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A first, gambling revenues drop

By Daniel Michaels, May 20th 2005
Delaware's gambling revenues fell for the fiscal year that ended Monday, the first drop since the state sanctioned slot machines in 1995.

The state has reaped $988 million so far from bets at Delaware Park, Dover Downs and Harrington Raceway. But that winning streak faded this year.

Slot machine revenues dropped by $12.5 million in the fiscal year just ended, a decline of 6.5 percent from the previous year, according to estimates from the state's finance department. If Maryland and Pennsylvania legalize slots, that downward trend probably would continue, because 54 percent of the players at Delaware's casinos come from those states.

The gambling revenue has dropped at a time when the state's other sources of revenue also have fallen and expenses have risen. Gov. Ruth Ann Minner faced a $250 million shortfall in balancing the new budget.

The casinos attribute the current revenue slump to the smoking ban, which began Nov. 27, and to the sluggish economy. They lobbied the 142nd General Assembly to change the ban. That effort fell flat; the Senate defeated House Bill 15 in April, which would have exempted sections of casinos and other businesses from the ban.

Meanwhile, competitive pressures heated up.

The Pennsylvania Senate passed a bill last week that would allow 3,000 slot machines at each of the state's four horse racetracks and two proposed tracks. Pennsylvania Gov. Ed Rendell said he favors slots. The Pennsylvania House of Representatives is now considering the bill. If it passes, Pennsylvania casinos could take about $35 million from Delaware's share of slot machine revenue, according to estimates from Delaware's finance department.

In Maryland, the efforts to bring slots stalled earlier this year, when the Legislature rejected Gov. Robert Ehrlich's plan to put 11,500 slot machines at racetracks.

Delaware lawmakers enacted some new laws to improve the competitive position of the casinos. Those include taking a larger share of casino revenue for the general fund, increasing the number of the maximum slots at each casino by 500 machines, allowing casinos to open for up to 15 more hours a week and allowing the casinos to extend credit to customers.

The finance department estimates that the changes could produce an additional $16 million for the state and $14.6 million for the casinos in the fiscal year that began Tuesday.

"The focus of the governor's slot legislation was to work with the industry to improve their competitiveness and to give them some additional tools to improve their competitiveness," said David Singleton, Delaware's secretary of finance.

But if business continues to falter and slots emerge in the surrounding states, there could still be a sizable gap in the budget where slots revenues used to be.

As legislators break until January, they leave two proposals on the table that promise to address that gap: sports betting and a casino on the Christina waterfront.

Sports betting stalled

Proponents have said that sports betting would help Delaware retain its bettors, because Delaware would be the only state on the East Coast and one of four states in the nation where betting on professional and college sports is legal. They also said it would boost slot play.

But with so much attention focused on the smoking ban this spring, the sports betting initiative got only as far as a feasibility study. A 10-member task force that included lawmakers and casino operators reported in May that sports betting could put an additional $13 million into the state's coffers, and bring the casinos an extra $19.3 million a year.

Though the casino operators said the estimates in the task force report were conservative, Singleton, chairman of the task force that produced the report, said he thought the numbers were too optimistic.

Rep. William A. Oberle Jr., R-Beechers Lot, said he plans to submit a bill in January that would allow for sports betting.

"I still think it's a viable option that needs to be pursued," Oberle said. "It makes our casinos destination-type facilities. We'll need to compete with Maryland and Pennsylvania when they come on line. This gives us the additional revenues."

Minner has said she opposes gambling expansion.

And the casino industry isn't hopeful about the prospects for sports betting for the time being.

"I don't have great expectations," said Bruce McKee, general manager of Midway Slots at Harrington Raceway. "It doesn't seem like the motivation exists."

Robert Byrd, a lobbyist representing Dover Downs, agreed that sports betting will be a tough sell.

"I think it will be on the agenda," Byrd said. "But I think it's a long shot that it will be passed, given the opposition of the governor."

Christina casino debated

A group of investors called Delaware Program LLC proposed a 2,000-slot machine casino and hotel in Wilmington they said will help the state defend its slot revenues.

The $50 million project would be developed on about six acres on the south side of the Christina River, just east of the Walnut Street Bridge.

Rep. Joseph DiPinto, R-Wilmington West, introduced two bills that would legalize a fourth venue for slot machines and create a trust to hold and distribute a percentage of the proceeds to the state-supported colleges and universities.

A study commissioned by the investors estimated the project would generate at least $70 million for the general fund each year, even if Pennsylvania and Maryland legalize slots.

John O'Neill, a professor with Pennsylvania State University who wrote the study, said the project would cost the existing casinos in the short term, but with all of the population growth in surrounding states, they would eventually recoup the business they lost to the Christina facility, even if those surrounding states have slots of their own.

The Wilmington project "would be perceived as something new," O'Neill said. "What Delaware needs to do is to retain its status as a gaming attraction, find ways to develop and create a competitive edge, an attraction relative to Pennsylvania, Maryland and other places."

Casino operators don't see it that way.

"We believe that would not be all incremental new business," said Ed Sutor, executive vice president for Dover Downs. "It would take away from the existing three casinos."

McKee of Midway said, "It would be beneficial to the development of Wilmington. It is focused on one developer. Why should he get the one windfall?"

A joint venture that also would benefit the horse racing purses and existing tracks would also be more palatable, McKee said.

Little on the horizon

Singleton said the state will continue to talk with the tracks about other things to improve their competitiveness.

"The fact is we will lose some business. There's no way we're going to have no losses when Pennsylvania opens slots. We're going to have to look to revenues in other areas to make up for what we'll likely lose from those slots," he said.

Delaware Park is working on a golf course, expected to open in the spring. The Rickman family, which owns Delaware Park, recently paid $11.2 million for a 191-room hotel about a 5-minute drive from the track.

Dover Downs has cut about 13 percent of its staff this year, eliminated 105 positions through attrition and laid off 30 employees as of May. Dover Downs isn't planning more layoffs, but is beefing up its marketing.

"We're promoting and advertising as strong as ever," Sutor said. "We're trying hard to make up for the lost business."

At Midway Slots, no layoffs are planned, but not all vacant positions are being filled.

"We seem to be getting plenty of customers, but our pattern with the economy seems to be that they are spending less per patron," McKee said. "With respect to the smokers, they don't come as often."

By JENNIFER GOLDBLATT


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