Delaware’s three racetrack casinos appear to have withstood the initial onslaught of competition from Pennsylvania and Maryland, as revenues for fiscal 2011 are on pace to eclipse budget estimates.
While the state’s share of winnings at Delaware Park, Dover Downs and Harrington Raceway have held up through the last week of October, the last period for which figures are available, casino operators contend the cost of blackjack, poker and other table games has made them a losing proposition and they continue to seek a cut or the elimination of $11.5 million in licensing fees due by June 30.
That plea is unlikely to go anywhere, however, as Gov. Jack Markell and leaders in the General Assembly said no financial break is coming.
“The revenues that are generated go to pay for important things like schools and public safety, and we’re not inclined to change the relationship that has been negotiated,” Markell said.
When lawmakers passed Markell’s budget in June, revenue from slot machines, table games and sports betting was anticipated to be $217 million after expenses – the fourth-largest source of money for the state government.
In fiscal 2010, which ended June 30, casinos generated $237 million after expenses for the state. But this year, the estimates were lower because three casinos in the Philadelphia area either opened or began offering table games this summer. In Maryland, a slots casino opened in Perryville in late September and another is scheduled to open soon in Ocean City.
Through Oct. 31, one-third of the way through the fiscal year that began July 1, the state had reaped $90.4 million from the casinos – $81.6 million from slots, $7.4 million from table games and $1.4 million from pro football bets. In addition, casinos must pay $6.5 million in table games licensing fees in January, and another $5 million in June.
At that rate, the state’s haul would top $281 million.
Tom Cook, Delaware’s finance secretary, said several factors such as a slow winter season and the impact from the Ocean Downs casino in Maryland could reduce that number. Still, Cook and other government leaders seem pleased with the early results for Delaware, which began offering pro football parlay bets in September 2009 and table games in late May.
“We implemented two major products very quickly and without incident,” Cook said. “The revenue shows there’s a demand for this type of product and it’s been able to keep us competitive with other states. Maryland doesn’t have table games, and Philadelphia doesn’t have sports betting.”
Table revenues fall short
While slots and sports betting have exceeded expectations, table games are running below estimates. The forecast called for $29 million in state revenues from table game operations, but at the current pace, Delaware would get only about $22 million.
Ed Sutor, chief executive at Dover Downs and chairman of the state’s Video Lottery Advisory Council, said the costs of hiring 1,350 card dealers, supervisors and other support employees at the three casinos has hurt operations.
“We delivered 1,350 jobs to the state in an economy that’s horrible,” Sutor said, noting that costs also have risen for uniforms, promotions, marketing and other areas. “We don’t want to sound like crybabies, we’re just asking for a break on the licensing fees,” he said.
The state also gets 29.4 percent of the casinos’ income from table games.
Profit margins at Dover Downs have fallen from 10 percent in 2007 to 3.3 percent through the first nine months of 2010, Sutor said. From 2007 through 2009, profits at the publicly traded company fell from $26.3 million to $12.4 million, and its stock price dropped from $15 a share to about $3.40.
“We currently have very low margins,” Sutor said. “How much longer before we get to zero or below? Is that what people want? I think everybody has to take a deep breath, a step back and see what they have done and logically and systematically review it.”
Bill Fasy, president at Delaware Park, agreed. “The licensing fee is a tax and it’s crippling the ability to compete on the table game side,” Fasy said. “It’s short-sighted.”
Delaware Senate President Pro Tem Tony DeLuca, however, echoed the governor and other legislative leaders in saying it’s premature to consider a new deal.
“The income seems to be steady, so let’s see how it plays out in the long run,” DeLuca said. “I just don’t know, considering the financial problems that the state is facing, that we’re in a position to be rolling back any fees. We’re looking at a stiff budget year.
“We don’t want to lose the industry. We want to enhance it. But I just don’t think [a cut in fees] has a set of legs in the House, the Senate or with the governor.”
House Speaker Bob Gilligan said lawmakers have allowed casinos to have football betting and table games, and doubts that “changing the formula is something we’re going to seriously consider at this point.”
Despite increased competition on Delaware’s borders, the casinos “are still making money,” Gilligan said.
Markell also pointed out that prospective casino operators continue to want to set up in Delaware, where state law currently restricts casinos to businesses with an existing horse racing track. Legislation to permit two additional casinos without a racetrack requirement failed to gain enough support in the last legislative session, but Markell said he would support efforts to pass such a bill next year.
In the meantime, Markell said, he wants the casinos to succeed and pay their fair share for the privilege of being allowed to operate.
“They are important employers,” the governor said, “and it’s always important to me that our important employers can thrive.”
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