May 05, 2009

JACKPOT Major developers, political interests jockeying around Anne Arundel slots

Somewhere in the expanse of the Arundel Mills parking lots, there is a patch of unremarkable asphalt, a barely-improved corner of the bustling retail center that may be one of the most valuable pieces of land in Maryland.

That’s what one developer believes with its proposal to operate one of the state’s five slot machine facilities at the mall rather than at Laurel Park racetrack.

The slots referendum passed by voters last November called for a slots parlor in Anne Arundel County, and the state received two bids for the license on Feb. 2. One, from a group called PPE Casino Resorts Maryland LLC, backed by Baltimore-based developer The Cordish Co., called for the maximum 4,750 slots at Arundel Mills Mall. Another, by the Laurel Racing Association and Maryland Jockey Club, would place 3,000 at Laurel Park.

But Jockey Club parent Magna Entertainment Corp., which declared bankruptcy in March, did not pay the $28.5 million application fee due with its proposal. After a state commission tossed out their bid, Magna sued to keep it alive citing a technicality in state law, but a judge backed the commission’s decision.

As county officials debate the specifics of putting slots in their backyard, The Cordish  Co. promotes its plan and Magna goes to court.

Cordish’s plan

As a developer nationally known for pairing slots gaming with entertainment and retail venues, there was little doubt that Cordish would be a part of slots in Maryland. The only question was where.

After weighing all five slots locations statewide and several sites in Anne Arundel County, Cordish finally paired with Arundel Mills owner Simon Property Group on a proposal for that complex. It was a decision company president David Cordish called “literally a no-brainer.”

Jon Cordish, a company vice president, said the facility would generate $6 billion for the state by 2015, fueled by new video gaming devices which replicate table games like poker and blackjack but are considered slots under the law.

Taxes will take 67 percent of that revenue, regarded by some industry experts as too high a slice. But Cordish said he believed the company could still profit while providing a large return for the state.

“From our perspective, 67 percent, yeah, it’s high, and we have to pay expenses out of our pocket,” he said. “[But] if we do big numbers, they win and we’ll make a buck. It’s not a grand slam homerun for us. But it’s a solid single. Do that long enough, hit enough singles, you can make a lot of money and it’s a grand slam for the state.”

Magna’s battle

Magna Entertainment Corp.’s slots bid was already a long shot. With the company’s declaration of bankruptcy it may be all but dead.

The Canadian-based owner of Laurel Park and Pimlico Race Course filed for Chapter 11 on March 5, a move many expected as the company faced growing debt and sharply declining revenue from its racetracks around its country.

The bankruptcy cast further doubt on Magna’s proposal to place 3,000 terminals at Laurel Park, a bid that was thrown out in February by the state’s Video Lottery Facility Location Commission after the company failed to pay a $28.5 million application fee.

In late February, Annapolis lawyer Alan Rifkin, representing Magna subsidiary Laurel Racing Association, said in Anne Arundel Circuit Court that Magna failed to pay the fee because it was not refundable and argued that the entire bidding process constituted a forfeiture of property banned by the state’s constitution.

“Basically what Alan would have told them was that, ‘this is the one shot we have to see if we can get a court to say, gee they should have written this another way,’ ” said Tim Capps, a former Magna executive and current executive-in-residence at the University of Louisville’s Equine Industry Program.

But on March 11, Circuit Court Judge William Mulford II upheld the commission’s decision, saying it was “constitutional and lawful.” Rifkin said in a statement that Laurel Racing will consider appealing the judge’s decision.

Even before Mulford’s ruling, shareholders in Magna’s parent company, MI Developments Inc., had already rebelled against the idea of that company backing its subsidiary’s slots operation in Maryland.

“We are vehemently opposed to MID using its funds to make these additional gambling investments,” said David Einhorn, president of New York-based Greenlight Capital Inc. “MEC is relying on further funding from MID, which is subject to a shareholder vote that we, and other large shareholders, will vote against.

Anne Arundel County’s Concerns

Even if the state picks a slots winner, it could be Anne Arundel County that has the final say-so.

In answers to developers’ questions, the state slots commission in January said it could award a license to a developer even if their plans were not in accordance with county code, including zoning. However, the commission said it could not actually issue that license until county codes have been met.

Anne Arundel officials have taken the first steps in that process. County executive John Leopold introduced legislation early this month which would allow conditional-use zoning for slots parlors at Arundel Mills and Laurel Park, but nowhere else in the county.

“I did not support this referendum,” Leopold said. “But the residents of the state and county have spoken clearly and loudly in favor of it.”

Though he declined to make a specific comparison between the two sites, Leopold noted that a Laurel Park slots facility would have to divide part of its revenue

between Montgomery, Prince George’s and Howard counties while one at Arundel Mills would direct all of that revenue to Anne Arundel County alone.

The bill was formally introduced at the county council’s March 3 meeting over the objections of Councilman Daryl Jones, who represents a district including part of Arundel Mills. Jones sought more time to review issues surrounding Cordish’s proposal.

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