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Horseshoe Casino will pay only $4 million in lease revenues this year

City originally expected $14 million in 2015 revenues from the ground lease of the Russell Street facility

Above: Mayor Rawlings-Blake greets casino investors in October 2012 shortly before she signed the ground-lease revenue agreement. Seated at center is Horseshoe general manager Chad Barnhill.

More disappointing news from the Horseshoe Baltimore Casino.

Ground-lease revenues from the casino will amount to $4 million in the current budget year – far below the $14 million anticipated by the Rawlings-Blake administration.

The lowered number, revealed yesterday by budget director Andrew W. Kleine at a City Hall budget hearing, means that nearly $10 million in Horseshoe revenues the city had counted on in its 2015 budget will not materialize.

This deficit comes on top of lower community impact funds that are paid to offset the negative impacts of gambling on South Baltimore communities.

In both cases, Horseshoe’s failure to attract large crowds to its Russell Street facility has left the city bereft of revenues it had gambled on – and offered to voters as proof that the casino would be a major moneymaker.

The city had been confident that it would greatly exceed the $8 million minimal ground-lease payment by sharing 2.99% of the casino’s gross gaming revenues.

But Horseshoe’s poor performance since it opened has dashed those hopes, making the $8 million minimal payment the best the city can expect.

Only $4 Million for Now

Even that, though, won’t be coming to the city during this fiscal year ending on June 30, 2015, Kleine acknowledged to the City Council’s Budget and Appropriations Committee.

Although Caesars Entertainment Corp. agreed to pay the minimum $8 million in “year one” of its operation – the exact language of the contract is cited below – Kleine said that only $4 million will be paid by June 30.

Agreement between city and Caesars Entertainment (CBAC) regarding minimum ground-lease payments. (Board of Estimates)

Agreement between the city and Caesars Entertainment (CBAC) regarding minimum ground-lease payments. (Board of Estimates)

“The $8 million minimum is paid in two installments,” Kleine explained.

“Since the casino opened late [in August 2014], we only anticipate receiving one of those payments, for $4 million, within fiscal year ’15, with the second payment coming early in fiscal 2016.”

No Council Response to Shortfall

In year two, the casino is required to pay a minimum of $10 million, which will increase to $14 million in year five under the contract.

Kleine declined to say whether Horseshoe will reach that goal. “At this point, we’re a little ahead of schedule [in making a projection],” he told Kraft, adding, “Nothing has been changed very much for ’16.”

Kraft dropped his line of questioning, which took place over a few minutes near the end of the two-hour hearing.

None of the five other Council members present – Eric Costello, Edward Reisinger, Brandon Scott, Rochelle “Rikki” Spector and chairwoman Helen Holton – made any comment, or expressed any concern, about the revenue shortfall at the casino.

One-Cent Property Tax Reduction

When approving the project in 2012, Mayor Stephanie Rawlings-Blake estimated that the casino would contribute a 5-cent reduction in the city property tax rate in its first year of operation. (For more: Your property taxes cut because of Horseshoe Casino? Don’t bet on it.)

At yesterday’s hearing, Kleine acknowledged that the casino is now expected to contribute only 1 cent.

“We will get at least a penny,” he told Councilman James B. Kraft. The mayor is still committed to lowering property taxes, Kleine said, but will have to look to other revenue sources to make up for the casino’s shortfall.

The reduced amount of ground-rent revenues disclosed by the budget director mirrors the drop in local community impact revenues from the casino.

The city originally estimated $15 million in revenues for year one, which was later reduced to $10 million and is now coming in at under $7 million.

The casino has been averaging only $23 million a month in gross revenues since it opened in August, about a third of what was expected.

This compares to $45-50 million a month generated by the Maryland Live Casino in Anne Arundel County.

Originally, it was believed that Horseshoe would attract customers – and drain gambling dollars – from Maryland Live. But this has not yet happened.

At the same time, the city is on the hook for a new Baltimore Police “mini-district” around the casino (which is budgeted for $1.5 million in overtime this year) and for road and steam-line improvements priced at more than $9 million.

These expenses will be borne by current and future revenues from the local community impact revenues.

Casino Drains off Amusement Taxes

In addition to generating fewer revenues than expected, Kleine said that Horseshoe has negatively impacted admissions and amusement tax revenues.

Revenues from the tax are expected to drop by $2.8 million in fiscal 2015.

“We believe this deficit has to do with the casino,” Kleine said yesterday. “The casino has diverted disposable income from other forms of entertainment. . . If people are going to a casino, they’re not going to a concert or pay or sporting event where they would be paying the admissions and amusement tax on their tickets.”

What’s more, the amusement tax revenues from video poker machines have dried up, with Keno and other poker games disappearing from bars and restaurants since the 24-hour casino opened.

“We’ve seen a lot of those machines go away. That’s casino related. . . because the casino is essentially putting them out of business,” Kleine noted.

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