kilby said. “In Maryland, gaming is still a privilege enterprise. … It’s not like a plumbing store—you’re not going to be able to open one anywhere.”