Five years ago, there was a new breeze in the Eastern gaming market. As established markets like Las Vegas and Atlantic City were sinking in the muck of the worst economic malaise in anyone’s memory, the upstart Pennsylvania casino industry was soaring—logging stellar gaming revenues at the expense of its neighbor in New Jersey.
As the national recession deepened in 2008, state lawmakers in states surrounding Pennsylvania began looking to carve their own slices of the Eastern gaming revenue pie. Prominent among those states was Maryland.
Maryland stood among its mid-Atlantic neighbors as a land of opportunity. Millions of gambling dollars had been streaming to Delaware’s three racinos, some of which claimed half of their gaming revenue from the hands of Maryland citizens. Even more importantly, Maryland was the epicenter of an enormous, largely untapped gold mine of potential gaming revenue—the Baltimore/Washington, D.C. corridor.
Around 9 million people live in the metropolitan area comprising Baltimore, Washington, D.C. and northern Virginia. In 2008, the only casino in close proximity was Penn National Gaming’s racino in Charles Town, West Virginia. Maryland lawmakers looked to exploit this fact. That November, Maryland citizens voted to authorize five slot casinos in various regions of the state.
However, the expected flood of gaming revenues did not happen—largely because of the Maryland gaming law’s onerous 67 percent revenue tax on slots. Only two casinos opened in the first three years of the nascent industry, small operations owned by Penn National in Perryville near the Delaware border and at Ocean Downs, a racetrack near Ocean City in the Eastern Shore region.
The sole exception to the low investment was Anne Arundel County, where Cordish Companies—after bitter fights with former Laurel Park racetrack owner Maryland Jockey Club and Penn National, which had bought half of the Jockey Club—bought in big-time for a major destination casino adjacent to the Arundel Mills Mall in the Baltimore suburb of Hanover.
Of course, by the time the massive Maryland Live! casino opened last year (after successfully defeating a ballot measure funded by Penn challenging its zoning), there was more change in the air. Other operators were interested in cashing in on the potential of the Baltimore/Washington corridor, but only with full-blown casinos. Within two months of Maryland Live!’s June grand opening, Governor Martin O’Malley and lawmakers held the special legislative session that created Question 7 on last November’s ballot—ultimately authorizing a sixth Maryland casino in Prince George’s County, 24/7 gaming operations and table games for all casinos, along with breaks in the revenue tax for most casinos, to occur within the next few years.
That vast, untapped Maryland potential now seemed closer than ever.
The campaign over Question 7 was a bitter face-off of moneyed interests in Maryland over gaming expansion; upwards of $95 million was spent on pro-expansion and anti-expansion television ad campaigns, exceeding the 2006 gubernatorial race as the most expensive campaign in Maryland history.
But Cordish, whose Maryland Live! casino was already generating big revenues as the state’s largest casino, didn’t spend a penny of that money. The campaign spending was split between two industry behemoths—MGM Resorts International, which had partnered with developer Peterson Companies to propose a Prince George’s County mega-casino at National Harbor on the Potomac, in favor of expansion; and Penn National, which fought against it.
The pro-casino forces also were supported politically by Prince George’s County Executive Rushern Baker, who stumped for the National Harbor location; and financially by Peterson and by Caesars Entertainment, which had been awarded the license for the city of Baltimore. (Caesars officials said legalization of table games was a fair trade-off for additional competition.)
Penn National officials claimed this support amounted to a “fix” being in for the National Harbor location over its own Prince George’s facility, Rosecroft Raceway, which it had purchased out of bankruptcy with the express intention of making it a racino that would rake in revenues from the D.C. market. Penn’s claims of an alleged “back-room deal” were countered by MGM, whose political commercials claimed Penn was simply protecting its own revenues at the out-of-state Charles Town racino.
After opening Maryland Live! in the summer, Cordish emphatically opposed the creation of a Prince George’s casino while the referendum was considered by lawmakers, claiming its own $500 million investment in the state had been made with acceptance of the rules and potential competition as they were set in 2008. However, after lawmakers voted for the referendum, Cordish sat back and let Penn and MGM do all the fighting over expansion, and all the spending.
“I’m not quite sure that any more money poured into this battle would have been useful at all,” says Joe Weinberg, president and managing partner of Cordish Companies. “This was probably one of the most expensive issue campaigns anywhere in the country.”
Despite its former position, when Question 7 passed, Cordish moved quickly to capitalize on the opportunity it offered. On December 27, Maryland Live! became the first casino to open its doors for round-the-clock gaming, and the first to submit a request for table-game approval. On January 7, Cordish opened an in-house dealer school.
The dealer school is being run by a team Cordish assembled before Question 7 even passed. “In anticipation of its passing, we started in September with our recruiting of experienced supervisory and training personnel, and secured a location to handle the volume of people we’d be putting through the school,” Weinberg explains. He notes that the casino also is working closely with the Anne Arundel Community College in the training program.
“We’re happy to have table games,” says Weinberg, who predicts Maryland Live! tables will be running by April. “We’ll have a nice head start in the market.”
That head start will be measured in years—Horseshoe Baltimore, Caesars’ facility near the Baltimore sports stadiums, is pegged for a 2014 opening. Under Question 7, a Prince George’s casino cannot open until 2016. Weinberg says the opening of 24/7 gaming alone has increased business at Maryland Live! by double digits.
“We believe we have a world-class facility, a great location and great amenities that will be difficult for others—be it Caesars or whoever wins the Prince George’s license—to compete with,” Weinberg says.
Future Is Here
Meanwhile, the state’s regulators are busy preparing the way for expansion of the state’s nascent gaming industry into a full-blown casino market.
Like Cordish, the state itself prepared for passage of Question 7 before the actual vote took place. In late October, O’Malley appointed the seven-member Maryland Lottery and Gaming Control Commission to regulate and oversee all gaming in the state.
The new commission replaces the state lottery agency, which purchased and owns all the video lottery terminals. The Maryland Video Lottery Facilities Location Commission, the part-time body that evaluates the bids on new casinos, will decide who gets the new license. It is now an arm of the new commission.
Stephen Martino, who has been lottery director since 2010, is now director of the new Lottery and Gaming Control Commission. The revamped agency’s first task this was to forge the regulations governing table games. Underlying regulations such as internal controls, security and surveillance requirements and responsible gaming rules were approved at the commission’s December meeting, along with specific rules governing blackjack and poker. Martino says the balance of the rules—for more than a dozen games including baccarat, sic bo and specialty poker—were on the agenda for January.
“I think we will have a thriving table games market in Maryland,” Martino says.
Also among the commission’s first tasks was approval of requests for increased hours. Maryland Live! was the only one of the three casinos to go for 24/7 gaming. The two other casinos went for round-the-clock gaming on the weekends, while keeping their early-morning closing times during the week.
According to Martino, the Location Commission was to meet in late January to issue a request for proposals for the Prince George’s license. He readily denies the notion that approval of the National Harbor project is a fait accompli. “To the extent anyone believes that the ‘fix is in,’ or that there’s some kind of predetermined outcome for Prince George’s County, that’s completely false,” he says. “We are working very hard to put together a fair and transparent process that hopefully will bring many bidders, because ultimately, the state benefits form having a competitive bidding process.”
Martino says he expects bids to at least come from National Harbor and Penn National. (Penn officials declined to comment for this article.)
Martino also rejects criticism from some lawmakers that the licensing fee structure in Maryland—casinos pay $3 million for every 500 slots—is a “giveaway” to the operators.
“They’re saying we should auction the (Prince George’s) license,” he says. “The downside of an auction is that there is not an unlimited amount of money these casinos have access to. And, every dollar you put into an up-front license fee or auction bid is in all likelihood a dollar that is no longer going to be invested long-term into the facility itself.
“On the other end, we also have a very high tax rate in Maryland, so it’s not like we’re letting the casinos off free and easy.”
The rate will come down for casinos in exchange for another provision of Question 7—beginning in 2014, casinos will take over purchase of slot machines and other gaming equipment from the lottery. “But even after all the reductions, you’re going to have effective tax rates in the best case that are just under 50 percent,” says Martino. “Compare that to other jurisdictions—almost all of them—and you’ve still got a higher effective tax rate than just about every other jurisdiction.”
As the framework develops for table games and new casinos, the two remaining current licensees are busy preparing for operations. The Rocky Gap Casino Resort in the rural western portion of the state will open in June. (See box.)
Next up after that will be Horseshoe Baltimore. According to Chad Barnhill, general manager of the casino, groundbreaking for the Baltimore casino is expected in March or April, with a grand opening pegged for the second or third quarter of 2014.
The casino—on a parcel next to M&T Bank Stadium, home of the NFL’s Baltimore Ravens—was originally pegged as Harrah’s Baltimore, but the switch to the Horseshoe brand was a direct result of the legalization of table games.
“The Horseshoe brand is very table-centric,” says Barnhill. “What we found with (Horseshoe) Cleveland is that in the cores of these major cities, unlike some of the suburban casinos we operate, the core gamers are very excited about table games.”
In addition to the inherent advantages in Caesars casinos such as the national Total Rewards players club and the World Series of Poker—Horseshoe will include a 30-table WSOP poker room—Barnhill says the casino will compete with Maryland Live! and other nearby casinos by identifying with the locals. “We’re going to start off without a hotel, but we’re going to have hotel partners throughout the city,” he says. “We’re going to have a Total Rewards Around Town program where customers can go into local restaurants, show their Total Rewards cards and get discounts. We’re really making this Baltimore’s casino.”
When Question 7 passed, there were inevitable criticisms of a saturated market in Maryland—the Prince George’s casino will likely be less than half an hour from the two Baltimore-area casinos. While Martino says time will tell, he points to the quality of the participants in the market as evidence that there’s enough business to go around.
“I would think that MGM, Caesars and Maryland Live! looked at those questions very carefully, and their support was not given blindly,” says Martino, “but from being educated about what the impact of full build-out would be.”
Barnhill agrees. “I think there’s enough business,” he says. “The state’s done a nice job of analyzing where Maryland needs to be to be able to compete.”
That Other Casino
Rocky Gap prepares a gaming property different than all others in the state
The Rocky Gap Lodge & Golf Resort in rural Allegany County was a money-loser for the state of Maryland. Attached to a state park, the lodge fell into disrepair in recent years. After the 2008 gaming law made the lodge one of the approved gaming locations, it took three tries and a changing of the rules before three companies bid on the license.
In addition to a lower revenue tax (50 percent), the state had sweetened the pot by dropping a requirement that the casino be a newly-built structure. The winning bidder was a subsidiary of Lakes Entertainment, the operator founded by former gaming executive and poker pro Lyle Berman.
The Rocky Gap Casino Resort will open in June, with a casino located in former meeting space. (Additional construction may come in the future.)
According to Tim Cope, president of Lakes Entertainment, the operator will call on its experience—it manages California’s Red Hawk Casino for the Springs Band of Miwok Indians and is a partner with Ohio’s Rock Gaming in two casinos—to do what the state could not: make money at Rocky Gap.
“We will offer a different experience than the other casinos,” Cope says. “There is a boutique lodge feel to the property that I think will attract a lot of people for an overnight stay. I think people in the Baltimore area in particular have expressed interest in a place to come for an overnight stay, winter or summer.”
The property includes a Jack Nicklaus-designed golf course, a world-class spa, and proximity to a variety of summer and winter sports. Cope says summer business was never a problem, but the company will concentrate on marketing the casino and nearby skiing and snowmobiling to fill the property in the winter.
Cope says the reason the state lost money on the casino was that no improvements were made once it became clear it was going to be one of the casino locations. “Everybody who worked at the property kept thinking they were going to be sold the next day, and they hadn’t made any attempts to market rooms or groups,” he says, “because they didn’t know who was going to own it.”
Lakes will change that, he says, when the new meeting space is complete. Meanwhile, after the casino opens, room renovations and construction of a new lobby and restaurant will be ongoing during the first months of operation.
Cope predicts Rocky Gap can grow into a popular local casino destination not only for Maryland, but west-central Pennsylvania markets such as Altoona and Johnstown. “Within a 60-mile radius, there are approximately 250,000 people,” he says. “I think it’s definitely going to be a locals market here, supplemented by the fact we’ve got hotel rooms, a golf course, a spa and other amenities.
“I think we’re going to offer a different casino experience than the mainstream Maryland facilities.”