Report: MGM licensing fee way too low

Originally Published in the Washington Examiner

MPPI in the News Matt Connolly Dec 20, 2012

The licensing fee for a new casino in Prince George's County is about $482 million too low, according to a study released Wednesday by the Maryland Public Policy Institute.

The study by the nonpartisan group says that likely operator MGM Resorts International could make a 17 percent rate of return on a National Harbor casino if it paid the state $500 million for the right to open. Critics, however, say that amount is unreasonably high.

"Maryland's current licensing structure really is nothing but a massive giveaway," said Christopher Summers, president of the Maryland Public Policy Institute President. "The state would have been better off putting the license up on eBay."

Casino operators must pay an initial licensing fee of $3 million for every 500 slot machines. The Prince George's casino, which won't open until 2016, was approved for 3,000 slots in a November ballot initiative -- which would put its likely license fee at $18 million. Licensing fees for the Casino at Ocean Downs near Ocean City, Hollywood Casino in Perryville and Maryland Live! Casino in Anne Arundel County were $4.8 million, $9 million and $28.5 million, respectively.

Maryland gambling analyst James Karmel said the fee proposed by the study would be unprecedented and would cut too deeply into MGM's or another operator's ability to make a profit.

"Half a billion dollars just to operate?" he said. "That's a fee so prohibitive that it prevents successful development."

Karmel added that Maryland's gambling taxes are already high compared with those of other states and that giving casinos the best opportunity to profit is best for gambling companies and the state.

Gov. Martin O'Malley has signaled his intention to put much of the gambling debate behind him as Annapolis prepares for a new legislative session. O'Malley spokeswoman Takirra Winfield called it "unlikely" that state lawmakers would revisit casino licensing fee regulations.

Investment banker Jeff Hooke, who conducted the study, acknowledged the political difficulty of bringing lawmakers and gambling companies back to the negotiating table, but said it would help bring licensing fees closer to market value.

"The state's not run like a business, for obvious reasons," he said. "If they could meet in the middle somewhere, I guess I'd be happy."