Higher price for Md. slots?

Laura Smitherman and Julie Bykowicz

Oct. 11, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- The slots parlors coming to Maryland are expected to feature electronic gambling terminals that incorporate popular game shows, celebrities and even life-size digitized blackjack and poker dealers.

The state's effort to purchase such elaborate machines could begin as soon as next week and would mark a major milestone for a program that has gotten under way in fits and starts since voters approved slots last year.

But the strategy could saddle taxpayers with millions of dollars per year in additional costs in the middle of a state budget crisis and faces criticism from gambling foes who say the parlors once described as limited forays into gambling are becoming more like full-blown casinos.

"There are not too many people in the state who understand what they're in for," said Aaron Meisner, who as head of Stop Slots Maryland helped lead the bid to defeat the slots referendum.

Industry experts say a variety of slot machines, including many of the newer interactive machines that mimic card games, are needed to ensure the success of Maryland's slots program as it competes with those in neighboring states that have moved in recent years to expand gambling to include sports betting and table games.

At Delaware Park Racetrack and Slots, just over the state border, 3,000 machines offer an array of choices that make one-armed bandits look like museum pieces.

Pause in front of an electronic card table and the simulated female dealer, her waist cinched in a revealing corset, will ask, "Do you want to play?"

In another room, "Star Wars" scenes play on a high-definition television as patrons sit before terminals topped with plastic, three-dimensional replicas of R2-D2.

"You have got to have all kinds of different machines," said Maris Turner, 58, of Edgewood, who visited Delaware Park three days last week. "Some people have their certain machines, but some people always need to have something new in front of them."

Maryland's first slots license was awarded to the Ocean Downs horse track near Ocean City, where a facility with up to 800 machines could open by Memorial Day. This month, the state slots commission is expected to license a 1,500-machine facility in Cecil County.

Delaware Park President Bill Fasy said players want to see "the state of the art, newest thing on the block."

"Old technology and old slot machines don't necessarily equal success," he said.

Potential slots operators have expressed concern that Maryland would not have enough money for first-class terminals.

The General Assembly, in rules governing the program, set aside 2 percent of slots proceeds to cover operating costs, including machine procurement. Seeking greater regulatory control, lawmakers directed that state lottery officials obtain the slots machines and run the central computer for the five authorized slots sites.

The law dictates that any other money for operations would come from the state budget. Analysts estimate that total operating costs when the casinos are fully functional would be $65 million a year, while 2 percent of the proceeds would generate only $27 million.

Donald C. Fry, chairman of the Maryland slots commission, said officials had to work to convince operators that the state will choose machines wisely. Many states, including Indiana, allow operators to purchase their own machines.

"Obviously, with our setup in Maryland, the operators had concerns they may not get the best machines or that the leases would be too long as to make it difficult to get fresh ones," Fry said.

He said operators "wanted assurances that Maryland is going to expend the necessary funds" to get top-notch machines, adding that the state has allayed those fears. "They all seem very satisfied that we're on the same page," Fry said.

Executives with the largest proposed casinos -- in Anne Arundel County and Baltimore, which both face significant hurdles in gaining approval -- said they are confident the state will acquire top-level machines. They also say there are advantages to having the state, rather than operators, doing the buying.

Paul Micucci, a principal in the Baltimore City Entertainment Group, which plans a 3,750-machine facility near the city's sports stadiums, said Maryland has purchasing power that individual operators would not.

Joseph Weinberg of the Cordish Cos., which wants to build a 4,750-terminal site near Arundel Mills mall, said the state seems to be "approaching procurement in a very intelligent, methodical way."

Maryland's lottery director, Buddy W. Roogow, said the request for bids will be broad, giving manufacturers the ability to sell or lease to the state, which will then distribute machines to licensed operators.

How Maryland will pay for the machines in the first few years has yet to be determined. The state could defer payment until the machines start generating money, some industry experts say.

Lawmakers had originally suggested that 5 percent of the proceeds go to machines and other operations, but raided that pot to help make the slots measure more palatable to various groups.

By the time the final plan was adopted, the operators' share had risen from 30 percent to 33 percent, and more money had been set aside for a minority- and women-owned business investment account and to augment horse racing purses. Still, Maryland's law imposes one of the highest tax rates on casinos in the country.

Any request for more money could come at a time when the state needs to make budget cuts to close a nearly $2 billion revenue shortfall next year.

"We're spending money we won't have coming in until who knows when," Meis- ner said.

Warren G. Deschenaux, the legislature's chief fiscal analyst, said it would be unusual for a gambling operation of this size to be supported by a cut as small as 2 percent. He noted the state has an interest in maximizing casino profits because its share of the proceeds could top $600 million annually.

"People can argue about priorities," Deschenaux said. "But in the end, we're looking downstream to $600 million, and I don't think people are going to sneeze at that."

Del. Luiz R.S. Simmons, a Montgomery County Democrat and one of the legislature's most vocal critics of gambling, questioned whether lawmakers or the public understood how the proceeds would be divided, and said the casino operators should provide any additional money for machines. "What a novel idea that private business people be required to spend their own money," he said.

Simmons predicted that market competition would spur expansion into other forms of gambling, which would require voter approval, and that the introduction of electronic table games represents "the first step."

"We're told now that we've introduced gambling [that] we just can't have your grandfather's or your father's slot machines," he said. "Ultimately, we're going to end up with full casinos. That is fait accompli at this point."

Newstex ID: KRTB-0034-38726521