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Delaware may trump slots with sports betting

Wednesday, Jan. 7, 2009

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Before Maryland sees a penny from slot machines, Delaware may up the ante in the regional race for gaming revenues by approving sports betting at its three racinos as soon as this year.

That could mean less money than anticipated for education, the thoroughbred industry and other beneficiaries of legalized gambling in Maryland, prompting fresh criticism of slots, which voters approved in November.

"That will all serve to diminish Maryland's share of the regional market," said House Minority Leader Anthony J. O'Donnell (R-Calvert, St. Mary's). "In the recent referendum, the pro-slots campaign so exaggerated and elevated the expectations that when it doesn't promise the new and improved deliverance of all maladies, people are going to be very, very disappointed, and it's probably going to put, in my opinion, some of the state's priorities at risk."

The game of one-upmanship in casino entertainment is predictable, observers said, especially as states seek any revenue generators to combat massive budget shortfalls.

Legislative analysts in Maryland project slots could generate $1.36 billion by fiscal 2013, with roughly half going to schools. But none of that money is earmarked to help the state erase a projected $2 billion deficit for the fiscal year that begins July 1.

In Delaware, the gap is projected to reach $560 million by fiscal 2010. Sports betting is expected to be a hot topic when the General Assembly convenes Jan. 13, a day before Maryland lawmakers begin their 90-day session in Annapolis. Gov.-elect Jack A. Markell has signaled that he will sign legislation to authorize wagering at tracks in Wilmington, Dover and Harrington, if the legislature passes it.

"I don't think it has to do with what other states around us our doing," said Senate President Pro Tempore Thurman Adams Jr. (D), who lives about 15 miles from Midway Slots and Simulcast in Harrington. "It's based primarily on what it would return in benefits if it's passed as far as the finances."

But increased competition from surrounding states is another driving factor. Delaware legalized slot machines in 1994 at its three racetracks to prop up its thoroughbred industry and competes with Atlantic City casinos for gambling revenue. The 2004 passage of slots in Pennsylvania raised the stakes, and Maryland expects to have the first of its five slots parlors up and running by 2011.

Although a 1992 federal law prohibits betting on sporting events, Delaware is one of four states that have a "grandfather" exemption because it tinkered with a sports lottery in the 1970s. Nevada, currently the only state that operates legal sports books, Oregon and Montana, also are exempt from the federal ban.

Sports betting could help preserve some of the gaming revenues that Delaware expects to lose to Maryland when its 15,000 slot machines come online.

"What you have going on in the region is a gambling arms race, and this is part of that," said Scott Arceneaux, former senior adviser to the now-defunct Marylanders United to Stop Slots, repeating a refrain his group used during the campaign to defeat the slots referendum. "These destinations outside of Maryland aren't going to give up these gamblers without a fight, and this is going to be part of their effort to keep the folks that are going there [now] going there [in the future]."

But even if it is implemented, sports betting alone will not cure Delaware's fiscal ills. While almost $2.6 billion was wagered at the Nevada sports books in 2007, the gross gaming revenue totaled only $168 million, only 6.5 percent of the amount in play and a fraction of more than $12 billion in total casino revenues, according to the state's Gaming Control Board.

Still, the amount spent on sports gambling in Nevada has grown in each of the past five years, and the number of online sites has multiplied in recent years. Plus, Delaware could strike gold in an untapped sports betting market on the East Coast.

Estimates on how much the state would yield range from just $3 million a year to as much as $70 million annually, Adams said.

If approved, sports betting in Delaware will differ from that in Nevada. No straight bets on a single game or outcome may be placed. Only combination bets, known as parlays, can be wagered. They carry higher odds, but are more difficult to win.

It's too soon to know how much an impact legalized sports betting would have on Maryland slots revenues, but Mike Hopkins, executive director of the Maryland Racing Commission, acknowledged that it likely would sap money from the state's coffers and therefore potentially hurt the thoroughbred industry.

"Certainly, it's another opportunity for people to use their discretionary income on something different," he said.

The potential introduction of sports betting in Delaware and the possibility that other nearby gaming venues, such as Charles Town Races & Slots in West Virginia, will become full-blown casinos is a "valid fear" for Maryland even before the first slot machine is turned on, said Joseph S. Weinert, senior vice president for Spectrum Gaming Group LLC, an industry research firm in Linwood, N.J.

"That could put a dent in the Maryland [revenue] projections," he said, warning that the fiscal impact in states new to gaming is always difficult to predict.

Some lawmakers, however, don't see sports betting in Delaware as a threat to slots revenue in Maryland.

"I just don't think that people who sports bet are the same people who play slot machines," said Sen. James Brochin (D-Baltimore County). "I think it's a different caliber of bettor."

Outside competition will, however, require the license holders of facilities in Allegany, Anne Arundel, Cecil and Worcester counties and Baltimore city, to build top-notch venues that will keep Marylanders in-state and lure outsiders here.

"A lot of these folks who are slots players are tired of going out of state," Brochin said. "It's going to be incumbent on the people who get these licenses to build a venue that is an attractive and modern venue that's going to attract people to come in and play. And if they do, I think they're going to be fine, and the state's going to be fine."

As other states expand beyond slot machines — West Virginia introduced table games such as roulette, poker and blackjack at two racetracks in 2007 and another in 2008 — Maryland should resist the pressure to play catch-up, lawmakers said.

"To start a discussion of expansion would be tawdry at best," O'Donnell said.

Given how long it took to ratify slot machine gambling and the protections built into the legislation to guard against expanded gambling, such an effort seems improbable in the short term. Down the road, though, Weinert believes it's a possibility, just to keep pace with other states.

A bigger worry, said Sen. Nancy Jacobs (R-Harford, Cecil), is if the economy continues to slump over the next few years and slot machine revenues fall below projections.

Revenues at Atlantic City's eleven casinos have plummeted in recent months, mirroring a nationwide gambling industry downturn. It comes as New Jersey, too, faces dire budget woes — $1.2 billion for the current fiscal year and $5 billion the following year, according to Gov. Jon S. Corzine (D).

For the first 11 months of 2008, casino revenues are down 6.7 percent from last year, according to the state's Casino Control Commission. Slot machine proceeds have particularly slumped, down 8.9 percent through November. Overall gaming revenues fell 15.1 percent in September, the largest one-month fall since gambling came to the seaside resort in 1978.

"If we continue to stay in the downturn that we're in, less people are going to gamble," Jacobs said. "Right now, money is not discretionary for most of us. What money we have, we have to be saving and spending on things we need to have."


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