Delaware casinos still hoping for relief

DOVER — With seven legislative days left in 2015, Delaware’s casinos are in the same situation as when the year started: desperately hoping for relief.

“Things haven’t gotten any better. In fact, they’ve probably gotten a little bit worse,” said Denis McGlynn, president and chief executive officer of Dover Downs Gaming and Entertainment.

The casino lost about $700,000 in 2014, and executives have said they likely cannot survive for much longer without changes to the current tax structure.

Because of the revenue-sharing system in the state, casinos keep only about 40 percent of revenue, with the rest going to the government, the horsemen and slot vendors.

In fiscal year 2014, that 40 percent amounted to just under $142 million of the $355 million in overall proceeds.

The largest share went to the state government: approximately $154 million.

Legislators supporting relief — typically those from downstate — have argued the state is killing the golden goose.

They say if officials do not make changes to the revenue-sharing model, Delaware risks losing more than $100 million in annual revenue, as well as thousands of jobs.

“The irony to me is that we’re not trying to figure out how we can spend more on casinos, because that’s not what the issue is,” Sen. Brian Bushweller, D-Dover. “We’re trying to figure out how we can protect what the casinos give us.”

Others counter that casinos are struggling due to mismanagement and say cutting the tax rate or otherwise making changes would be bailing out a large industry.

Furthermore, with the state facing budget challenges both this year and next, opponents of tax restructure claim Delaware cannot afford to decrease one of its revenue streams.

Down for the count

A bill leading to major changes in the state lottery system would have allowed the industry to survive, supporters said, but the proposal gained little traction.

Senate Bill 30 would have reduced the table game tax rate from 29.4 percent to 15 percent and eliminated the $3 million license fee.

It also would have shifted 1 percent of revenue from the state to the horsemen, had the state cover more of the casinos’ share of lottery costs and implemented 5 percent marketing and 5 percent capital project credits.

But all that carried a serious cost: the state government wouldn’t get approximately $46 million per year. As a result, the bill died without getting a committee hearing.

Sen. Bushweller, the sponsor, conceded it is no longer an option. Despite that, he remains optimistic.

“I believe that there’s a very broad-based understanding among the members of the General Assembly that we need to do something to protect the revenue source for the state that the casinos provide and also the thousands of jobs,” said Sen. Bushweller.

However, there is a “dilemma at this point as to exactly how to do that, given all of the other financial difficulties that we have,” he added.

He is also working on creating another solution, which could be proposed soon. However, he declined to give specifics, noting several ideas were being considered and still needed more thought.

Gambling on DEFAC

Mr. McGlynn is hopeful some form of relief will take shape after Monday’s meeting of the Delaware Economic and Financial Advisory Council.

The council provides updated revenue figures, and positive numbers could make it more likely legislators agree to provide aid to the casinos.

He is trying to stay informed with the General Assembly but not become an “irritant.” With DEFAC yet to meet, and with top legislators from both parties concentrating on concluding an infrastructure deal, the casino issue sits off to the side, one of many things legislators are grappling with, such as education and marijuana issues.

While Dover Downs is the only public company of Delaware’s three gaming establishments, and thus the only one that releases earnings statements, Delaware Park and Harrington have hinted they are struggling as well.

As casinos have popped up in Pennsylvania and Maryland, Delaware’s gaming businesses have faltered. Slots revenue has fallen from a high of $632 million in fiscal year 2007 to $355 million last year.

Should nothing get done, the situation would grow bleaker, Mr. McGlynn said. Although he largely shied away from discussing possible layoffs, Mr. McGlynn did note a “gradual reduction,” likely in table games or restaurant operations could occur.

Dover Downs last month eliminated 24 positions, concentrated in table games, and scaled back the hours the games are available. Because of the heavy tax and the annual license fee, the casino is losing money on table games.

Perhaps most critically for Dover Downs, the casino is in debt. After the first quarter of 2015, Dover Downs owed $38 million, with the sum due Sept. 30.

The possibility that the banks will make large-scale changes continues to dangle over the heads of casino executives.

Much of the debt was incurred when Dover Downs invested in capital improvements between 2000 to 2005 to better compete against newer casinos in neighboring states. The calculation to invest was based on what had been a stable revenue-sharing plan in place which had Dover Downs retaining 46 percent.

However, the state steadily increased its take of revenue until by 2013 the casino was left with less than 38 cents on the dollar from which to pay expenses while also trying to reduce its debt.

With the legislature adjourning for the year after June 30, supporters have little time to formulate a plan.

Despite criticism from some, casino backers still are attempting to sway others to their point of view.

“If people could just take the time to understand the math and contemplate what their lives would be like if 62 percent of whatever revenue they get — whether it’s at their store or their paycheck — just imagine 62 percent of that being taken off and then you pay all your other expenses, plus you pay your income tax, the whole 9 yards, and then think about how likely it is that you would be able to survive,” Mr. McGlynn said.

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