CHARLES TOWN – The recent decision by Maryland’s General Assembly to allow voters to decide whether to expand casino operations in that state could have a considerable impact on county finances.
Yesterday it was reported that millions of dollars from casino developers – notably Las Vegas giant MGM – are already pouring into Maryland in to attempt to convince voters that a new casino in Prince George’s County is in their best interests.
Documents filed with the Securities and Exchange Commission by Penn National Gaming Inc., the owner and operator of Hollywood Casino at Charles Town Races, show that the company is worried about increasing competition and its effects on gaming revenue.
The county’s finances are heavily tied, both directly and indirectly, to the fate of the casino, meaning that the decision of Maryland voters in November could have a substantial impact on Jefferson County.
Years of expansion
The years following Penn’s purchase of the Charles Town Racetrack were years of explosive growth in both gaming revenue and in the county’s budget.
The track was closed when a Penn-led partnership purchased it in January 1997. In the previous year the track had employed only 328 people, more than a third on a part-time basis, according to SEC reports filed by Penn at the time.
Penn made extensive investments in renovating the track and building facilities to house its first video lottery machines. Penn invested some $28 million in refurbishing and expanding its facilities in the first year it owned the track, a figure that doesn’t include the purchase of the slot machines themselves.
Over the following 10 years, revenue at Hollywood Casino grew explosively. By 2007 it was bringing in almost 30 times as much yearly revenue as it had a decade earlier.
County budgets expanded along with revenues at Hollywood Casino, though not quite as dramatically. During the same period, the Jefferson County Commission’s revenue more than tripled, moving from $5.6 million in 1997 to $19.8 million in 2006.
Tied to gaming
The most recent budget update prepared by county Financial Directer Paul Shroyer shows that revenue from video lottery machines, table games and horse racing contributed about $5.9 million of the county’s total $21.5 million in estimated revenue.
Direct tax revenue on video lottery machines and table games are only the tip of the iceberg. Hollywood Casino will also pay approximately $4 million in real estate and personal property taxes this year, according to Assessor Angela Banks, 77 percent of which goes to the county’s schools.
Additionally, the economic activity generated by the casino has considerable “knock-on” or collateral effects on the local economy and therefore on county budgets.
The casino also likely props up revenues gained through the Hotel Occupancy Tax, which is estimated to account for more than $600,000 of county revenue this year.
Other area businesses also derive considerable benefits from tourists coming to the area to gamble at Hollywood Casino, leading to higher living standards and property values – and therefore higher tax revenue. There is no simple way to measure the total impact of the casino on the economic life of the county, but it is considerable.
The costs of competition
Penn National Gaming Inc., which owns and operates Hollywood Casino at Charles Town Races, acknowledges that new competition is already exerting a negative influence on its revenue. A yearly report Penn filed with the Securities and Exchange Commission in February predicts that the Maryland Live! casino that opened in July in Hanover, Md., and expected to be fully operational by the end of the year, will cause the casino to “face increased competition and their results will be negatively impacted.”
The SEC report also points out that a viable attempt is being made to open a casino in Baltimore, which could have a further negative impact on revenues.
Competition for revenue, referred to by the industry as “cannibalism,” plays a unique role in the gaming sector. Whereas, in most industries, there are few legal barriers for new competitors to enter the market, a new casino often needs special legislation or voter approval. Conversely, established casinos generally enjoy considerable protection from the revenue-reducing effects of competition. States often strategically locate casinos far away from each other to minimize cannibalism.
An economic study published in June by two economists specializing in the gaming industry suggested that, contrary to fears about cannibalism, locating casinos close together may in fact increase revenues for all. This, the study suggests, is due to the fact that casinos’ suppliers face increased competition, lowering their costs of operation and the fact that casino patrons will be drawn to an area with a high concentration of casinos.
However, it is not clear whether this “agglomeration effect” would help Hollywood Casino, or increase the negative effects of competition; if Maryland casinos are sufficiently well clustered to benefit from this effect, but Hollywood Casino is too far out to share in that benefit, then gamblers may be more likely to choose Maryland casinos over a trip to Jefferson County.