Dover Downs sees profits fall in 2016

Dover Downs Gaming & Entertainment saw its recent hot streak come to an end Thursday with its first quarterly loss in six months and an overall drop in annual profits.

The company posted a net loss of $291,000 during the last three months of 2016  while its earnings for the full year fell to $786,000 – a 58-percent slide from 2015. The earnings report marks the casino's third quarterly loss in two years and its first since the start of 2016.

"We're doing everything we can to manage expenses while still holding out hope for a longer term fix from the state," CEO Denis McGlynn said. "But with the deficits the state is facing every year, that's becoming a harder and harder lift."

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The parent company of Dover Downs Hotel & Casino, one of the largest employers in Kent County, has been clamoring for the General Assembly to ease the tax burden on Delaware's three casinos for several years.

The state has collected about 43 percent of statewide slot machine revenue since the casino tax was hiked in 2009 during the depths of the Great Recession. That's up from the 36 percent before the increase was imposed.

Dover Downs, the state's only publicly traded casino, has blamed the state tax burden for contributing to its financial struggles in recent years. The company, for instance, turned a meager $13,000 profit in 2013 and took a $706,000 loss in 2014 that led to the elimination of 72 positions and a halt to overnight table games on weekdays.

Legislators agreed to spend about $10 million in 2014 to help cover the casinos' annual payment to slot machine vendors. But bills seeking to offer permanent tax relief have failed to gain traction as lawmakers struggle with declining revenues.

A panel tasked with studying fiscal relief for the casinos recommended a nearly $46 million tax cut in 2015. Sen. Brian Bushweller, D-Dover, has twice introduced legislation to ease the casinos' tax burden only to see both measures fail to reach the Senate floor.

Bushweller has not introduced similar legislation so far this legislative session as state lawmakers prepared to grapple with an estimated $350 million budget gap.

"There is a new administration in the governor's office, and right now we're engaged in some good discussions, largely to familiarize him with the issue," Bushweller said of Gov. John Carney. "There may be some other way to skin this cat, and I'm making that case to the governor."

McGlynn and other casino officials have noted that state legislators cut corporate taxes last year with the passage of the Delaware Competes Act – an effort to retain the Chemours Co. and two of the three spinout companies expected to result from the impending merger of DuPont Co. and the Dow Chemical Co.

Chemours employs about 1,000 workers in Delaware while DuPont employs about 4,600.

Delaware's casino industry, which did not benefit from the corporate tax cut, accounts for 3,000 to 4,000 jobs, according to state and industry data.

"We've become an important industry for the state and a huge employer," McGlynn said. "I hope the state recognizes that and acts to protect it because to ignore it means we're only going to disappear at some point."

Dover Downs' total revenue for 2016 fell to $182.2 million, down 4 percent from a year earlier. Between the $77 million the casino paid to the state and other expenses, Dover Downs eeked out a profit margin of less than half of 1 percent, McGlynn said.

Gaming revenue in the fourth quarter fell to $44.2 million, or 4 percent, from late 2015. Other operating revenue slid to $6.7 million, a drop of 4.4 percent from a year earlier.

The casino's revenues also took a nearly $500,000 hit in the fourth quarter because of a spike in payouts to sports bettors. The "hold," or percentage won by the casino from Delaware's sports lottery, has been between 20 and 30 percent per quarter since the state legalized parlay betting on NFL games in 2009. During the fourth quarter, the hold fell to about 4 percent.

"It's something that's hit the entire industry due to the favorites winning more often than not or at least covering the spread," said Tim Horne, Dover Down's senior vice president of finance. "It's just been one of those years."

The Dover Downs stock price fell 3 cents after a conference call with investors Thursday to $1.03 but closed at $1.05. That's down from a 2016 high of $1.19 recorded in late October but still up from a low that year of 84 cents recorded in mid-January.

Contact business reporter Scott Goss at (302) 324-2281, sgoss@delawareonline.com or on Twitter @ScottGossDel.