To opponents, the idea is an impractical, ill-advised encroachment by government into the realm of private business. To supporters, it’s a common-sense way to raise money for vital public programs without lining the pockets of politically connected developers and businesses.
It’s a debate Marylanders are bound to hear more about as the state weighs again whether to legalize slot machine gambling and, if so, whether to let the government run the enterprise and keep the proceeds as it does with the lottery.
House Speaker Michael E. Busch has promoted state-owned casino-style facilities as an alternative to Gov. Robert L. Ehrlich Jr.’s proposal to put slots at four racetracks.
The state would own the slots emporiums and pay casino industry experts a percentage of the profits to manage the operations.
And the state – rather than a few racetrack owners – would pocket most of the cash. Some of the money would be designated to boost racing and finance racetrack improvements.
“I don’t think there’s any reason we couldn’t do it,” said Busch, who is credited with derailing Ehrlich’s “slots-at-tracks-only” plan in this year’s legislative session.
He has talked about putting slots parlors in areas easily accessible to major highways and near the state’s borders to attract out-of-state players.
Busch said he still thinks that using slots to raise revenue is poor public policy. But if slots become inevitable, he said, the state has to make sure it crafts the best deal for taxpayers.
Busch suggests the job of setting up slots casinos could be turned over to a state-created entity such as the Stadium Authority, which built and manages the $500 million, twin-stadium Camden Yards complex and oversees other building projects, such as the Comcast Arena at College Park. The facilities would be leased to whichever casino companies offer the best deal to operate them.
Would the idea work?
It already does in Canada, where the government builds casinos and pays marquee-name casino corporations a fee to run them. And there are similar deals in the United States that involve private-sector partners in casino ventures.
For example, owners of the Dover Downs racetrack in Delaware hired Las Vegas-based Caesars World to set up and manage their slots operation.
Many Indian tribes, too, have hired blue-chip casino companies to serve a similar role in developing and managing their gambling operations.
These deals look much different from Ehrlich’s proposal for licensing slots at Maryland racetracks. It would have let racetrack owners keep 44 percent of all the money customers drop into the machines, minus payouts to winners. The state would have received 42 percent for education; the rest would have gone to purse funds, horsemen and other purposes.
In contrast, Dover Downs pays Caesars World a management fee of 16 percent of net profits, the amount left over after winners, vendors and all other expenses have been paid, according to a Dover Downs executive.
Of course, Dover Downs assumes the risks and headaches that come with operating a business. And the track’s owners must pay all of the operating costs from their share – such as payroll expenses, security, equipment and marketing.
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Still, Edward J. Sutor, the chief operating officer of Dover Downs, said the deal has worked out well for both parties.
“Both sides got value out of this thing,” said Sutor. “We believe we have the finest and most well-run facility of its kind in the country. They [Caesars World] worked for two years before they got a nickel. They put a ton of investment in manpower time and energy up front to help build the facility.”
But Sutor is skeptical that the same model would work as well with government as a partner. “I can’t imagine the government operating something as sophisticated as this,” he said.
But government does – just not in the United States.
Casino Windsor in Canada, just across the river from Detroit, has a contract with Las Vegas-based Park Place Entertainment, the corporate parent of Caesars Palace, to manage and oversee its government-owned casino.
In the original deal between the province of Ontario and Park Place Entertainment, the province agreed to pay Casino Windsor a management fee of 2.74 percent of the gross and 5 percent of net profits. The province pays payroll, marketing and all other operating costs from its share.
Ontario also allows slot machines at racetracks under a different business model that is designed to bolster the horse-racing industry.
Track owners serve as landlords, housing slot machines owned and run by the province and, in exchange, the tracks keep 10 percent of the gross and another 10 percent is designated to racing purses.
But some gambling experts question the ability of a government to run casinos efficiently and effectively.
Lawrence Klatzkin, an investment analyst with New York-based Jefferies & Co., asked whether it is wise for a government agency to assume the responsibility of running a large gambling operation such as a network of slot casinos, rather than simply take a percentage of the revenue.
“It’s not their business. They don’t know it,” Klatzkin said.
Jeffrey Hooke, a Silver Springs investment banker who advocates having Maryland auction off casino licenses to the highest bidder rather than just give them to racetrack owners, said that the public ownership idea has some merit.
“The most appealing part is that’s where government might tend to make the most money because there is no middleman,” he said. “The arrangement doesn’t allow a private sector partner to take out huge profits.”
But Hooke sees downsides as well, predicting that the process of selecting sites for casinos and choosing contractors to build them would become highly politicized.
“I wonder if government could even accomplish it,” he said. “Plus, you’d have to have four or five separate bids for management contracts. I think it’s a big undertaking for government to do.”
Aaron Meisner, a coordinator of the anti-slots group stopslotsmaryland.com, said that state ownership is preferable to private ownership. But he said the group’s first choice is that slots not be legalized at all.
“Would we be in favor of state ownership?” he said. “No, I don’t think we would be. It’s still an industry that preys on the vulnerable and the poor and leaves destruction in its wake.”
Meisner acknowledged that some believe the public ownership idea is intended as a backdoor way to kill slots.
The theory is that the pressure to legalize the electronic gambling devices will abruptly end if private interests that stand to reap tens of millions of dollars from gambling licenses are cut out of the picture.
“A lot of people are speculating about that, that it’s a poison pill,” Meisner said. “Whether it is the intent or not, it does not change the fact that the legislature is supposed to be doing what is in the best interests of the citizens of the state of Maryland. If good government creates opposition from the casino industry, so be it.”
A spokesman for Ehrlich said the administration is reserving judgment until it learns more about the public ownership idea.
“It looks like on some levels it may make sense; on some levels it may not,” said Paul E. Schurick, the spokesman. “We don’t know enough about it yet to have a strong opinion one way or the other.”
As might be expected, horse-racing interests that have spent millions lobbying for slots at tracks in Maryland are horrified by the idea of publicly owned slots parlors.
“I see only minuses,” said William Rickman, Jr., a Montgomery County businessman who operates a racetrack casino in Delaware and hopes to open similar ones in Maryland. “My belief is it would be a disaster.”
He said racetracks are the obvious place for slots because they are gambling venues and have the space and facilities to accommodate thousands of visitors.
“A racetrack is in a position to pay a higher tax than anyone else and still be successful because the infrastructure’s already there,” Rickman said.
His views were echoed in a letter Del. John Adams Hurson, a Montgomery County Democrat, wrote to legislative leaders in June that detailed Hurson’s ideas for getting a slots bill passed.
“I have strong concerns about the state of Maryland owning and running slot machines in lieu of the racetracks,” he wrote. “First, the Canadian model of state-run facilities works in a society that is, frankly, much more socialist than ours.”
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A few days after writing the letter, Hurson benefited from a $250-a-person fund-raising event at the home of Rickman’s father, William Rickman Sr. Hurson said the fund-raising event didn’t influence his views.