Category Archives: Casinos and Gambling

Sticky Tax Conundrum

By Barry Rascovar

Feb. 23, 2015 — Sometimes a simple, sensible-sounding tax reform runs smack into sticky realities. The result is a puzzle for Maryland legislators trying to do the right thing.

That’s the case this session with bills (SB190, HB209) designed to clarify state law regarding the “taxable price” of discounted hotel rooms sold over the internet by travel websites.

Advocates claim companies like Orbitz and Expedia are ripping off the state by buying blocks of discounted rooms from hotels, re-selling them to Maryland consumers at higher rates but paying state sales tax on the original, lower purchase price.

Expedia logo

If that’s true, we should change Maryland’s tax laws and close this alleged “loophole.”

But it’s a complex situation in which the role of the internet travel companies isn’t transparent. There’s a yawning gulf between what lawmakers believe and what may be the true facts.

Confusion Abounds

Even the legislature’s fiscal analysts seem confused. They aren’t even sure if the proposed reform will result in more tax revenue. Opponents flatly assert the Department of Legislative Services got the facts wrong.

Travel agents maintain they are not purchasing discounted, hotel room blocks and then re-selling them to the public at a higher price. They maintain they aren’t in the room-selling business.

They say they are acting as an intermediary between the hotel and the consumer. The hotel negotiates a discounted room rate with the travel company, which then advertises this discounted rate. When a sale is made, the customer pays the discounted rate to the hotel, plus a service charge or fee that goes to the intermediary.

That extra charge isn’t taxed.Orbitz

The travel agents claim the hotels pay all the room taxes on the discounted, negotiated price. There’s no jacked-up extra room charge to consumers by Orbitz or Expedia other than that service fee.

Murky Issue

If all this is true, legislators need to take a closer look at those tax-reform bills. It may be a case of not understanding the true situation.

But it gets murkier.

The comptroller’s office is suing internet travel agents on much the same grounds. The case is before the Maryland Tax Court. Meanwhile, four counties already have sued the big internet travel sites and settled out of court.

While all this is going on in court, it seems senseless for the General Assembly to further confuse matters in ways that could mess up the current tax case and lead to years and years of new litigation.

There are other problems with the bills.

The measures would impact local travel agents, local tour operators and vacation rental managers. It would impose a new administrative tax burden on many small travel-related businesses.

Double Tax?

It also could wind up as a double tax on these local travel businesses, since they already pay a corporate income tax on their service fees.

Here’s another complication: This would amount to a new tax on services — an area where Maryland has tried not to impose levies. Is this opening the door to a broad application of the state sales tax to all service businesses?

Given the results of the last election, a drive to add more tax levies that will be paid by consumers seems ill-timed and poorly thought through. That’s especially true given the uncertainty about what’s really going on in the discounted hotel room-rate industry.

This is not the first tax squabble where well-meaning lawmakers have run into unexpected obstacles because the issue is poorly understood and hard to simplify.

For years, liberal lawmakers have pushed for a “unitary tax” on out-of-state corporations. The combined-reporting bill runs into insurmountable headwaters each session because it’s not a black-or-white issue. Previous studies show the reform might prove counter-productive and yield little in new revenue over the long haul.

Tread With Care

The best course for legislators on the room-tax issue is to proceed with caution.

Let the comptroller’s court case play out. That will provide additional definition of the “taxable price” of these discounted rooms, which is strongly under dispute.

There’s also need for more legislative study.

How do these internet travel sites really work? Do they jack up discounted room rates or not? Are they true intermediaries between the hotels and consumers, collecting only a service charge?

If the state starts taxing this travel-agent service, shouldn’t it do so uniformly on all business services? Would this be wise tax policy? Would it put Maryland businesses at a competitive disadvantage?

The more we learn about this room-tax issue, the cloudier things get.

With so much room for doubt, legislators would do well to pass on these tax-reform bills until they get a clear picture of what’s at stake and how the discount room-rental industry really works.

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MD’s Best in 2014

By Barry Rascovar

Dec. 29, 2014 — There’s no sense wrapping up the year without a traditional round of “bests” for 2014.

In this case, let’s look at some of the “worsts” as well, in politics and beyond.

2014-calendar

Best Catastrophic Recovery

Isabel FitzGerald and Carolyn Quattrocki

Remember when Maryland’s online health insurance exchange was a national joke in late 2013?

The state’s $261 million computer system crashed in its first hours of operation and never fully recovered.

Lots of finger-pointing ensued and the executive director was pressured to resign. The prime contractor was fired. It was a government nightmare.

Gov. Martin O’Malley jumped in to help jerry-rig a temporary fix that involved dispatching his IT gurus, Isabel FitzGerald and Carolyn Quattrocki, to try to straighten things out.

It was a terrible mess, with inexcusably long waits for anxious Marylanders seeking health insurance.

Still, by the time enrollment closed last April, 263,000 people had received health insurance via the exchange – either through private insurance or Medicaid.

Enrollment for next year, which began in mid-October, topped 136,000 by mid-December. That number will grow considerably prior to the mid-February cut-off.

It wasn’t pretty – and it certainly wasn’t cheap – yet in the end the exchange achieved its purpose. A large chunk of Maryland’s uninsured or under-insured individuals have insurance policies, giving them peace of mind when it comes to health care.

FitzGerald and Quattrocki were handed a lemon of a computer system. They turned it into lemonade.

Best Bit of Chutzpah

Blaine Young

It took real gumption, and a public-be-damned attitude, for Frederick County Commissioner President Blaine Young to connive with fellow Republicans to appoint him to the county’s planning board as his term on the commission was coming to a close.

Frederick County finally is a home-rule county, with a county executive and council. Young tried to become Frederick’s first county executive but he angered so many with his land-use decisions that he lost to Democrat Jan Gardner.

That’s when Young decided to strong-arm his way onto the planning panel, where he could continue to promote his pro-growth, pro-business policies, be a thorn in Gardner’s side and remain politically newsworthy.

Too bad this outrageous bit of chutzpah was illegal, as Maryland Attorney General Doug Gansler wrote. Young was “ineligible for the position, and his appointment was ineffective from the outset.” Young also can’t hold two public offices simultaneously.

But Young’s chutzpah persisted.

He showed up at a later commission meeting and confessed to an 18-month affair with the county’s budget officer, who had recently been shifted to a lesser post by Democrat Gardner at a lesser salary. Young wanted a full-fledged investigation of his paramour’s $40,000 cut in pay.

As for confessing his ethically and morally dubious affair and causing his lover intense public embarrassment, Young never flinched. A wrong had been committed, he said.

No wonder voters showed him the door.

Best Vegas Bet

The Baltimore Orioles

Orioles Logo

Who woulda thunk it?

Oddsmakers pegged Baltimore’s baseball Orioles to finish last or next-to-last in the American League’s tough eastern division.

One prognostication group gave the team a 4 percent chance of winning the AL East. Another set the O’s odds at 16 percent.

How wrong they were.

The O’s won the AL East by a country mile, finishing a strong 12 games ahead of the rest of the pack. The team’s chemistry was a joy to behold.

Free-agent acquisition Nelson Cruz crushed more home runs than any other AL player. The bullpen proved miraculous, and the starting pitchers remained solid throughout the 162-game season.

Manager Buck Showalter was named Manager of the Year and General Manager Dan Duquette received honors as the AL’s top executive. Owner Peter Angelos has every right to take pride in his team’s accomplishment.

Now if only we could go back in time and place a bet in Vegas on the O’s winning the AL East this year!

Best Investment

Jim Davis

Once it was the world’s largest steel mill with 25,000 workers, but the sprawling Bethlehem Steel plant that dominated southeastern Baltimore County for a century was shuttered, its parts sold for scrap – until Jim Davis stepped in.

The co-founder of the highly successful Aerotek national staffing firm in Hanover (along with his cousin, Steve Bisciotti), Davis and his partners at Redwood Capital formed Sparrows Point Terminal, LLC, to buy the steel mill’s 3,100 acres for $110 million. He then negotiated a $48 million cleanup with the EPA.

What he got in return was the largest industrial-zoned parcel on the East Coast, with its own railroad line, proximity to I-95 and loads of deep-water access to the Port of Baltimore.

The strategic site – at the mid-point of the East Coast – is being developed as a hub for port-related, energy, advanced manufacturing and distribution uses.

Already, Federal Express is considering a giant warehouse on 45 acres in Sparrows Point. The Port of Baltimore, meanwhile, is eager to annex the former coal pier and surrounding land in anticipation of a shipping boom, thanks to the widening of the Panama Canal. The land is ideal for roll-on, roll-off cargo.

Davis could be sitting on a gold mine, producing at least 2,000 jobs for the region within five years, by one estimate.

Best at Blowing a Sure Thing

Anthony Brown

Think about this: In a state where Democrats outnumber Republicans 2-1, with a huge advantage in campaign funds, with a giant party infrastructure to get out the vote, and with all the benefits of holding statewide office for eight years, Lt. Gov. Anthony Brown got the stuffing beaten out of him by Republican Larry Hogan Jr.

Everything went wrong for Brown in the governor’s race.

He proved his own worst enemy. He hired terrible campaign advisors. He ignored on-the-ground reports of trouble from veteran Democratic politicians. He gave the little-known Hogan millions worth of free advertising in a shameful attempt to smear the Republican.

Brown thought the election was in the bag. He didn’t campaign some nights so he could be home with his kids. He avoided contact with the media. He rushed out of meetings to make sure he didn’t have to answer audience questions.

He gave voters little exciting or innovative to think about. He refused to aggressively defend his administration’s record. He never explained why so many taxes had to be raised. He stuck to his prepared remarks and his bland campaign speech.

He looked and sounded robotic. His strategy was wrong and his tactics proved disastrous.

It was the worst gubernatorial campaign of the century.

Perhaps there’s something to the Curse of the Lieutenant Governor’s Office after all.

Best Gambler

David Cordish

MD Live logo

Competition be damned!

The ultra-competitive David Cordish fought like a tiger to delay or prevent new gambling facilities from opening in the Central Maryland corridor.

Yet his Maryland Live! Casino now has a rival in Baltimore with another arising near the Potomac River.

It didn’t faze Cordish.

Maryland Live! continued its aggressive expansion and marketing, raking in more gambling dollars than any other casino in the Mid-Atlantic region — $605 million through November, of which the casino kept $304.5 million.

The opening of Horseshoe Casino Baltimore was expected to chop a third off Cordish’s receipts. Instead, Maryland Live!, with 4,200 slot machines and 198 table games, took in more this November, $53.8 million, than in the comparable month a year earlier.

Now Cordish is embarking on a $200 million expansion that includes a 300-room hotel and spa next to Maryland Live! to help ward off competition from the $1 billion MGM National Harbor that could open in mid-2016. He’s also building a $425 million casino in South Philadelphia.

The key? Huge amounts of free parking, Cordish says, for both suburban and urban patrons.

Best of Baltimore

War of 1812 Bicentennial Celebration

Sure, it was two years late (sort of), but Baltimoreans knew how and when to commemorate the epic defense of Fort McHenry that helped turn the tide against the British in the War of 1812.

Baltimore was saved 200 years ago by the strategic blockade of the inner harbor, the savvy defensive lines thrown up in Patterson Park and the sure shots of Privates Daniel Wells and Henry McComas in targeting the British commander, Gen. Robert Ross, at North Point.

Charm City celebrated those events for months.

The long-forgotten history of that 1812-1814 military engagement was resurrected repeatedly at events around town. Francis Scott Key’s poem, now the National Anthem, was given more attention than ever before. The Battle of Baltimore, and other clashes of the war, were recounted in books and at historic re-creations.

A giant fireworks display highlighted Fort McHenry’s portion of the celebration, as did an impressive display of Tall Ships in the Inner Harbor.

It was an event to remember.

Best Losing Candidate 

Dan Bongino

He came within a whisker of knocking off the Democratic incumbent in a district re-drawn to favor the incumbent. Dan Bongino, a former Secret Service agent with a knack for publicity and relentless campaigning, almost succeeded in mining the discontent of Maryland voters to win a seat in Congress.

Bongino benefited from an outpouring of Republican and independent support in the Western Maryland portions of the Sixth Congressional District for GOP gubernatorial candidate Larry Hogan Jr. Both of them zeroed in on Maryland’s high taxes, high government spending and anti-business attitude. Bongino benefitted from anti-Obama sentiment.

Thanks to an exceptionally low turnout in the populous Montgomery County part of the district — where Democrats dominate — Bongino almost pulled an upset over first-termer Rep. John Delaney, losing by a little more than a percentage point.

Will Bongino try again in two years? Will the atmosphere then be just as conducive? Turn in to find out in 2016.

Most Pointless Power Play

Jack Young

Leave it to the Baltimore City Council — and especially President Jack Young — to top the list for ridiculousness.

Young maneuvered through two controversial bills and won council approval by near-unanimous margins. The only “nay” votes were cast by veteran Councilwoman Rochelle “Rikki” Spector.

That was too much for Young.

Spector not only had voted against his wishes but posed pointed and astute questions at Young: Why wasn’t there a separate hearing on the last-minute amendment to ban all plastic grocery bags from the city? Why not listen to the mayor’s objections?

Young, proving Spector’s point that he’s a bully, stripped her of all committee assignments.

It gets dumb and dumber in Baltimore’s legislative branch.

No wonder the City Council and its hapless presiding officer are the town’s laughingstock.

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Horseshoe Arrives in Baltimore

By Barry Rascovar

Sept. 2, 2014–Baltimore’s first and only casino is open — a decade later than anticipated by city officials.

Horseshoe Baltimore, run by Caesar’s Entertainment, is a bright, cheery and decidedly friendly facility a short walk from Ravens stadium. It’s got a giant parking structure that allows direct access to the casino without venturing on to city streets.

Horseshoe Baltimore

Horseshoe Baltimore

With 2,500 brand-new slot machines, 122 gaming tables and 25 poker tables, the $442-million Horseshoe Baltimore fulfills the wishes of city leaders, though it should have happened years ago.

Former Mayor Kurt Schmoke had a deal with then-Gov. Parris Glendening in the late 1990s to allow a Baltimore casino for a struggling urban city in need of an economic boost.

But Glendening reneged and went on a moralistic anti-slots campaign. It may have been good politics for the governor but Schmoke regarded it as a stab in the back. Baltimore desperately needed the revenue and stimulus.

It still does.

New City Revenue

Granted, Horseshoe isn’t the answer to Baltimore’s woes. But proceeds from the casino will help Mayor Stephanie Rawlings-Blake slowly lower sky-high property taxes, make infrastructure improvements and eventually pour millions it now doesn’t have into community upgrades.

The current squabble over using some of the casino revenue to re-locate a stream pipeline serving downtown Baltimore businesses deflects from the fact that Baltimore should receive more than $10 million in the current fiscal year from Horseshoe operations, $15.5 million or more next year and $22.5 million in fiscal 2017.

That is a gift sorely needed by City Hall to help accelerate the downtown-living renaissance, deal with a serious crime problem and finally start to attack a glut of vacant housing.

For Baltimore, Horseshoe’s arrival is a ringer, a home run, a winner.

Horseshoe Baltimore casino

With 1,700 jobs — many filled by tax-paying city residents — Horseshoe is a new economic engine. Its location near the baseball and football stadiums means huge before-and-after crowds on game days and added revenue both for the casino and for Baltimore.

Under terms of the state casino law, Baltimore will split with Prince George’s and Anne Arundel counties 5.5 percent of the winning proceeds from their three gambling facilities — Horseshoe, Maryland Live! at Arundel Mills and MGM National Harbor now under construction.

This local impact revenue is a godsend for Baltimore.

It is a new, ongoing money source that will allow City Hall to undertake projects on the back burner for years (or decades) and to balance the annual budget without draconian cuts.

It’s no panacea, but it gives city officials breathing room.

Late Entry

Baltimore is late to the casino party, but probably not too late.

Gambling — legal or illegal — always has been popular in Charm City. A single casino will probably do well for years to come, even with a glut of gambling sites in New Jersey and Pennsylvania.

Horseshoe also provides a much-needed boost for local tourism and for Baltimore’s downtown hotels. It gives visitors another reason to extend their stay or to come to Baltimore in the first place. It’s a decided plus for drawing conventions, too.

Part of Horseshoe’s success will come at the expense of David Cordish’s highly profitable Maryland Live! casino.  But Horseshoe will draw a more urban clientele versus the suburbanites flocking to Maryland Live!

Maryland Live

Both casinos, though, will feel the squeeze when MGM National Harbor opens in a couple of years. It will translate into smaller profit margins for both, but  National Harbor’s main draw will be for gambling patrons south of the Potomac River in Virginia.

Six casinos in Maryland seems about the right number — three in rural locations and three in the Baltimore-Washington megalopolis.

Casinos are becoming established, middle-class entertainment options that offer substantial benefits for state and local governments for their relatively stable revenue — as long as the gambling is tightly regulated and the sites are limited in number.

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Casino-nomics: The Good, the Bad

By Barry Rascovar

July 17, 2014 — Once upon a time, casinos looked like the salvation of Atlantic City, a famed but dilapidated resort town on the Jersey shore.

Historic Atlantic City

For well over a quarter-century, New Jersey’s gamble worked.

Unfortunately, state and local politicians failed to reinvest the taxes flowing from a dozen casinos into Atlantic City. It remained a depressing, down-on-its-luck town of impoverished minorities surrounded by glitzy hotel-casinos.

Now the bubble has burst.

Out of State Competition

Pennsylvania, Delaware and New York gambling casinos have set Atlantic City on its heels.

Maryland’s initial entries — at Perryville and outside Ocean City — were too small and poorly run to create a problem for the Jersey resort.

But when David Cordish’s huge Maryland Live! Casino opened, Atlantic City took a big hit.

Maryland Live!

Maryland Live!

The growing number of casinos in the Northeastern U.S. is delivering staggering blows to the former Queen of the Atlantic Resorts.

The jobs of 7,000 Atlantic City casino workers could disappear by Labor Day — a stunning number for a community of 40,000.

One casino, the Atlantic Club (formerly the Hilton and before that the Golden Nugget), went out of business in January.

Atlantic Club

Shuttered Atlantic Club

Two more casinos are definitely shutting after August — Trump Plaza and Showboat, owned by Caesars Entertainment.

Showboat Casino closes in September

Showboat Casino closes in September

A fourth hotel-casino along the boardwalk, the spectacular and expensive ($2.4 billion) Revel high-rise, is in bankruptcy for the second time. It will be shuttered in mid-September unless a buyer surfaces.

 

Revel Hotel and Casino

Revel Hotel and Casino

More closings are possible.

Caesars Entertainment, for instance, is wallowing in a sea of debt and must increase the profitability of its three remaining Atlantic City properties.

Others, like Resorts International, can’t overcome aging buildings and lack of drawing power in the winter months.

Resorts International

Resorts International

It was bound to happen.

Atlantic City eagerly let too many casinos open their doors. Now the town is over-saturated with giant gambling hotels. A contraction was inevitable.

City and state officials  never planned for the day when competing casinos would surface in nearby states, thus shrinking Atlantic City’s gambling market. They placed all their economic bets on the gaming industry.

Now town officials are belatedly scrambling to rejuvenate Atlantic City and bring in other attractions before blight and despair set in around the hulking, abandoned gaming halls and hotels.

Success at Maryland Live!

Maryland, meanwhile, is profiting handsomely from its long-delayed entry into casino-nomics.

Cordish has shown the way, outmaneuvering racetrack owners and creating a mecca for lovers of casinos.

Maryland Live! is now the most profitable full-service gambling site on the East Coast.

In June, Maryland Live! raked in $56.5 million, $8 million more than Atlantic City’s Vegas-like casino, Borgata, situated several miles from the resort’s boardwalk.

Borgata complex

Borgata complex

Business is booming on Maryland Live!’s casino floor and restaurants. Locating the facility in one of the East Coast’s most popular shopping malls, Arundel Mills, proved a huge asset.

Yet those halcyon days are coming to an end for Cordish.

In late August, Caesar’s will open its Horseshoe Baltimore casino near Ravens Stadium.

It will cut into Maryland Live!’s gambling revenue by as much as one-third.

There’s more bad news coming: Completion of the MGM National Harbor casino overlooking the Potomac River and the Capital Beltway in late 2016.

MGM National Harbor

MGM National Harbor

This will be the most elegant and trendy gambling joint in the region, ideally situated to draw customers from Washington, D.C., Virginia, the Carolinas and Prince George’s County.

Still, Cordish’s complex — on the lower floor of a parking garage — will remain quite profitable.

That’s because Maryland capped the number of in-state casinos at six.

Moreover, the chances of Virginia joining the casino craze are highly unlikely.

Meanwhile, Maryland’s future Big Three — in Baltimore, National Harbor and Arundel Mills — will compete for gambling customers without fear of other entrants diluting the market.

Rural Casinos in Maryland

Maryland’s three smaller casinos are surviving, though at a lesser level of success.

Penn National’s poorly conceived and poorly run Perryville casino in Cecil County should be thriving given its location directly off an I-95 exit.

Hollywood Perryville

Hollywood Perryville

But Penn National threw up a bland, warehouse-like structure in an out-of-sight valley. It has failed to offer gamblers much in the way of entertainment, excitement or value.

Yet Hollywood Perryville took in $7 million in June. Not bad, but it hardly taps the site’s potential.

Harness Racing and Slots

Bill Rickman’s Ocean Downs casino and race track near Ocean City stubbornly refuses to offer table games.

Still, its 800 slot machines do exceptionally well in the summer months, taking in $4.8 million in June — an average of $200 per day per machine.

Rickman, whose main money-maker is the Delaware Park casino and race track near Wilmington, has an added advantage at Ocean Downs: He gets a slice of slots revenue from other Maryland casinos to boost racing purses and make track improvements at his Ocean Downs harness oval.

It’s a great package deal.

Western Maryland Casino

Maryland’s other small casino, at Rocky Gap Lodge near Cumberland, is still in its developmental stage.

Yet it took in $3.7 million in gambling revenue in June from 577 slot machines ($186 from each device per day) and 16 gaming tables.

Rocky Gap near Cumberland

Rocky Gap near Cumberland

With savvy management and marketing by Lakes Entertainment, Rocky Gap could evolve into a popular resort destination offering far more than gambling — a championship golf course, a comedy club, 215 hotel rooms, a convention center and a lakeside location in a state park.

Lakes Entertainment benefits from the fact it bought Rocky Gap on the cheap from the state, which was desperate to reinvigorate the picturesque lodge built with state funds.

It paid the state just $6.8 million and has poured another $25 million or so into upgrades. Gambling revenue will help make the resort much more viable.

Rocky Gap

Rocky Gap

Unlike Atlantic City, Maryland never viewed gambling as an economic development savior.

It’s a pleasant economic bonus for Maryland’s education coffers and a generator of lots of decent-paying jobs for the state.

Casinos can’t be viewed as a long-term growth industry, though. More likely, the six casinos will turn into steady generators of state tax revenue, much like the state lottery.

slots

With no back-up plan, the end of the casino boom is a calamity for Atlantic City.

In Maryland, legalized gambling at a limited number of locations has a far better chance of becoming a long-term survivor.

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