Maryland Allows Video Lottery Terminals

November 2008Alerts Gaming Practice Group Alert

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Maryland voters on November 4, 2008, approved a constitutional amendment authorizing video lottery terminals. The amendment permits the issuance of five video lottery licenses and the operation of 15,000 slot video lottery terminals.

An operator’s license may be awarded only for a video lottery facility in one of the following locations with the maximum number of terminals as indicated:

  • 4,750 video lottery terminals in Anne Arundel County, within two miles of MD Route 295
  • 3,750 video lottery terminals in Baltimore City, if the video lottery facility is:
    • located in a nonresidential area within one-half mile of Interstate 95, within one-half mile of MD Route 295, and on property that is owned by Baltimore City
    • is not adjacent to or within one-quarter mile of property that is zoned for residential use and is used for a residential dwelling
  • 2,500 video lottery terminals in Cecil County within two miles of Interstate 95
  • 1,500 video lottery terminals in Allegany County on state property located within the Rocky Gap State Park
  • 2,500 video lottery terminals in Worcester County within one mile of the intersection of Route 50 and Route 589

The five operator licenses are to be awarded by the soon to be formed Video Lottery Facility Location Commission (Location Commission) through sealed competitive bidding. The Location Commission will need to be established quickly since bids must be submitted by February 1, 2009. The Location Commission will have seven members, three to be appointed by the Governor, two by the President of the Senate and two by the Speaker of the House of Delegates.

The Location Commission will be responsible for the selection of the facilities. The Maryland Lottery Commission (Lottery Commission) will be responsible for the licensing of the facilities,manufacturers and vendors doing business with the facilities. The Lottery Commission is already in place, but will be expanded from five to nine members to be appointed by the Governor with the consent of the Senate. The Lottery Commission will purchase the slot machines from the manufacturers and lease them to the slot operators. Maryland officials are already actively meeting with other jurisdictions for advice on the licensing process.

The tax rate is 67% of gaming revenue. There is also an initial license fee of $3,000,000 for every 500 video lottery terminals that must be paid at the time of the application. The bidder must also demonstrate a $25,000,000 direct investment by the applicant for construction and related costs for each 500 video lottery terminals included in the bid. So, if a bidder wants to build a facility with 2,000 video lottery terminals, the bidder must pay $12,000,000 at the time of application and demonstrate that it intends to invest $100,000,000 in the project.There is also an annual fee of $425.00 per video lottery terminal.

In awarding the operator’s licenses, the Location Commission is to evaluate (on a weighted percentage basis) the following factors:

  • The highest potential benefit and highest prospective total revenues
  • The extent to which the proposed location encourages Maryland gaming participants to remain in the state
  • The extent to which the proposed location demonstrates that the facility will be a substantial regional and national tourist destination
  • The proposed facility capital construction plans and competitiveness of the proposed facility
  • The amount of gross revenue to be allocated to the operator over the term of the license
  • The percentage ownership by minorities
  • The extent to which the proposed location will preserve existing Maryland jobs and the number of new jobs to be created
  • The contents of the bidder’s plan to achieve minority business participation goals
  • Any additional economic development planned in the area of the proposed facility
  • The existing transportation infrastructure surrounding the proposed facility
  • The negative impact, if any, of a proposed facility location on the surrounding residential community
  • The need for additional public infrastructure expenditures at the proposed facility

The tax revenue generated by the state will be distributed as follows:

  • EducationTrust Fund – 48.5%
  • Horse racing purses – 7%, not to exceed $100,000,000 annually
  • Local impact grants – 5.5%
  • Racetrack facility renewal account – 2.5%, not to exceed $40,000,000 annually (for the first eight years only)
  • Lottery agency for costs – 2%
  • Small, Minority and Women-Owned Businesses Account – 1.5%

The Maryland Governor intends to move with some speed, but to move forward carefully and deliberately.

For information regarding this Alert, please contact Marie Jiacopello Jones at 609.572.2259 or via e-mail at [email protected].