Making the News

Bangor Daily News

Originally Published:Saturday, May 12, 2007

Hollywood Slots dispute rages on

By Anne Ravana
Bangor Daily News

A legislative proposal to increase the state's share of revenues from Hollywood Slots at Bangor is raising eyebrows in the local and national business communities, where experts say the move could seriously damage Maine's reputation as a place to do business.

"This has a dramatic, chilling effect for companies outside Maine and inside Maine looking to invest," said Maine State Chamber of Commerce President Dana Connors. "People will say we can't depend on a [state] contract. That worries us. ... Without investment, we're not going to grow our economy."

Last week, Democratic lawmakers on the Legislature's Appropriations Committee suggested increasing the state's share of gross slot machine, or "coin in," revenue at Hollywood Slots from 1 percent to 2 percent and reducing the amount of money paid back in winnings, or the "players' share," from 93 percent to 92 percent.

Those changes aim to generate $5.4 million more for the state in the first year of the two-year budget and $8.4 million in the second year.

Republicans on the panel proposed to cap the increase in funds from Hollywood Slots that would go every year to a variety of funds and programs. Increases would be limited to 5 percent starting in budget year 2009.

In response to the proposed changes, Hollywood Slots' parent company, Penn National Gaming Inc., based in Wyomissing, Pa., halted work Tuesday on the $131 million gambling and hotel complex it has been building across Main Street from Bass Park.

Ryan Worst, a senior vice president and gaming industry analyst at the New York investment firm Brean Murray, Carret & Co., said Friday the proposed tax increases could severely affect Hollywood Slots' revenue structure.

"The impact of an increase of a tax on the coin-in [revenue] has a dramatic impact on the company's income," Worst said. "From the shareholder perspective, I would rather see Penn National spend that capital in other jurisdictions that are more rational."

Currently, Hollywood Slots pays the state - in addition to the 1 percent tax on its gross slot machine revenue - a 39 percent state tax on its net revenue after players' winnings have been distributed and a 3 percent tax to the city.

Penn National spokesman Eric Schippers said this week that the combination of taxes amounts to 51 cents out of every dollar of Hollywood Slots' net revenue. An additional 1 percent tax on gross revenues would make Hollywood Slots at Bangor unprofitable, Schippers said.

Schippers equated the 1 percent increase in taxed gross revenue to a 10 percent increase in taxed net revenue. Worst estimated the increase to be as high as 15 percent. That could bring the total tax cost as high as 66 cents out of every dollar of Hollywood Slots' net revenue.

Most states with gambling facilities take between 25 percent and 45 percent of those facilities' net revenue, Worst said.

Aside from Maine, a tax on the gross revenue is unheard of in the gambling industry, according to Worst and Schippers.

The Washington, D.C.-based American Gaming Association said Friday it does not take sides on state legislative matters, but said that reasonable tax rates on gambling facilities are important to their success.

"Obviously a favorable tax rate is beneficial to creating an environment that encourages capital investment on the part of the casino companies to develop the type of properties and the type of amenities that are going to make that property successful," said Holly Thomsen, spokeswoman for the American Gaming Association.

Economist Richard Thalheimer, president of Thalheimer Research Associates, a Lexington, Ky.-based company that studies the gambling industry, said lowering the payout to players would only harm Hollywood Slots.

"You're raising the cost to the players when you lower the payback and I'm pretty sure their revenues will go down. People will bet less," Thalheimer said.

Gambling industry consultant Joseph S. Weinert, senior vice president of Spectrum Gaming Group in Northfield, N.J., said gambling companies such as Penn National simply are looking for stable places to expand their business.

"Penn National is not a charity. It is a publicly held corporation and it has a fiduciary obligation to provide its stakeholders with an acceptable return on all of its investments," Weinert said.

It is customary for states to toy with the idea of changing taxes on gambling facilities, but most states refrain from increases because they have "a chilling effect on capital investment," Weinert said. The tax rates are usually only hiked in states with relatively low tax rates to begin with, Weinert said.

Financially, Penn National is sound, Weinert said. Penn National owns and operates 24 casino gaming, horse racing and off-track wagering and slot machine facilities in Colorado, Illinois, Indiana, Iowa, Louisiana, Mississippi, Missouri, New Jersey, Maine, Pennsylvania, West Virginia and Ontario. Penn National has more than 16,000 employees and revenues exceeding $2 billion, according to its Web site.

Penn National's common stock was up 1.39 percent, trading on the NASDAQ stock market at $50.34 per share as of 2 p.m. Friday.

Meanwhile, Connors of the Maine State Chamber of Commerce said he is likely to have little impact on the outcome of the tax dispute.

"They seek my input, they want my advice, but this is an issue that will be played out between the Senate and the House," Connors said.

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