After the recent failure in the General Assembly of an effort to expand the number of gambling sites in Delaware, proponents and opponents of expansion are positioning themselves for the next round of battles.
The issue pits job creation against the preservation of existing jobs, according to those with a financial stake in the controversy. But even the political muscle of the state's big-three casinos might not be enough to prevent expansion efforts next year, as state officials seek ways to boost revenues and fend off out-of-state gambling competition.
While the state has done all it can to expand the type of gambling it offers by adding table games and sports betting to slots, the effort to expand gambling in Delaware beyond the three current racinos—Delaware Park, Dover Downs, and Harrington Raceway and Casino—has been stalled for the better part of two years. That could change when the General Assembly convenes in January.
During the legislative session that ended in June, House Majority Leader Pete Schwartzkopf (D-Rehoboth Beach) tried to get consensus on a bill to create two new gambling venues, one in Sussex County and one in Wilmington. At one point, he says had the 21 House votes needed to send it to the Senate. Then "a couple votes got peeled off," he said.
Some New Castle County legislators, and Governor Jack Markell, wanted the siting of the proposed northern venue to be open to locations anywhere New Castle County, not just the city of Wilmington.
“It was a little bit of a breakdown in communication," said Schwartzkopf. He hadn't realized that Gov. Markell "was adamant" about the siting issue, he says, and had specified a Wilmington location "because that’s where the votes were.”
During the effort to finalize the state budget in June, Schwartzkopf sensed that casino expansion was casting “a huge cloud” over Legislative Hall. "I agreed to not push it any further," he said. He intends to revive the bill when the General Assembly convenes in January, this time with the Governor's support.
Markell spokesman Brian Selander says the Governor has agreed to work on legislation that both he and Schwartzkopf can support. He emphasized the need to ensure that the expansion process is competitive and thorough.
That’s just what casino developers want to hear.
“We’re buoyed, much encouraged,” said Hunter Lott of Riverwalk Partners, which wants to build a casino on the Wilmington Riverfront. “The Governor’s support here is key to getting this through not only the House, but perhaps more importantly the Senate, where the opposition might be a little stiffer.”
Developer Preston Schell is optimistic as well. "I’m certainly hoping that in the next legislative session—with the Governor’s support and the support of the legislators, like Pete Schwartzkopf—we get through this and it gets passed in January or March or April of next year,” said Schell, one of the principals in a proposed southern Delaware gambling site, Del Pointe Resort and Racino in Millsboro.
Schell believes putting a new venue near Delaware’s beaches in Sussex County makes sense, especially since Ocean Downs, just over the border in Maryland, plans to open a slots-only casino in December.
“It doesn’t make any sense to me to watch our tourist market and our beach market and our local Sussex County market head down to Ocean Downs when we could capture them in Delaware,” said Schell.
Lott says a Wilmington venue is needed to keep Delaware competitive as its battles with Pennsylvania and Maryland to pick off gaming dollars from Atlantic City.
“People are tired of the Atlantic City product and tired of having to drive to get to it," Lott said. "The chance to have a new casino here in the center of New Castle County’s population just augers well for the product we want to offer to the gaming community.”
Officials at Delaware’s existing racinos vow to fight expansion of any kind. They maintain that the gambling market in Delaware and the mid-Atlantic region already is saturated, as Pennsylvania adds venues with table games and Maryland prepares to open the first of its slots-only casinos in Perryville this fall.
"We think we have the right number right now,” said Dover Downs President Ed Sutor. "If they put in additional casinos it really would jeopardize the financial health of the casinos that already exist.”
"I’m not going to sit here and say you can’t open another casino," said Andrew Gentile, chief operating officer for Delaware Park. "But just keep in mind that there is not a huge market for the new casinos. They are stealing market from existing facilities.”
Business has slacked off in Pennsylvania casinos, he notes, and each new casino "steals a piece of pie from the other."
A racino-commissioned by Deloitte and Touche last fall concluded that adding additional venues would "further cannibalize a decreasing market and add significant pressure to the financial health of the existing casinos."
A study by TMG Consulting for the State of Delaware, also done last fall, projected that the addition of two new gambling sites, in northeastern and southwestern Delaware, would increase the state's gambling revenues by $1 billion to 1.7 billion in revenue between 2013 and 2017. The three existing venues would suffer "serious detrimental effects" but would not face closure, the study concluded. The TMG study did not factor in table games in Delaware, since they had not been approved at the time.
In addition to their concerns over market saturation, racino officials complain about the way gaming revenues are split between the racinos and the state. Currently, Delaware gets 43.5 percent of the revenue from slots, 50 percent of sports betting revenue, and 29.4 percent of table games revenue. The General Assembly raised the state’s share from slots from 37 percent to 43.5 in fiscal year 2010.
The racinos call that a “tax increase," and they say it is crippling.
“Regardless of how successful table games are, I do not think it is going to overcome the negative impact from the additional taxes," said Sutor. “We’ve canceled or put on the shelf almost $90 million of capital improvement because we can’t afford it at the current tax structure.
"I would love to go back to the day where we had the same tax rate as before and we can get some of the major capital expenditures back here at Dover Downs so we can compete even better against Maryland casinos in the future.”
Gentile agrees. Even if the state agreed to adjust the revenue split, he says, it wouldn’t make adding new venues palatable to him.
"I don’t think that a tax change would make me jump up and down and say, 'Okay, lower taxes and open up more facilities,' ” he said.
Expansion proponents understand why the racinos are fighting so hard.
“You can’t blame them," said Schell. "They have a vested financial interest in protecting their market. It’s been protected for 15 years, ever since slots and VLT’s [video lottery terminals] were legalized in Delaware, and they are doing what you would expect any right-minded businessman to do. That doesn’t necessarily mean ... it’s the right thing to do.”
Lott argues that even if the TMG study overestimates the amount of additional revenue Delaware will reap from two new venues, Delaware cannot ignore the report’s conclusion that state’s gaming revenue will drop in the face of out-of-state competition if it does nothing.
"Even if TMG's estimate of is wrong by 50 percent, Delaware cannot turn from that kind of revenue potential,” Lott said.
Expansion proponents point to the job-creation benefits of adding new gambling venues—particularly the short-term shot in the arm to the construction industry. Schell says the DelPointe project can produce 6,000 construction jobs, plus 2,000 to 3,000 direct and indirect permanent jobs once the entire casino and resort is completed.
“There continues to be high unemployment in [Sussex] county and in our state," Schell notes. "Unemployment is especially high in construction, so the types of jobs we would be creating with the project are exactly what the state needs right now.”
“We can put a lot of people back to work,” said Rep. Schwartzkopf. “And when some of these jobs start to expire because the work is being completed, we’ll be out of this recession.”
But the state and its racinos will still be coping with the effects of the recession when the casino expansion issue returns to Legislative Hall in January, leaving legislators to weigh the merits of each side’s argument.
"I am sympathetic to government’s situation of having a deficit and trying to use every ounce of revenue generation they can," said Sutor. "They certainly don’t want to raise the taxes for citizens, because then they won’t get elected again. But there is only so much they can squeeze out of a rock. We’re down to the bone, past the bone, we’ve got broken bones. We’re actually concerned about viability and not going out of business."