A fight to the finish in Maryland
22 October 2012
Sometimes, you know when to fold your hand.
Toronto-based Clairvest Group and Great Canadian Gaming of Vancouver, British Columbia, spent roughly $6 million backing a pair of Oregon ballot questions they hoped would lead to a $300 million casino development outside of Portland.
On Tuesday - three weeks before the Nov. 6 election and in the face of mounting political opposition - the companies pulled the financial plug on the campaign. The measures remain on the ballot, but there won't be any effort toward their passage.
"Recent polling had indicated just 27 percent of voters supported the measure," Union Gaming Group managing director Bill Lerner said. "It appears extremely likely that the gaming proposal will be handily defeated."
The casino proposal included a hotel and other entertainment amenities and was to replace an abandoned dog racing track. But it was vigorously opposed by anti-gaming zealots, Oregon politicians and the state's nine Indian casinos, which spent more than $1 million on negative advertising.
Proponents thought a 25 percent tax on the casino's gaming revenues was a selling point, which would have enhanced Oregon's budget by $100 million annually.
Consequently, Oregon's Indian casinos pay zero gaming taxes to the state. In 2010, the tribes collected a combined $494.4 million in gaming revenues and $99.9 million in nongaming revenues, according to Casino City's Indian Gaming Industry Report.
"In the last few weeks it appears to the campaign team that not enough Oregon voters are ready to add a private casino to the state's gaming options," backers said in a statement. "We knew when we began this process that it would be a challenge to break the existing political and gaming monopoly in Oregon."
Clairvest and Great Canadian cut their losses.
Casino operating rivals MGM Resorts International and Penn National Gaming might have once considered similar options in Maryland, but it's too late.
The casino giants have financed the most expensive and vitriolic campaign ever witnessed in the state over Question 7. With less than three weeks before the election, the spending is expected to increase with the campaign rhetoric intensifying.
Penn National opposes Question 7, which would allow a $700 million MGM Resorts casino complex in suburban Prince George's County's National Harbor development. Las Vegas-style table games would also be allowed at Maryland's five slot machine-only locations.
Passage of the initiative would lower Maryland's industry-high 67 percent gaming tax.
Penn prefers the casino be located at its Rosecroft Raceway in Prince George's County, but believes MGM Resorts has juiced the bidding process.
Penn National also owns a casino in neighboring Charles Town, W.Va. Analysts said the property would suffer a significant loss of business to a large-scale casino in Maryland. Proponents accused Penn of acting just to protect its West Virginia interests, which the company denies.
Through last week, the campaigns' combined donations have surpassed $50 million. Penn is the sole contributor to the anti-Question 7 effort, spending $25.1 million. MGM Resorts has reported donating $20.4 million to the total $27.6 million raised by the Yes on Question 7 forces.
The money has funded a rancorous advertising barrage that has deepened.
Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski has a front-row seat to the campaign. His company's offices are in downtown Baltimore.
In a note to investors last week, Wieczynski said he's changed his initial opinion that Question 7 would pass. He now believes the initiative will fail by a wide margin.
"Significant TV, radio and print advertising, predominantly funded by Penn, has turned once pro-Question 7 voters more negative, due in large part to the advertisements' ability to successfully convey to the voting public that Maryland schools will likely see very little, if any, of the projected tax revenues they are slated to receive."
Polling, however, shows a close race.
Penn National Chairman Peter Carlino said the company will spend whatever it takes to kill Question 7. Analysts said the referendum's defeat would be a catalyst for boosting Penn's stock price.
Brean Capital gaming analyst Justin Sebastiano said a 6 percent slide since Oct. 1 in Penn's share value was unwarranted.
"The market is acting as if the gambling expansion bill has already passed, a worst-case scenario is all but a certainty, and that a Prince George's casino would open the day after the vote," Sebastiano said.
So why does MGM Resorts remain in the game?
One reason is the campaign has become personal.
"They're very adept at political campaigns. We're very adept at running luxury resorts," MGM Resorts Chairman Jim Murren told The Washington Post on Oct. 10. He acknowledged that the election was "closer than it should be" because of Penn's involvement.
However, MGM Resorts believes National Harbor, a 350-acre retail, dining, residential and entertainment complex along the Potomac River roughly 10 miles from Washington, D.C., is too lucrative a location to discard.
Other companies have contributed to the Yes on Question 7 side, including $1.3 million from National Harbor developer the Peterson Cos. and $3.4 million from a group led by Caesars Entertainment Corp., which is building a casino in Baltimore.
Just three states - Maryland, Oregon and Rhode Island - have gaming expansion questions on their ballot. With Oregon out of the way and Rhode Island drawing little new interest, Maryland has all the attention.
"The clear focus for this election is on the result in Maryland for both MGM and Penn," Macquarie Securities gaming analyst Chad Beynon said.
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