As US gambling spreads, Maryland ponders doubling down

Mon Nov 5, 2012 7:50am EST

(Reuters) - On Election Day, Marylanders will vote on a proposal to expand casinos in their state, choosing whether to raise their bet on the hottest hand going in state government - gambling revenues.

Like many U.S. states, Maryland in recent years has upped its ante, responding to competition from neighbors such as West Virginia and trying to keep gamblers interested. First came the lottery, then video slot machines. Now the state is weighing an embrace of full-on, Las Vegas-style gaming 24 hours a day.

True to form, casino backers are promising more funding for education if they are allowed to open for business on the banks of the Potomac River, within view of the nation's capital, and to expand their operations in other Maryland locations.

This promise has been made many times, in many states as gambling has risen in recent years to become the No. 4 source of revenues for state governments across the United States, trailing only taxes on personal income, sales and corporations.

The evidence is mixed on gambling's capacity for giving a meaningful boost to education. Georgia's lottery has pumped billions of dollars into college scholarships, but for most states there is little evidence that lotteries increase education spending. Some research found states with lotteries spent less on education over time than states without them.

Yet, the lure of increasing state revenue - without having to raise taxes - is strong. So it is no surprise that Marylanders will not be alone with their voting booth decision.

Similar votes are being held on Tuesday in Oregon and Rhode Island. Massachusetts approved casinos last year. New York and Florida are expecting pro-gambling campaigns in 2013 backed by what has become a profitable and thriving U.S. industry.

Commercial casinos are now open in 23 states, not counting ones located on Native American land. Forty-three state governments sponsor lotteries. Nationwide $23.9 billion in revenue came to states in fiscal 2010 from gambling of all kinds, up from $23.5 billion in fiscal 2009, and $15.8 billion in fiscal 2000, the Rockefeller Institute on Government found.

No winning streak lasts forever though. As gambling revenue has grown and become increasingly central to state budgets, competition among states for gamblers also has intensified.

The result? The aggressive marketing of a parade of new lottery products and an arms race of casino offerings, all in a bid to get citizens to spend more money on games of chance.

"Revenue, revenue, revenue, it's all about revenue," said Joseph Weinert, a n executive at gambling industry consultancy Spectrum Gaming Group. "Legislatures see gambling as a painless, tax-free way of gaining revenue."

A RISKY BET?

Four years ago when Maryland authorized its first five casinos with video slot machines only, it was billed as a way to support education. This year that is again the major theme.

Question 7, as the latest casino gambling measure is called, would authorize the opening of another casino. Plus, all state casinos would be allowed to have table games such as blackjack and roulette, and stay open 24 hours a day.

Maryland lottery and casino revenues last year hit $664 million, but the funding source has not always met expectations. Programs including education, which casino gambling is supposed to support, have been short-changed, critics said.

Maryland Comptroller Peter Franchot , a Democrat, opposes Question 7. He said he doubts casino expansion will produce the kind of revenue and benefits being predicted. He said increased reliance on gambling revenue undermines the state's economy.

"If there were not gaming revenues, we would be considerably stronger from an economic standpoint," he told Reuters at a recent anti-casino rally.

Question 7 has the support of Maryland Governor Martin O'Malley, also a Democrat, and many legislators. O'Malley spokeswoman Raquel Guillory cited "jobs and education money" as the governor's two main reasons for backing the measure.

"Maryland schools are No. 1 in the nation because of our investment in them. This will bring more money to education," she said.

THE HOUSE WINS?

But a September report by the Maryland Budget & Tax Policy Institute said private casino operators could keep more revenue, while the share going to education would decline, under Question 7. The report said nearly three-fourths of additional casino revenue would go to operators; less than a fourth to education.

Casinos in Maryland already have fallen short of their initial 2008 revenue estimates. Construction of those already approved has been slow. Despite the state's $266 million investment in slot machines for them, in fiscal 2013, casinos are expected to generate just $260 million for education, far below the $660 million originally predicted, the report said.

A Reuters analysis of the Maryland lottery's annual reports showed that, over time, more revenue has gone to prizes and less to the state.

Unlike most states, Maryland did not dedicate lottery revenues to education 39 years ago when the wagering game got started there. Instead, lottery revenues go into a general fund and support a variety of government programs.

The Maryland Lottery in 1998 paid out $571 million in prize money and sent $400 million to the state. That split each lottery dollar at 53 cents for prizes; 37 cents for the state; and the balance for operating expenses and retail commissions.

In fiscal 2012, ended in June, the split was closer to 59 cents in prizes and less than 31 cents to the state. As a result, gamblers got over $1 billion; the state, $556 million.

The Maryland Lottery declined to answer questions about its program, including about this decline and the reason for it.

CHRISTMAS IN OCTOBER

Like other states, Maryland heavily promotes its lottery, spending $14 million on advertising, and constantly introduces new games to stoke consumer demand. Examples: a $20 book of scratch-off tickets called Lucky 7s; a poker-style game called 5 Card Cash; a game tied to the National Football League's Baltimore Ravens, offering team jet trips and cash prizes.

In October, the state rolled out two holiday products: a $10 scratch-off called "A Wreath of Franklins" and a second called "$weet Riches" with $5 scratch-off tickets on a background of green or red peppermint candies.

And Marylanders are enthusiastic gamblers. According to the Maryland Lottery Commission, annual lottery sales per capita in the state was $299 in 2011, up from $208 in 1999. That is far above the national average last year of $184.

With the nation's 19th largest population, Maryland has the sixth highest per capita lottery sales. A 2007 study found the highest per person sales in the poorest zip codes of Baltimore City and Prince George's County.

Barbara Knickelbein, a Marylander who led citizen opposition to the 2008 casinos, called gambling "a tax on the poor." (Additional reporting by Patrick Temple-West; Editing by Kevin Drawbaugh, Lee Aitken and Cynthia Osterman)