Maryland horse racing and slots: Here’s the truth and here’s what’s going on

December 17, 2009 | Drew Forrester

A pair of important events relative to the future of horse racing in Maryland are set to take place over the next 21 days and there’s little chance, if any, that all the interested parties are going to wind up happy.

If you aren’t familiar with the current situation concerning both the ownership of the Laurel and Pimlico race tracks and slots licensing in the state of Maryland, saddle up and come along for a ride as I try to explain it to you.

If you’re confused, don’t be ashamed.  Just read it all again.  It gets easier the 2nd or 3rd time through.

For starters, here are the two critical dates coming up in the next weeks:

This Monday, December 21, the Anne Arundel County Council will vote on Bill 82-09, which is in place to allow for zoning permits for Video Lottery Terminal facilities (VLT’s or “slot machines” as they are more commonly known) at the Arundel Mills Mall.  The VLT license in A.A. County has been awarded to prominent Maryland developer David Cordish after a group headed by Cordish submitted a complete application (including the $28.5 million “fee”) to the state of Maryland in 2008.

In short, Cordish is the legal “owner” of the slots license in Anne Arundel County and has initiated the effort to have the slots “facility” be constructed at the Arundel Mills Mall.  Not only has Cordish done exhaustive studies to support his position that Arundel Mills Mall is the ideal location for his Anne Arundel County VLT license, but the state of Maryland followed suit and agreed with Cordish that Arundel Mills Mall is a suitable location.

However, Cordish and his group haven’t yet completely closed the deal.

They still need Bill 82-09 to pass on Monday, because it would pave the way for his group to obtain all of the necessary permits for construction, roadwork improvement and utilities capacity.

In baseball terms?  Cordish is going to the bottom of the 9th with his closer on the mound.  The three outs he needs come on Monday when the County Council votes on Bill 82-09.

There are six members of the Council voting on Monday and Cordish’s group needs at least 4 votes for the bill to pass.

If the permit (82-09) vote on Monday fails to pass, that certainly doesn’t mean that David Cordish’s planned VLT facility at Arundel Mills is completely dead.  After all, he still OWNS the license for Anne Arundel County.  But he would have to go through the entire process again and try to convince the County Council of the viability of his planned facility again in 2010. And every month that goes by where Cordish doesn’t have the permits in place to build is another month he can’t be recouping on his $28.5 million investment he made by writing a check to the state of Maryland to get the VLT license.

Will 82-09 pass on Monday?  It should be noted that of the five significant horse racing/government sources I spoke with on Tuesday and Wednesday about this story, three of the five believe it’s a “slam dunk” that 82-09 passes on Monday.  The others aren’t so sure.

If 82-09 doesn’t pass, there’s going to be some potential fireworks in a number of areas.  First, without the zoning permits, the state of Maryland could remove Cordish’s VLT license and re-open the “slots bidding” for Anne Arundel County.  One of the conditions of being awarded a VLT license is that the license holder must be approved for any permits or zoning.

Here’s one issue to consider: What if 82-09 doesn’t pass on Monday and the state decides to re-open the bidding for the VLT license — and Cordish says, “Can I have my $28.5 million back now, please?”

Does the state have access to that $28.5 million still?  Or has the Governor spent that money already?

If the state doesn’t have $28.5 million to return to Cordish on Monday or shortly thereafter, that might be a determining factor in 82-09 magically passing on Monday.  Make sense?

There’s also another small piece of wood to throw on Monday’s vote-fire.  Another bill, 81-09, was put forth by two members of the County Council as a “compromise” in the event 82-09 fails on 12/21.  81-09 would allow for zoning permits in an area already designated to be “South of Rt. 32, in between I-95 and 295”.  Take a look at a map and take a wild guess what lies in that general area…hint:  you might see a race track in Laurel if you look real close.

Both bills will be voted on this Monday.  If 82-09 passes and the Arundel Mills zoning permits are approved, it’s highly unlikely that 81-09 passes.  Why pass 81-09 when 82-09 awards the appropriate zoning and permits to Arundel Mills?  It’s also quite possible that both bills fail on Monday.  One member of the board, Jamie Benoit, has already gone on public record saying he will vote “no” on both 82-09 and 81-09 on Monday.

Six Council members will vote.  A 7th member, C. Edward Middlebrooks, has recused himself from the vote due to a conflict with one of the parties bidding on January 8.  For 82-09 or 81-09 to pass, they will need at least four “yes” votes on Monday.

If the Council passes 82-09 on Monday, that will take Cordish’s group nearly to the finish line of a project that’s three years in the making for him.  However, the work will just be beginning.  Sources say it could take Cordish up to 60 months to get all of the necessary construction and infrastructure in place to actually open the VLT establishment at Arundel Mills.

The state of Maryland initially approved five VLT license opportunities.  They were approved in:

1) Western Maryland (Rocky Gap), with NO bidders/applicants on that location as of 12/16/09.

2) Eastern Shore (Ocean City) — that license was acquired by Bill Rickman, the managing director of Delaware Park and owner of Ocean Downs race track.  Rickman, a Montgomery County native, was originally intending to open a casino at Ocean Downs in May, 2009, but he has not yet begun construction on the facility.

3) North East Maryland (Cecil County) — that license was acquired by Penn National Gaming, Inc., owner and operator of race tracks in Pennsylvania and a casino in Lancaster, PA.

4) Baltimore City — that license application was submitted by a group named “Baltimore Entertainment Corporation”. Sources say their license fee of $3 million is headed by 93% investor Michael Moldenhauer, a Canadian racing/casino entrepreneur. The figure for the Baltimore City bid was initially only $3 million because B.E.C. purchased the rights to 500 VLT machines. Recently, the state has asked B.E.C. to increase its purchase to 3,750 machines (requiring a $19.5 million fee) because the 500 VLT’s wouldn’t yield enough revenue.  B.E.C., though, has not yet paid the additional $16.5 million that would be due.   B.E.C.’s group — including former MAGNA employee Paul Micucci and an entity named York Capital — is now in somewhat of a holding pattern as they decide if they’re willing to go “all in” on the Baltimore City VLT license.

One source told me on Wednesday:  “They (B.E.C.) won’t be in the game much longer.  They didn’t realize how much they were going to get jerked around by the state when they applied for the city VLT license.  That’s why no else bid on it.  Everyone in the know was well aware of the downfall of getting that city license.  You have to build a facility or upgrade a building and you have to be willing to spend almost $200 million.  And then once you do that, you give the state 67% of every dollar you bring in?  No one wanted that deal.  They’re (B.E.C.) finding that out now.”

5) Anne Arundel County (Arundel Mills) — that license was purchased for $28.5 million by David Cordish and awarded in 2009.  He is now attempting to obtain the necessary permits to put his VLT’s in a facility he would build at Arundel Mills Mall.

Cordish’s $28.5 million check to the state of Maryland was payment for 4,750 VLT “machines”.  If he opens his proposed location at Arundel Mills, it would be the largest “slots facility” in the state.

The state of Maryland could certainly use the revenue that Cordish’s Arundel Mills project would provide.  It would not only contribute $60 million annually (projected) to the horse racing industry, but nearly another $100 million to the state of Maryland.  That’s not chump change.

All VLT owners face the same formula from the state of Maryland.  67% of the gross revenues from all VLT’s go back to Maryland.  The owner retains 33%.  9% of the 67% will immediately be handed over to the Maryland horse racing industry to upgrade purses and provide for facility improvements and maintenance.

In Cordish’s estimation, his VLT facility at Arundel Mills Mall will generate approximately $60 million per-year for Maryland racing.

If the remaining four VLT’s are ever in operation simultaneously, the total monies returned to Maryland racing could reach the $100 million figure and the state of Maryland could add upwards of $350 million from the VLT owners.

Right now — The State of Maryland needs the Arundel Mills deal to go through. Or, at the very least, they need slots in Anne Arundel County to work, whether it’s at Arundel Mills or some other location (Laurel Race Track?)…but Cordish is a step ahead of everyone else because he put up the $28.5 million and now has the license.

A lot of horse racing folks are petrified that a Cordish “win” on Monday when the County Council votes on 82-09 might be the beginning of the end of racing in Maryland.  Well, in all fairness, “the racing folks” could have written a $28.5 million check for slots in Anne Arundel County and they didn’t do it in time.  Cordish did. 

Will Cordish’s group get the four votes they need on Monday when 82-09 is voted on?  That’s where the game ends.

Now, we move on to the date of January 8.

That’s the date six groups will be involved in an auction to purchase the Laurel and Pimlico race tracks from Magna Entertainment via bankruptcy court.

One industry expert claims the two tracks will eventually go for $115 million.

“I think everyone is prepared to reach 9 figures ($100 million),” he says.  “And once it gets over $100 million, you’ll see one or two drop out quickly.  I think $115 million will win it.  These tracks are still valuable.  They just haven’t been run right and the state hasn’t really helped much over the last 10 or 15 years either.”

Someone directly involved in the bidding process told me, “There are going to be people there on January 8 who don’t want to lose.  It’s a lot like a horse race.  You want the ‘win’ money, not ‘place’ or ‘show’ money.”

Another member of the horse racing industry thinks the high bid will be far less.  “$100 million?  No way,” he states.  “In this economy and with the whole slots thing in Maryland still really in a flux, I think you’re talking about $70 million for both tracks, $80 million if someone gets really desperate and just tries to close the deal with one loud boom.”

Baltimore real estate developer David Cordish is among the six vying to purchase the two tracks.

Cordish is one of two prospective track-owners involved in the bidding process on January 8 who currently has a VLT license from the state of Maryland. It would make sense, then, for Cordish to be particularly excited about the prospect of owning two race tracks since he’d effectively be “paying himself” 9% of the money he provides to the state of Maryland as part of the 67% tax he pays out as a VLT owner.

In plain English, Cordish would be “double dipping”.  But in fairness, there’s nothing wrong with that.  He’s playing by the rules the state of Maryland established.  Cordish put up his $28.5 million for the VLT in Anne Arundel County.  And he’s now been “approved” as a bidder on January 8.

Some would say he’s the favorite going in to the auction process, although sentiment or favoritism won’t play a role on January 8.  You either have the high bid or you don’t.

Cordish appeared on the Wednesday edition of The Comcast Morning Show and emphatically stated he would ONLY place his Anne Arundel County VLT’s at his proposed Arundel Mills location.  So, if Cordish is the high bidder for the two race tracks, he will construct his VLT facility at Arundel Mills and then go about the process of trying to upgrade and improve the racing industry in Maryland WITHOUT having slots at either of the tracks.

Cordish has already made public some of his plans for racing in Maryland if, in fact, he’s the successful high bidder on January 8.  One of his first mandates as track owner would be to once again allow patrons to bring their own alcohol to the Pimlico infield on Preakness Day.

Sources tell me prominent Baltimore business leader Kevin Plank (Under Armour) is one of the six bidders who will join the auction on January 8.  Plank purchased legendary horse farm “Sagamore Farm” in Glyndon back in 2007 and told those close to him back then he would someday “be a player” in the revival of horse racing in the state of Maryland.

Penn National Gaming, owner and operator of Penn National and Charlestown (WV) race tracks, is also one of the six bidders, sources say.  That would make sense, since they own race tracks and have dipped their toe in the Maryland VLT scene with the license application in Cecil County.

A source indicated to me that the parent company of Magna, “M.I.D.” of Canada, is also going to be a bidder at the auction on January 8.

There is a yet to be determined group also in the bidding process.  A source told me on Wednesday this group could be comprised of a several men from New Jersey who were also initially interested in the Cecil County VLT license but decided against filing the application after a $4.2 million land purchase in Elkton fell through and left them without a home for their proposed “slots parlor”.

Another source says a group representing or connected to Harrah’s Casino approached the state on two separate occasions within the last two years.  Their first effort was intended to be a “mega-deal” that would have included the purchase of both race tracks from Magna and a payout of $60 million to the state of Maryland in exchange for three of the five VLT licenses. Fearing monopoly of both the racing and gaming industry – and the negative backlash of giving “business” to out-of-staters – the state turned them down.  Recently, Harrah’s approached the state about buying the unsold Rocky Gap VLT license in exchange for being allowed to be part of the bidding process on January 8.  They were again turned down.  An industry insider says the state feared Harrah’s would get the Rocky Gap VLT license and then partner up with a Maryland-bidder on January 8, win the auction, then immediately sell their interest in the tracks and just own and manage the casino at Rocky Gap.

“It’s funny,” says the insider.  “The state’s trying to get in the casino business and they were skeptical of a casino owner getting involved here in Maryland.  That’s why they didn’t let them submit the application for Rocky Gap originally.  They just didn’t want them (Harrah’s) involved from the start.”

Someone familiar with the bidding process is convinced the “unidentified group” is comprised of out-of-towners and that they’re spending the days leading up to the auction feverishly trying to add at least one Maryland-based investor in an effort to be more well received by the public should they wind up winning the auction on January 8.

A rumor floating around earlier this month was that longtime Baltimore businessman Dennis Townsend was going to be a bidder on January 8 but a source I spoke to Wednesday night says Townsend is consumed with his golf course in New Jersey and simply doesn’t have the ability to be involved in a financial “project” like Maryland racing. Townsend bought Hamilton Farms Golf Club in 2001 for $51 million and it’s now regarded as one of the most elite and well respected facilities on the Eastern seaboard.

The 6th and final bidder on January 8 is longtime Maryland racing enthusiast Joe De Francis.  Joe and his sister, Karin, sold controlling interest in Laurel and Pimlico to Magna in 2002 and were then “bought out” of their remaining 49% in 2007.

De Francis has long been a staunch supporter of “slots” in connection with the race tracks and continues to maintain the only way to have horse racing grow and prosper in Maryland is to have the Anne Arundel County VLT license be awarded to the owner of Laurel Race Track.

Ironically, De Francis has already secured a number of federal and local permits for the construction of a gaming facility at Laurel Park.  He’s been working on those permits for the better part of six years — ever since the state of Maryland started seriously talking about slots in Maryland.  De Francis doesn’t have a VLT license for Anne Arundel County (Cordish has it) and doesn’t have a County Zoning Permit either…but he does have a variety of other necessary permits and approvals already in place.

He appeared on the Tuesday edition of The Comcast Morning Show and admitted he would have no problem opening a dialogue with David Cordish about moving his VLT plans from Arundel Mills to Laurel Race Track if, in fact, De Francis is the highest bidder on January 8 and wins the auction for Laurel and Pimlico.

“One of the first things I would do if we acquire the tracks will be to reach out to David and see if there’s a way we can do this together,” De Francis said.  “That would be up to him, since he owns the license for Anne Arundel County.”

It’s expected that Cordish would not be interested in a partnership with the De Francis family based on comments David made on Wednesday’s Comcast Morning Show.

“Arundel Mills is the best place for slots in Anne Arundel County.  Every study we’ve done shows that.  We’ve received the license for Arundel Mills and that’s where we’re going to stay.”

A source with knowledge of the investor group De Francis has put together predicts, “The others are in for a surprise on January 8.  If they think Joe’s going to show up in jeans and cowboy boots and say, ‘Let’s bid on some race tracks today’, they’re going to be shocked.  Joe has big players with him.  Bigger than folks can imagine.  He’s going there on January 8 to win the auction, not just play in it.”

A longtime member of the horse racing industry and ex-official with the Maryland Racing Commission scoffs at the notion that the De Francis family had their chance to successfully operate the tracks and should now simply step aside and let other interested parties give it a try.

“That’s silly,” the ex-official said.  “The state of Maryland made life very difficult for Joe and Karin throughout the late 90’s and into this decade.  They drug their feet on slots for five years and stood around and watched the industry take their horses and business to Delaware and Pennsylvania and then they tried to blame Joe and Karin for screwing it all up.  Joe and Karin are very capable of running the horse racing business in Maryland if they’re given all the benefits that others in the bidding process are expecting to receive.”

Carl Verstandig, a Pikesville developer thought by many to be involved as a bidder on January 8, told Glenn Clark of exclusively on Wednesday that he is NOT one of the six bidders.

Orioles owner Peter Angelos was rumored to be among the bidders on January 8 but he has since indicated he will not be part of the process to purchase the two race tracks.

The January 8 auction will be greatly influenced by the vote by the Anne Arundel County Council on Monday, December 21.  If bill 82-09 passes, and David Cordish gets the go-ahead for zoning permits to build at Arundel Mills Mall, that could dampen the enthusiasm of any or all of the bidders for the two race tracks since nearly everyone believes Laurel Race Track can’t compete with a 4,750 VLT “casino” 15 minutes up the road.

Once 82-09 passes or fails on Monday, the picture will much more clear.

For now, as the horses all make the final turn and head for stretch, this race is too close to call.

And let’s hope between now and January 8 the government of Maryland stays out of the entire process.  All they’ve shown time and time again is a propensity for fouling the whole thing up.

Let the horses run.

And may the best one win.