Jonathan Starkey, and Jon Offredo

Dover Downs stock price%3A 2006%3A %2419.64%3B 2014%3A 72 cents

Slots tax rate 1994%3A 12.5%25-30%25%3B 2014%3A 43.5%25

Debt%3A %2442 million

Contribution to state budget%3A 2014%3A %2474.2 million

Dover Downs has serious problems:

• Regional casino competition has more than doubled in recent years.

• Banks demanded the casino's mortgage as collateral when executives recently refinanced $42 million in debt.

• Its stock price, which once stood at $19.64, closed at a record low of 72 cents this week, making it more difficult for casino leaders to raise capital.

• Its tax burden is the largest in the region at 43.5 percent.

After spending $283 million to build and later expand the casino over the past 18 years, its owners say they are fighting for their lives. And its fate has a direct impact on central Delaware and state taxpayers.

Dover Downs contributed $74.2 million to the state budget last year, helping foot the bill for public education, public employee salaries and health care.

It is among Dover's largest taxpayers and electric customers and is one of its most significant employers, cutting checks to more than 1,500 workers. About 300 additional employees work at the casino but are employed by subcontractors, such as custodians.

"They are a huge pillar to our local economy," said Dover City Manager Scott Koenig. "If Dover Downs were to go away, it would take significant growth to just fill that hole."

That growth would not come overnight, he added.

Could Dover Downs go the way of Atlantic City, where four casinos have gone dark in the last year, with a fifth, Trump Taj Mahal, possibly closing its doors on Dec. 12?

It's possible.

The company lost $190,000 in the nine months ending Sept. 30. Since 2007, the casino's slot-machine revenue has tanked, falling from $215 million in 2007 to $138 million in the fiscal year ending June 30, a 35 percent drop.

In September, when Dover Downs refinanced $42 million in debt to pay for a casino expansion to attract customers, banks demanded the casino's mortgage and security interest on other company property as collateral.

The company, which operates separately from the publicly traded company that manages the NASCAR racetrack and the fields leased for the Firefly Music Festival, is facing even more issues that could make it difficult to raise money going forward.

Company executives were told on Oct. 28 that they had six months to get the company's average share price above $1 or face delisting from the New York Stock Exchange.

"There was a time when you could say that all casinos were cash cows, but those times are long gone," Denis McGlynn, chief executive of Dover Downs, said during an interview at his office this week. "Look at what's going on in Atlantic City."

Workers at Dover Downs, who saw their pension plans frozen in 2011 and have been asked to contribute more to their health insurance costs, worry what's next.

There are about 806 full-time workers in Dover Downs hotel and casino and an additional 974 working part-time schedules.

"You see the others [casinos] closing and you just wonder, 'OK, are we going to be next?' " said Pertrina Jett, 53, a former social worker who now works as a slots ambassador at Dover Downs. "I try to keep a positive attitude."

Koenig said that Dover Downs' closing would be a huge setback for the city from a business perspective but "also from a psychological perspective."

"While it might not be the auto industry for us, if one of the automakers went under, that would be a similar impact," Koenig said.

Doorman Ricky McCausland, who's worked at Dover Downs 12 years, said he is seeing fewer guests because of competition from Maryland, including the Maryland Live! casino in Hanover, Maryland, which opened in 2012.

"I just have to hope that we keep offering something people want to come see," said McCausland, who has two daughters, ages 9 and 5. "I know I'm doing my part. I'm trying to offer people as friendly customer service as possible. I just got to hope that everyone else is on the same page.

"It can be a little nerve-wracking."

Delaware reliant on casino revenue

In recent years, casino executives from Dover Downs, Delaware Park and Harrington Raceway & Casino have morphed into something like lobbyists.

From January to June, when the Delaware Legislature is in session, they are frequent occupants of Legislative Hall, where they've pressured lawmakers in attempts to roll back taxes on casinos or offer other types of financial relief.

In 2009, Gov. Markell and lawmakers raised the tax on slot-machine play – minus winnings – from 37 percent to 43.5 percent to help cope with an $800 million budget shortfall. That amounted to a 17.6 percent increase.

An additional 10 percent cut of slot winnings goes to fund horse racing purses.

The taxes are far higher than when the General Assembly authorized slot machines in 1994 to help buoy the state's horse racing industry. Then, the state implemented a tiered tax structure that began at 12.5 percent and did not exceed 30 percent.

Here's the hard truth for casinos and state officials: Delaware has become over-reliant on gambling taxes.

Gaming revenue, including lottery proceeds, accounts for about 6 percent of the annual budget.

The state's three casinos generate more state tax revenue than all of the state income tax paid by corporations operating in Delaware. And it rivals the amount generated by Delaware's gross receipts tax, sometimes called the state's hidden sales tax.

Given the casinos' impact on Delaware's budget, helping Dover Downs should be a no-brainer for state officials, says Michele Rollins, whose family trust owns more than 5 million shares of its stock. Rollins' late husband, John, is a former Delaware lieutenant governor, prominent Republican donor and businessman.

"Where does this administration go when they want to find a business that will bring 1,500 jobs?" Rollins said in an interview last week. "They will go to China, they'll go to the end of the earth. But I hope they'll take a serious look at what they have under their nose and help us."

Lawmakers have responded somewhat to the pleas for help. But they've stopped short of lowering taxes, perhaps because they've developed a dependence on gambling proceeds. The state last year used almost $215 million in gaming revenue to pay its bills, including more than $62 million in gambling revenue from Dover Downs alone.

In 2013, the state's capital budget included an $8 million appropriation to the Delaware Department of Finance to cover costs to lease slot machines and other equipment in all three of Delaware's casinos, expenses typically covered by the casino operators.

In June, lawmakers earmarked an additional $9.9 million to help casinos pay their vendors. General Assembly budget-writers pulled the money from an economic development fund and used $5 million in unspent casino relief from the previous year.

Long-term solution needed

But casinos have their doubters in the General Assembly. Some lawmakers called the $13 million set aside in the past two years a "bailout" for casinos, which they believe should be able to make money on their own.

Only three businesses have state licenses to operate casinos in the state – Delaware Park, Dover Downs and Harrington Raceway & Casino.

Those wary of the casino requests say the licenses provide protection from competition and should insulate them against failure.

"You've got to know how to make it, or not make it, under the rules you're dealing with," said Alan Levin, former chief executive of the Happy Harry's pharmacy chain who has worked as Gov. Jack Markell's economic development director since 2009.

Levin said the year-after-year return of casinos to Legislative Hall has to end. Lawmakers and industry officials must sit down and hash out a long-term deal, with every option on the table.

"Quite frankly, if they can't make it, then we have to look at the other options that are out there," he said.

House Majority Leader Valerie Longhurst, a powerful Delaware City Democrat, is not exactly sympathetic to Delaware's casinos, either.

"The discussion needs to be, 'What do we do if one of the casinos closes?' " Longhurst said. "Because maybe their business plan isn't where it needs to be with the challenges that are being faced."

New casinos popping up

Perhaps the biggest problem for Delaware's casinos is regional competition.

In 1996, there were 14 casinos in Dover Downs' market. That included casinos in Atlantic City and West Virginia.

Add casino development in Pennsylvania and Maryland, and there will soon be 30 casinos in the region.

"Casinos still have a problem because of oversupply, not only next door, but in adjacent jurisdictions, which wreaks havoc on everybody," said Keith Foley, a gaming analyst at Moody's in New York. "This whole competition thing is relatively new to them. And you're competing with one hand behind your back. You can't just pick up and go somewhere else."

Two more regional casinos are on the way. MGM Resorts is building a $925 million casino complex at the National Harbor in Prince George's County, Maryland.

And just this week, the Pennsylvania Gaming Control Board approved a $425 million casino and hotel project for Philadelphia's stadium district.

Bill Fasy, president of Delaware Park, said that new casino would hurt Delaware Park "tremendously."

"If we had the kind of debt that Dover or Harrington had, you're going to be sitting there with the bankers trying to figure out how you survive," Fasy said.

Debate over new Delaware casinos

Executives in Dover sank millions into the hotel and casino to try to lure customers from out of state.

On weekends, the hotel still boasts 95 percent occupancy. But 75 percent of those rooms, on average, are given away as an incentive to lure gamblers.

Traditionally, many of those gamblers have been from Maryland.

In 2006, the percent of Dover Downs customers visiting from Maryland, measured by those enrolling in the casino's membership club, sat at 43.4 percent, according to company data. The loyal Maryland customer base is now 30.1 percent.

"Gamblers are going to go where it's convenient, unless you're really offering something different," said Mark Nichols, an economics professor and gaming expert at the University of Nevada, Reno. "If Dover can do that, it's a good model. If they can't, and I would question whether they can, it's not really a good model."

Now, even more casinos are popping up in the backyards of Dover Downs' customers.

"From day one, the region was populated with 10 or 11 casinos over in Atlantic City, three in Delaware and one in West Virginia. That's basically the primary market for our four-hour drive," McGlynn said. "Now, all of a sudden, there are 28 of them."

Gene Lankford says there's an obvious solution for the state: issue licenses to new casinos. Lankford co-founded the coastal real estate agency Ocean Atlantic and owns the Atlantic Sands hotel on Baltimore Avenue in Rehoboth.

He was a principal behind a resort casino proposal in Millsboro, called Del Pointe, that never got off the ground when the General Assembly failed to approve legislation that would have allowed new casinos.

Licensing a new casino near the state's premier tourist destination, its beaches, should be an obvious move, Lankford said.

"They're still trying to nurse along those three casinos they've got," said Lankford, who is still committed to the project. "And the casinos, instead of trying to improve their business model, they keep going back with their hat in their hand. It's never going to work; it's going to slowly die."

Bill Rickman, owner and chief executive at Delaware Park, doesn't think that's a winning strategy.

"You can't turn everyone in the state of Delaware into a gambler to build up our tax base," he said.

Committee tackles casino problem

Fear of industry competition has not stopped other states from issuing new casino licenses.

In approving the stadium-district casino in Philadelphia last week, the Pennsylvania Gaming Control Board said that "competition is not a negative factor," and that some revenue reductions in another Philadelphia casino, nearby SugarHouse, were not enough to outweigh the potential benefits to the state.

Ahead of a new General Assembly session that begins in January, a committee of Delaware officials and lawmakers continues to discuss a longer-term solution to Delaware's casino problem. That discussion does not appear to include issuing licenses to new casino operators.

Casino executives want a return to a tiered tax structure, where lower amounts of gambling revenue would be taxed at lower rates. They also have pressed the state for tax credits on marketing and capital expenses.

Dover Downs wanted tax credits on the cost of hotel rooms given away to lure gamblers to Dover, McGlynn said. But the idea was jettisoned by other casino executives at Delaware Park and Harrington who don't operate hotels.

The question is whether Delaware is too reliant on casino revenue.

"If we're the business-friendly state we represent ourselves to be, I would be afraid to have that out in the public dialogue," McGlynn said. "The message that that sends to anybody that comes to this state and is successful is that we're going to tax you into break even and expect you to stay."

"That's a backwards way to approach economic development," he said.

Contact Jonathan Starkey at 983-6756, on Twitter @jwstarkey or at jstarkey@delawareonline.com. Contact Jon Offredo at 678-4271, on Twitter @jonoffredo or at joffredo@delawareonline.com.

DOVER DOWNS

Stock price:

• 2006: $19.64

• 2014: $0.72

Slots tax rate:

• 1994: 12.5%-30%

• 2014: 43.5%

Cost:

$283 million (includes expansion)

Debt:

$42 million

Contribution to state budget:

2014: $74.2 million