Poker Lures Penn National, MGM Resorts Into Maryland TV War

John Lolley wanted to try his luck. So he made the almost hour-long drive from his home in Hagerstown, Maryland, to the Hollywood Casino in Charles Town, West Virginia, joining dozens of other residents of his state to drop coins into slot machines or wager at the card, craps and roulette tables.

After November, he may have more choices to keep him in his home state. Maryland voters are being asked to allow Las Vegas- style table games such as blackjack, poker and roulette in casinos that are now limited to video slot machines. The measure also would increase the number of casinos in the state to six from five.

“The only reason I come here is because there’s none in Maryland,” Lolley, 32, said.

The Maryland referendum has sparked a contest between the casinos vying for bettors like Lolley, illustrating the stakes as states including Massachusetts and Pennsylvania race against each other to secure a greater share of the tax revenue generated by the $36 billion a year industry. The trend threatens existing casinos as new competition emerges, eating into the business once dominated by Las Vegas and New Jersey’s Atlantic City.

“You cannot continue to add supply in that market without taking business away from the incumbent,” said Bill Eadington, the director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno. “The gaming companies have become much more aggressive.”

TV Campaigns

Penn National Gaming Inc. (PENN), the Wyomissing, Pennsylvania- based owner of the West Virginia casino, has poured $9.5 million into a campaign to defeat the Maryland referendum. The companies on the other side -- MGM Resorts International (MGM), which is vying to build a casino in the Maryland suburbs of Washington, and Caesars Entertainment Corp. (CZR), which is investing in one in downtown Baltimore -- together have given the same amount to support the measure.

The spending can be seen in a barrage of television ads. From late August through Sept. 17, the two groups on opposite sides of the issue ran more than 6,200 commercials, according to New York-based Kantar Media’s CMAG, which tracks advertising.

With government finances still struggling to recover from the recession, states on the East Coast have moved to boost gambling to increase tax revenue. In West Virginia, Penn National won approval to add games like roulette to Charles Town in 2009. Delaware and Pennsylvania both introduced the games in 2010. In New York, Governor Andrew Cuomo, a Democrat, is seeking to allow for seven Las Vegas-style casinos in the Empire state.

Legalization Interest

“In the last five years, since the recession kicked in, there’s just been tremendous interest in legalization and you’re seeing it all up and down the eastern seaboard,” Eadington said. “It’s not likely to stop until the market gets saturated.”

In 2002, there were 445 casinos in 15 states, excluding those run by Native American tribes, according to the American Gaming Association, the industry’s Washington-based trade group. By 2011, there were 492 in 22 states.

Maryland approved its first casinos in November 2008, when the legislature and Governor Martin O’Malley, a Democrat, sought approval from voters to allow electronic games. It passed with 59 percent of the vote.

First Casino

Penn National opened the first, in Perryville, Maryland, near the Delaware border, with the second opening outside Ocean City on the Atlantic coast. Local developer Cordish Cos. opened the third in June, south of Baltimore, the state’s biggest city.

In 2014, Caesars is planning to open a $300 million casino in Baltimore. One also is planned for Western Maryland.

Last month, O’Malley signed a bill, approved in a special session of the legislature, that put the matter before voters again.

If approved, casinos would be allowed to operate for 24- hours a day and add table games. A sixth casino in Prince George’s County, which borders Washington, would be authorized to open as soon as 2016.

MGM Resorts is seeking to build the sixth casino at the National Harbor, on the Potomac River. Penn National wants it at Rosecroft Raceway, a horse track it purchased out of bankruptcy protection and reopened last year. The state will decide which plan to accept.

O’Malley said more gambling in Maryland would provide a needed jolt to the economy by creating more than 2,000 permanent jobs. It would also put another $199 million a year into the state’s education fund by 2019, according to legislative estimates.

Tax Rates

Penn National is leading the opposition to the ballot measure. Karen Bailey, a company spokeswoman, said Penn National is concerned that its bid to open the Prince George’s County casino at its racetrack will be sidelined in favor of the MGM Resorts proposal because it has won support from political leaders.

Penn National says Maryland would raise more money by leaving the current law in place. The referendum would cut some casino owners’ taxes and provides a lower rate for table games than slot machines.

“There’s a better deal to be had for the people of Maryland,” she said.

MGM Resorts, based in Las Vegas, has given $8.4 million to For Maryland Jobs and Schools Inc., the committee behind the advertising blitz in favor of the referendum, according to state records. An affiliate of Caesars, which in June won a license to build a casino in downtown Baltimore, has given $1.1 million.

Jobs Argument

Their campaign points to jobs and tax revenue. “The proposed resort casino will create thousands of jobs,” said Kristen Hawn, a spokeswoman for the campaign backing the ballot measure. “This is all an attempt by Penn National to protect the Charles Town casino in West Virginia.”

Bailey, the Penn National spokeswoman, denied that’s the company’s motive.

Penn National already is feeling competition within Maryland. In August, Penn National’s revenue from its Perryville casino was $6.5 million, down 24 percent from a year earlier, after the opening of Maryland’s third casino in June, according to data released by the state. It’s also drawing money away from West Virginia, according to a Penn National filing with the Securities and Exchange Commission, which warned about potential competition from a new casino in Prince George’s County.

Earnings Hit

That could shave as much as $50 million a year from Penn National’s West Virginia earnings before income taxes, depreciation and amortization, said Brian McGill, a casino analyst in Philadelphia for brokerage firm Janney Montgomery Scott LLC. In July, Penn National estimated that the company’s total earnings on that basis, excluding some costs, would be $769 million in 2012.

“It’s probably a pretty significant hit to Charles Town,” McGill said.

Penn National rose 0.2 percent to $41.80 at the close in New York. MGM Resorts fell 3.3 percent to $10.79.

Eddie Wimbush said he’s noticed the competition over the years. Wimbush, 65, drives a bus to the Charles Town casino, picking up a dozen or so passengers as he winds through Maryland and Washington. When he began driving there in the late 1990s, he said as many as 30 buses were making the trip on weekends. Now, Wimbush said he sees fewer than 10.

“The more casinos, the more choices, the less people,” he said.

Maryland Plates

On a recent Friday morning this month, a parking garage outside the doors of Penn National’s Charles Town casino was lined with some five dozen cars with Maryland license plates.

One of the cars belonged to Lolley, who drove from Hagerstown and said he was unemployed. Lolley said he’d like to see the measure pass, saying it would help the state’s schools and give him more options.

Clarice Combs, a 66-year-old nurse, and her husband, make the 55-mile drive to Charles Town from their home in Manassas, Virginia, two or three times a month to wager about $100 at the slot machines. She said they’d be happy to try their hand closer to home in Prince George’s County if Maryland voters approve.

“We’d definitely be willing to try it,” she said.

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net; Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net; Anthony Palazzo at apalazzo@bloomberg.net

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