DOVER — Legislators are developing a plan to remedy declining revenues at Delaware’s three casinos by opening up the market and adding several more gambling establishments.
One current version would have the state sell three more casino licenses with a minimum bid of $10 million per, doubling the number of casinos in the state.
Though still being formulated with no specific timetable, the idea serves as a sharp contrast to the one put forth in a Senate bill that would, critics claim, simply bail out the existing establishments.
For Dover Downs, Delaware Park and Harrington, problems are myriad. Slots revenue has plummeted from a high of $632.2 million in fiscal year 2007 to $355.4 million last year. Casino executives say burgeoning competition and higher tax rates are pushing their businesses to the brink.
With Pennsylvania and Maryland both adding casinos within the past decade, fewer out- of- state customers need to travel to Delaware. And with a population base of less than 1 million to draw from, it’s hard for three casinos to survive, top managers say.
Meanwhile, state laws have lowered the casinos’ take of revenue from around 51 percent in 1996 to 40 percent this year. The result is a steep decline in profits. While Harrington and Delaware Park are privately owned, and thus do not have to reveal earning statements, a Dover Downs release indicates the company lost $706,000 in calendar year 2014.
To improve the situation — described by casino executives as very grim — the Lottery and Gaming Study Commission was formed. Meeting for the first time in 2013, the group of state officials and legislators sought to analyze the market and provide recommendations to the legislature.
In January, the panel opted by a 5-4 vote to formally endorse an idea from Sen. Brian Bushweller, D-Dover, despite strong objections from dissenters.
The plan would lower the table game tax rate, shift 1 percent of the state’s share of revenue to the horsemen and provide for marketing and capital credits for the casinos. The proposal has bipartisan support, but it has received criticism as well, owing to one number: 45.6 million.
That would be the annual “cost” to the state if the bill passes and the plan is implemented in its entirety.
The yet-to-be-introduced plan would serve as an alternative for those who find that sum unpalatable.
Darrell Baker, who runs a law office in Delaware, is working with legislators to draft the plan. He also represents clients hoping to start a casino and so has a vested interest in opening up the market.
Mr. Baker has spoken at several meetings of the Lottery and Gaming Study Commission, criticizing officials for letting the existing casinos act as a monopoly.
In an interview, he rejected claims the decline of Dover Downs, Delaware Park and Harrington is due largely to market saturation.
“They have sucked the money out of those properties for so long, and they overleveraged them and now they have the unmitigated gall to come and ask for a bailout,” he said of ownership. “Why doesn’t every other business in the state do that? They want a monopoly and a tax break.”
Mr. Baker declined to name his clients or any of the lawmakers behind the plan, but Rep. Charles Potter, D-Wilmington, has been perhaps the loudest proponent in the General Assembly of opening up the market.
At the January meeting of the Lottery and Gaming Study Commission, Rep. Potter floated an idea predicated on selling three new licenses with a minimum bid of $35 million each. He declined last month to expand on a possible forthcoming plan.
Mr. Baker’s proposal would place one casino in Sussex and one in New Castle, with the final location still to be decided. It would also alter the tax rate. Based off the rates for credit cards, the level would fall as the cumulative revenue total rises and increase as the casinos make less money.
Because the six casinos would be treated as one entity for the rates, several strong establishments could help prop up weaker ones.
Mr. Baker expressed a firm belief the current businesses are failing due to mismanagement and poor location. While he acknowledges Dover Downs’ importance to central Delaware — 803 full-time employees and 588 part-time, as of Dec. 31, according to company filings — the company is faltering tremendously, he said, and the Senate bill is a bailout that places the needs of the state second to the needs of the businesses.
“Their audacity is boundless,” he said. “It’s like filling a vase that’s got a hole in the bottom.”
He said the proposal would benefi t the existing casinos, as the tax rate would likely drop.
Others have called for the state to limit its regulations and let the existing casinos fight it out with new ones in a survival of the fittest.
The plan in the works has received a “lot of legislative input quietly” and has more support than the senate bill, Mr. Baker said.
But it still figures to face opposition.
“I don’t believe ... that adding more casinos to this state will help us in any regard,” Denis McGlynn, president and chief executive officer of Dover Downs, said in January during the study group’s meeting. “I think that will only further cannibalize the mid-Atlantic market.”
Sen. Bushweller, one of the staunchest supporters of aiding the casinos, does not agree with adding more casinos, noting “there’s only so much gambling money to go around.
“The fact is if we don’t do something about how much money we take from the casinos, the very real possibility is that we will kill that industry off and that we will lost $180 million a year, we’ll lose 4,500 jobs,” he said.
Gov. Jack Markell, speaking at the Central Delaware Chamber of Commerce Legislative Luncheon last month, claimed the bill doesn’t bail out the three casinos and argued the state is in a partnership with the establishments.
While Sen. Bushweller’s proposal has been formally introduced in the legislature, it has not been heard in committee.
The expansion plan is still being formulated, and though Mr. Baker does not know when it will be finished, he has a guess.
“Anything big in the legislature happens in January or June,” he said.