Report Finds Slots Revenue Projection Unrealistic

BERLIN – An independent report on the potential economic impact of slots in Maryland released last week reveals the state might be overestimating the amount of revenue derived from the five sites identified in the referendum including Worcester, where the state’s Department of Legislative Services (DLS) expects the 2,500 machines to generate as much as $375,000 per day or as much as $137 million per year.

The Maryland Institute for Policy Analysis and Research based at the University of Maryland-Baltimore County (UMBC) last week released its Analysis of the Impact of Introducing Video Lottery Terminals in Maryland report, a comprehensive study of the potential positive and negative impacts on authorizing slot machines. Among other things, the unbiased report suggests the estimated revenue generated by slots, and their contribution to the Education Trust Fund, might be grossly exaggerated.

For example, the UMBC report breaks down the estimated revenue per machine from each of the five proposed slots venues based on proven formulas in other states and extrapolates the per day figure over the course of a year assuming the slots parlors are open 365 days. Researchers took the total money spent on a single machine and deducted the player’s winnings to come up with a figure called Win Per Day (WPD).

In Delaware, where slots have been established for years, the average WPD is $245. The DLS estimates for Maryland assume an average WPD per machine of $249, with the average WPD at slots venues in populated areas such as Baltimore City and Anne Arundel County set at $315 per day. At the proposed slots venue at Ocean Downs in Worcester County, the estimated WPD is expected to come in around $150 because of the rural nature of the area notwithstanding the population spike in neighboring Ocean City three or four months of the year.

Even with earnings estimated at $150 per day per machine at Ocean Downs, the amount of revenue expected from the Berlin track is astounding when extrapolated out over the course of the year. At $150 per machine per day multiplied by 2,500 machines, the estimated revenue derived from Ocean Downs comes to $375,000 per day, or when multiplied by 365 days, $137 million per year is expected to come out of the Worcester County venue alone.

Those vehemently opposed to slots at Ocean Downs in Worcester County claim the presence of VLTs in close proximity to the resort areas will cannibalize local businesses by siphoning disposable dollars away from restaurants, hotels and other established forms of entertainment. At an estimated $375,000 per day spent on slots at Ocean Downs, or $137 million per year, the argument appears to have credence.

“We’ve always had concerns if people spend their money on slots, that’s a big chunk of the disposable income in the area that isn’t being distributed to other businesses,” said Susan Jones, executive director of the Ocean City Hotel-Motel-Restaurant Association. “When you look at these numbers, it’s pretty remarkable. That $375,000 per day expected from Ocean City is probably more than all of the hotels, motels and restaurants in the area combined are making on a given day in the middle of October like today.”

Of course, the DLS estimates, and the UMBC report numbers, rely in large part on slots venues bringing new people to the areas where they are located and there will likely be some associated benefit for neighboring businesses. Nonetheless, the $137 billion in expected revenue from Ocean Downs is eye opening for many.

“The projected $375,000 per day for Ocean Downs goes right into the pocket of one business,” said Jones. “That $137 million per year from Ocean Downs is money that probably won’t be distributed among the rest of the business community.”

The revenue estimates prepared by the state’s DLS suggest slots will reap roughly $1.36 billion after winnings to the players are deducted, resulting in a $667 million contribution to public education through the Education Trust Fund. According to the state’s formula, 48 percent of the revenue generated by slots after the player’s winnings are deducted will be dedicated to public education.

However, the UMBC report released last week suggests the $1.36 million in revenues projected by the DLS relies on a variety of factors on which there are a vast amount of uncertainty. For example, the DLS estimates rely on the state recapturing every bit of the estimated $550 million Marylanders are currently spending on slots in neighboring states such as Delaware, West Virginia and Pennsylvania plus another $812 million in revenue from new slots players in the state.

The assumption is every Marylander routinely playing slots in other states will now play the gaming machines in venues closer to their homes, allowing the state to recapture the $550 million now trickling across its borders. The DLS estimate also assumes there will be an additional $812 million in new money derived from slots in Maryland.

“In order for Maryland to realize the full slot machine revenues in the DLS estimate, every one of those dollars will have to be recaptured by the state and there would have to be an increase in players coming into Maryland to play, or new players,” the report reads. “To be clear, this represents $812 million of new slot machine spending above and beyond what Marylanders are already spending in other states, plus some contribution from other states’ gamblers that Maryland attracts.”

According to the UMBC report, the anticipated gross revenues generated by slots in Maryland should more accurately fall in a range from $688 million to $1.375 billion depending on a variety of factors. At a projected figure of $1.36 billion, the DLS estimate falls within the range, but is extremely close to the high end.

In the interest of fairness, the UMBC report suggests developing VLT parlors or “racinos” can have both positive and negative impacts on other local businesses. Businesses located near casinos “may find an increased demand for their goods and services if tourists or people from the casinos stay at local hotels, eat at local restaurants or purchase these complementary goods,” the report reads. “On the other hand, if the VLT players purchase such goods primarily from the casino and no longer patronize other businesses, local industry could see an aggregate decrease in demand as VLT players substitute away from their businesses.”

As noted in the UMBC revenue estimate, moneys spent on gambling are generally not all new, but those that were previously spent on other goods and services. A study of Illinois casinos found that for every $1,000 of casino revenue, miscellaneous retail and wholesale revenues declined by $247, or nearly 25 percent. The eating and drinking revenues may have increased within the casinos, but then decreased at surrounding establishments. More research is needed to determine the overall effect on surrounding establishments, according to the UMBC report.