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You Mean Someone Makes A Profit Off Slots?

When Marylanders go to the polls in November, they will of course be electing a president and members of Congress, but they will also decide whether their state goes into the gaming business in a big new way. The referendum on opening state-sponsored slots casinos in five Maryland locations--including at the racetrack in Laurel--is heating up, and the battle right now is over whether Gov. Martin O'Malley's pro-slots administration is trying to stack the deck with crafty wording of the question that will be posed to voters on the ballot.

Here's the wording of the constitutional amendment Secretary of State John McDonough drafted--I should note that McDonough worked as a lawyer and lobbyist for Rosecroft Raceway in Prince George's County for two decades before O'Malley appointed him to this post:

Authorizing video lottery terminals (slot machines) to fund education

Authorizes the state to issue up to five video lottery licenses for the purpose of raising revenue for education of children in public schools, prekindergarten through grade 12, public school construction and improvements, and construction of capital projects at community colleges and higher education institutions. No more than a total number of 15,000 video lottery terminals may be authorized in the State, and only one license may be issued for each specified location in Anne Arundel, Cecil, Worcester, and Allegany Counties and Baltimore City. Any additional forms or expansion of commercial gaming in Maryland is prohibited, unless approved by a voter referendum.

What's missing from that synopsis? Well, how about the fact that the state's own analysis of the impact of slots gambling in Maryland determined that private casino operators would pocket a stunning $450 million in profits each year, while the state's schools would collect $660 million annually. If voters knew that, would they make the same decision as those who merely read the very limited statement that the ballot puts before them--a statement that says only that the "purpose" of slots is to raise money "for education of children"? How comfortable are Maryland voters with being party to a gambling scheme that from the get-go skims about 40 percent of the profits for the benefit of a handful of casino operators? Obviously not too comfortable, or else the state would have put the question to the people forthrightly.

McDonough argues that the wording is indeed straightforward, and that the ballot presents the issue without arguing for or against the change. But Aaron Meisner, head of one of the main anti-slots campaign in the state, calls the wording "outrageous" and says it shows what happens when you put a gambling lobbyist in the secretary of state's job.

Opponents of slots have filed a lawsuit to try to stop the ballot wording from appearing as it does above. But the lawsuit isn't likely to go anywhere. The state elections board says it is powerless to change the wording of the ballot question, and the anti-slots movement isn't even united in opposition to the wording--at least one of the main opposition groups says it will focus on providing voters with more complete information rather than fighting the ballot wording in the courts.

But voters should take this chapter of the slots fight as evidence of the state government's moral unease with its own sordid actions--if Maryland's governor and politicians were really sure that forcing the poor and gambling addicts to cover the state's budget gap was the right thing to do, rather than turning to all taxpayers to share the burden equally, then they'd have presented voters with an honest accounting of what they're really voting for this fall.

By Marc Fisher |  September 5, 2008; 8:45 AM ET
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Generally speaking a 60% tax rate comign out with 660 million for the state is a pretty good haul for the state. In Nevada the gambling tax is somewhere around 10% or less. Not that the wording isn't somewhat disengenuous, but who would think that a private company isn't going to make money on their business?

Posted by: EricS | September 5, 2008 10:42 AM

the issue I have with the referendum is not that it doesn't mention the potential profits, but that it leads people to believe that the state's share will be "new" funding for education. In every case in the past, overall education funding did not change. They just took the education funding from a different pot, freeing up general revenues for other purposes.

I'm not against slots. I am against giving our elected officials more money to waste.

Posted by: jan | September 5, 2008 10:45 AM

There are lots of businesses in Maryland that make profits. I'm not sure the voters will find this notion as shocking as Marc thinks.

Posted by: Tom T. | September 5, 2008 11:49 AM

Marc Fisher, in today's article, left out one very important fact, when stating that the potential slot operators are going to enjoy a profit of $450 million from 5 slot operations. Profit is the wrong word. Revenue would be the correct term, from which the operator pays operating costs; like salaries and wages, utilities, marketing, administration, accounting, security, interest; and has to provide the capital to buy slot machines and build a suitable facility to house the slots and required amenities, like restaurants and lounges. If anything is left, you have a profit, on which you pay State and Federal income taxes. If recent experiences at Twin Rivers slot operation in Providence, RI are any indication; the Maryland slot operators could be looking at Bankruptcy, because at a 60+% tax rate on slot revenue, there isn't enough left to cover operating and capital costs; even though the Track enjoys revenues of over $400 million annually.

Posted by: Steve Norton | September 5, 2008 12:19 PM

As Mr. Norton points out, Fischer makes a major error in assuming that revenue is profit. And with more than 60% of that revenue going to taxes, not much is left for the operators to "live" on, much less make a profit. Sloppy reporting.

Posted by: dave202 | September 5, 2008 1:17 PM

Why has no one pointed out that 3 of the 5 slot parlour location descriptions are stacked to favor major contributors to Mr. Omalley and his posse of tax and spenders?

Were there a fair and transparent process of bidding for the licenses, AND were it NOT an amendment to the State constitution, AND were the monies earmarked for education ADDITIONAL to the monies already going to education, not a substitute for those funds, then perhaps this 'slots referrendum' would be palatable. As it is now, it is not.

Gambling on our educational system (which is what the Gov and co. wants to do, you can't guarantee that there will be $660 mil in the coffers at the end of the year) is not something I am comfortable doing.


Posted by: BiggSeth | September 5, 2008 1:36 PM

We should all be careful taking advise from someone who doesn't know the difference between revenue and profits.

Posted by: Terry W | September 5, 2008 4:50 PM

I agree with EricS. Where else will you get a company that is willing to pony up an effective tax rate of 60%?

What is it with people like Marc Fisher who equate making profit with something like child molestation? Profit is not evil!

Posted by: rhadams | September 5, 2008 5:34 PM

The 1st problem is the projected revenue numbers are overly inflated. they expect 15K slots to garner $1.1 billion in revenues? that's $70K per machine.

The next problem is the casinos will not bite on the proposed percentages unless they are assured of retaining enough revenue to garner a strong profit to stay afloat. A billion dollar operation is going to cost a half a billion to run and operate. the casino is going to set it up so that they have a high operating cost base and require a significant portion of that initial revenue. that's going to change the entire dynamic. the state is never going to see the 60-40 split. the casinos are going to need the 1st 70% to stay in business.

another issue is the perspective draw area. I bet they are claiming to draw people from Ohio, WV, PA, Del, VA, DC and NJ. they fell to do a real comparative analysis that shows.

Posted by: OKNOW101 | September 5, 2008 6:13 PM

Does the Washington Post have editors on their staff? Fisher's obvious confusion regarding "profit" vs. revenue is highly entertaining. Or maybe this is simply a
Daily Show skit meant to be ironically silly. Either way, Fisher had better not quit his day job. Serious investigative reporting is most certainly not in the cards.

Posted by: jloren73 | September 5, 2008 11:05 PM

If the voters are to consider helping schools to be the main purpose of this venture, than perhaps a better pass through metric than pure capitalism should be required.
Good charities pass through to the beneficiary, what, 87% of their income?

Posted by: Mark | September 6, 2008 8:07 PM

Just slice up the pie - don't bother to check where it comes from. You might pity the people you rob.

Posted by: Gary E. Masters | September 7, 2008 10:47 AM

Interesting choice of wording Marc:

"evidence of the state government's moral unease with its own sordid actions"

You do realize that Gov. Martin O'Malley and a majority of the state Representatives and Senators are members of the Democratic party, don't you?

You are not questioning the "morals" of members of the Democratic party, are you?

Posted by: DC Voter | September 8, 2008 9:20 AM

I am against slots for an old-fashioned reason--I don't think encouraging people tog gamble is good public policy. I know that with the profusion of lottery games that the barn door opened on that a long time ago, but I don't see why we should add to it.

But if you are going to have slots, why not simply have the state own and operate the facility? Pay some company to come in and equip the facilities, contract out for maintenance, and invite the suckers in.

Posted by: Jack | September 8, 2008 12:00 PM

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