Q&A with Ed Sutor, CEO of Dover Downs
Delaware casinos are banking on new legislation to keep them prosperous.
Under existing law, casinos keep around 38 percent of their revenue. The rest goes to horsemen, slot vendors and the state. Coupled with a crowded market, this puts strains on Delaware’s gaming industry.
In January, Sen. Brian Bushweller (D-Dover) introduced Senate Bill 183, proposing a lower rate for table game annual fees and taxes. The bill includes incentives for capital expenditures and marketing.
Dover Downs Hotel & Casino reported a $400,000 increase in revenue for the fourth quarter in 2015, though this was largely as a result of a NASCAR race that fell into the fourth quarter – instead of the third, as in previous years.
The business model for Delaware’s most prominent casino, Dover Downs, won’t be enough to sustain it, said Ed Sutor, president/chief executive officer of Dover Downs, and Video Lottery Advisory Council chairman.
BY THE NUMBERS
♦ $2.2 billion Delaware Lottery contribution to general fund
♦ 6,000 video lottery machinesgovernment taxes and fees
♦ 4,000 employees in gambling industry
Q What needs to happen for 2016 to be a successful year for Delaware gaming?
A [On Jan. 29] there was a bill introduced, yet again, in the senate: Senate Bill 183. It was introduced by Sen. Bushweller, [but] it has virtually every Kent County legislator as a sponsor.
If they want to keep 4,000 jobs, then it’s very important that they give us relief [from the existing fee and tax structure]. If we get no relief, there will be more than 72 jobs lost next year at Dover Downs. A lot more will be laid off. Is that what the state wants?
It’s all because of the competition that’s opening up in Maryland this year. The year after that, there will be a new casino in Philadelphia. Each time a casino opens, it takes money away from the existing ones.
Q Is SB 183 more attractive than SB 30, which was shelved last year?
A SB 30 was over a shorter time period. It was $46 million over a couple of years. That scares some legislators. Now [with SB 183], we’re spreading it not over two years, but over four years. What’s $39 million divided by four? That’s almost $10 million a year. That’s a lot less than $20 million a year. We spread it out over a longer period so it’s not as much of a difficulty for the state to swallow.
Q What will you do to get SB 183 passed?
A The same thing we’ve always done: we talk to legislators and we tell them our case. We tell them why we think it’s fair and we convince them, to the best of our ability, that it’s in their best interest. They count on $160 million a year or more coming from the industry to balance their budget. If they don’t do something, that number is going down. If they give us the relief we’re looking for in our table games, our table game revenue is going up. And guess who gets the lion’s share of the revenue? They do. So they’re our partner.
Q What’s in the bill, specifically?
A It calls for a reduction of the amount that is going to the state from the video lotteries. It’s multifaceted. Right now we have the highest table game tax rate in the whole country. It’s close to 30 percent. Atlantic City is 8 percent, Maryland is 20 percent and Pennsylvania is 12 percent.
How come we have 30 percent? Because they just set it too high. Part of it is reducing it down in steps, from 29.4 down to 20 and then eventually down to 15. Also, [SB 183] asks for something I’ve mentioned before: other casinos from other states get credits to encourage them to do capital expenditures and marketing initiatives.
If we have funds to do some additional capital expenditures or additional marketing programs, that would drive up revenue. Both the state and us would be successful. In fact, the state would get more than we would. The total amount [proposed in the bill] is like $39 million, but not all in one year. It’d be spread out over four years.
Q Can you elaborate on where the $39 million will come from?
A The annual table game licensing fee is $3 million a year. That would be eliminated. The table game tax rate would go down in stages from 29.4 to 20 percent, down to 15 percent – over several years.
The state only shares in 75 percent of the vendor fees. They would share 100 percent with us. Then they would do a 2.5 percent credit for marketing that eventually goes to 5 percent. Then a 2.5 percent of revenue credit for capital expenditures will eventually go to 5 percent. If you did the math on all of that over four years, it’d be $39 million.
Q How has Dover Downs tried to attract new guests?
A We’ve had very limited ability to do that. Unfortunately, we continue to lose customers. I wish I could tell you something dramatic that we did. But if we did that, our revenue would be going up instead of going down.
We don’t have the capital dollars or the marketing dollars to do something dramatic to grow our revenue. When you’re losing money and the bank is screaming at you that they want... they don’t give us a longtime mortgage like you get on your house for 30 years. They give us one year. If we don’t pay that loan fast enough, there’s an axe hanging over our head.