Ocean Downs slots fall short of predicted windfall
Despite raking in record receipts last year, the Casino at Ocean Downs has provided nowhere near the payoff that analysts predicted when it was approved, revenue reports show. The result: a perennial shortfall in tax proceeds designated for efforts such as shoring up crumbling roads and fighting crime.
Meanwhile, the casino has managed to hire barely half of the workforce envisioned before it opened.
The Maryland Video Lottery Facility Location Commission unanimously gave the go-ahead in September 2009 for Ocean Downs to build a casino with 800 slot machines. The facility opened 16 months later.
By all accounts, the commission's decision was paved by a Department of Legislative Services report that predicted sunny fortunes for the casino. It suggested that by 2013, its first “stabilized” year, Ocean Downs would glean $97 million, returning $65 million of that total to state and local government purses.
By 2015, two years after that landmark year, Ocean Downs was only making $56 million, turning over about $27 million in taxes and fees.
“I think we were hoodwinked," said Nancy Howard, a former Ocean City councilwoman and a longtime opponent of bringing slots to Worcester County. "The man who owns the casino sold them a bill of goods."
That man — William Rickman of Rockville — didn't return messages seeking comment for this story. Joseph Cavilla, the casino's general manager, declined to discuss the business' financial performance, citing company policy.
But he said he is happy with the progress Ocean Downs has made toward becoming a viable year-round enterprise in the boom-and-bust seasonal economy of Worcester County.
"One of Ocean Downs’ strategic goals was to establish itself as a valuable and contributing member of the local business community," he said in an email. “We firmly believe that we benefit from our location in the Ocean City/Berlin resort community and work towards bringing additional visitors to the area, specifically in the off season.”
For its part, the county's business and political community, which was once deeply skeptical of the casino's benefits, has largely come to embrace its neighbor.
“Our angst was real. It ran really high. The community was unified in opposition," said state Sen. Jim Mathias, who voted against one of the bills in 2007 that cleared the way for the legalization of slots in Maryland. "However, there was still a very strong interest among many in state government to move this forward because of the revenue and the certainty this could be done with great responsibility.”
By 2012, he was a changed man. A year after Ocean Downs opened, he voted to legalize table games and for an expansion to a sixth casino to be built in Prince George's County.
“I witnessed at how well the build-out had occurred, how well it had been managed and overseen by the lottery commission," Mathias said. “Mr. Rickman has done an excellent job. They came and they created jobs. They created capital investment.”
Last year, the 800-slot facility set a new record of nearly $56 million in revenue, an 8 percent increase over the previous year. And this year's $21.9 million in proceeds collected through May is on pace to surpass that mark.
For all its financial success, Worcester County is getting nowhere near the boost it was promised when it went all-in on gambling.
Wrong projections
Forecasting a casino's future returns is an inexact science, said David Schwartz, director of the Center for Gaming Research at the University of Nevada Las Vegas.
“Sometimes they’re fairly accurate. Sometimes they’re not," he said.
For example, while state analysts overestimated Ocean Downs' revenue, they underestimated how well Maryland Live in Anne Arundel County would be performing. It reaped $629 million in 2015, well above the $500 million analysts expected for 2016.
“I’ve certainly seen lots of casino projections over the years," said Gordon Medenica, the state's lottery director. "Depending on who’s doing the projections and what they’re trying to sell, you can get markedly different results.”
Legislative Services staff based their projections on a variety of factors, including player behavior in other markets and the expected level of spending by residents living in certain geographic zones around the facility.
It results in a complicated formula. Here are a few sample lines from their public presentation: "Under normal circumstances, trip expenditure and distance traveled are positively correlated, such that a visitor who resides farther from the gaming facility may be expected to visit less frequently but stay for a longer period and spend more each visit than another visitor who resides closer to the facility."
Schwartz said his experience has shown that a simpler method tends to produce more accurate revenue estimates: simply multiplying the number of machines by the average revenue generated by each terminal at the nearest casino.
Ocean Downs' slots are pulling down $191 a day on average; the state average is $227.
The 2009 staff report predicted a typical daily return of $332 at Ocean Downs.
The report also suggested the casino would have 400 employees; the actual figure is closer to 230. For their part, Ocean Downs representatives put the number of projected jobs at 200 during public presentations before the casino's opening.
Legislative Services officials couldn't be reached for comment. But Medenica said the report merely represents the best guess analysts could make at the time, and it's no surprise the figures have become outdated.
"I’m not sure anyone is looking at those old projections any more," he said. “I think that’s all water under the bridge.”
Not for Howard and other critics, even if they had mostly laid low in recent years.
"Nobody talks about it," Howard said. "You’re the first person to ask me about it in years."
Casino's image evolves
In Worcester, the opposition to slots was once impermeable.
The Ocean City Chamber of Commerce worried that the casino would siphon away business from the resort's restaurants and entertainment industry. Mark Leiner, then the chamber's president, called gambling a "scourge" that would have a "negative effect" on the town, according to Daily Times reports at the time.
Leiner, president of The Bonfire restaurant, declined to comment for this story.
Cavilla is now among the chamber's board of directors, according to the organization's website.
"The chamber is very supportive of the casino now," said Executive Director Melanie Pursel.
Seven years ago, Howard was one of the main speakers at an anti-slots rally on the Boardwalk. She blasted Maryland lawmakers for promoting gambling as a way to bridge the gap in the state's budget and raised concern about the effect slots would have on the community's morals.
Although she has made two uneventful visits to the casino since it opened, her views haven't changed.
“I still think they’re not good for a civilization — period," Howard said. “As years go on, I think there will be repercussions.”
She also criticizes the casino for its successful lobbying campaign to raise the amount of revenue it can keep for its own pocket from 33 percent to 43 percent.
"We keep giving them a bigger cut. If the state had wanted to do it, the state should have done it and gotten all the proceeds," she said.
If the company had a policy against publicly discussing financial matters at the time, Rickman didn't follow it. He needed a bigger cut because the casino was losing money, he said, according to this newspaper's archives. He declined to offer exact figures.
In 2012, lawmakers voted to allow table games at the state's casinos. Ocean Downs has added electronic versions of the games, but it is the only facility in the state without live gaming.
Edward Lee, then the president of the Worcester County NAACP, also participated in the Boardwalk rally. He maintains that the swollen revenue projections were a "flimflam" intended to win locals over.
“It’s akin to what people in Britain were told on the lower end of the spectrum" ahead of the recent Brexit vote, Lee said. "'When you vote this way, we’ll do this for you.' And the day after, what do they say? 'Oh, we didn’t mean that.' I’m not surprised at all.”
"Better than nothing"
Cheryl Jacobs has another way of looking at the gulf between the projections and the economic reality.
"It’s certainly better than nothing," said Jacobs, vice president of the Ocean Pines Association.
Many residents in the community had balked at the casino's plans, envisioning years of traffic gridlock on their main entryway, Route 589. Those visions have not come to fruition, Jacobs said.
The facility has returned more than $13 million in tax revenue to Worcester and local towns, according to the county. By law, the county gets the largest share, followed by Ocean City, Berlin and Ocean Pines.
Ocean Pines and Ocean City have spent the money primarily on road projects while Berlin has put its money toward land for a new police station.
The extra revenue has been a nice perk, said Ocean City Mayor Rick Meehan. He has transformed from being a critic to a supporter, he said.
“I think where we stand today, it’s been mutually compatible," Meehan said. "We haven’t seen the ill effects from the social component of the facility.”
Concerns that the casino would steal the town's visitors simply didn't pan out, he added. Lawmakers wrote into the law creating the casino a prohibition on dancing, live music and live entertainment at the facility. It even specifies a limit on the number of live piano players it can have: one.
“We went to great lengths to protect Ocean City," Mathias said.
Ocean Downs had proposed adding a bowling alley and movie theater complex to its grounds a few years ago, but those plans have been put on hold in favor of an ongoing expansion of the main building, Cavilla said. The casino will reevaluate the entertainment complex at a later date.
As for crime, that, too, has been a non-issue, community leaders say. From 2011-2014, the casino reported an average of 90 criminal incident per year. That equates to a rate of a crime occurring once every four days.
The casino strives to provide a safe and inviting entertainment facility, Cavilla said. "We have made significant investments in personnel, equipment and maintain cooperative relationships with local law enforcement agencies to ensure that we maintain that environment."
Gambling on the future
As a newer entrant in the casino entry, Maryland has managed to avoid the downturn suffered at casinos in Atlantic City and elsewhere in the Northeast, Medenica said. It seems to be far enough from the casino-congested areas, and it has benefited from Virginia's resistance toward the industry, he added.
The state's sixth casino, the MGM National Harbor, is expected to open by the end of the year. While it will almost certainly take a chunk of earnings from other casinos on the western shore, Ocean Downs should be spared the effects, Medenica and Cavilla agree.
Mathias said he isn't bothered that the 2009 estimates didn't pan out.
“I think those projections were done earnestly, and the world has changed a couple times since then and the world will continue to change," he said.
The Legislative Services agency has acknowledged as much.
It issued a report 10 months after the casino opened noting that Ocean Downs had missed its revenue projections by about half. Analysts revised their estimates to range from $46 million to $50 million a year through fiscal 2016.
Those numbers proved to be just about right on the money.
Casino's leadership leaves several questions unanswered
When the Casino at Ocean Downs was lobbying state officials for a larger slice of revenue after its first year in business, owner William Rickman maintained that the facility was running in the red.
That was the last time the casino's representatives publicly discussed its financial health.
The Maryland Lottery and Gaming Control Commission reports revenue figures for each of the state's five casinos every month. But the statistics don't include expenses. Since Rickman's company, Ocean Enterprise 589, is privately owned and operated, its balance sheet isn't a public record.
Rickman declined through casino General Manager Joseph Cavilla to discuss financial matters for this story.
"As a matter of company policy, Ocean Downs does not comment or discuss financial performance beyond the revenue information available on the MLGCA website," Cavilla said in an email.
Cavilla declined to respond to questions unless they were submitted in writing. The Times sent him questions and he responded about 24 hours later. Here's what he left unanswered:
- In 2009, at the time the gaming location was being considered, Maryland Department of Legislative Services staff estimated that an 800-slot facility would be generating 400 jobs, $96 million in revenue and $65 million in taxes by 2013. As of 2015, those numbers were actually 237 jobs, $56 million in revenue and $27 million in taxes. Why hasn’t the casino met those revenue projections yet?
- Specifically, could you address the difference between having 237 jobs instead of 400?
- The tax money falls short, in part, because of the increase in the share kept by the casino from the original 33 percent to 43 percent. Has the current percentage proved to be sustainable? Do you plan on seeking any changes to that amount?
- Publicly available data only address the revenue side, not the expenses. So, are you all turning a profit? What’s was the net income for 2015?
- How did the casino reach the record annual revenue of $55 million last year? I’m curious to hear what kind of market factors have led to the success.
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