Still looking the other way on video gambling

Many weekday mornings I pass a pizza joint in Hampden with only one customer inside. Through the window I can see a scruffy-looking man shoving dollar bills into a video gambling machine.

These machines are licensed by the city as if they are ‘amusement devices’ or games of skill. But there is no skill to these machines— only chance. These are slot machines without slots.

Players randomly push buttons, earning points valued at five cents each; a score of 800 will bring a $40 payout. Instead of money coming out of a slot, winners are paid by bartenders or store clerks.

Any vice detective in Baltimore City or Baltimore County, or an FBI gambling expert, or even the clerks in the Wolman Municipal Building who take the licensing fees from vending company owners for these “amusement devices,” can tell you that these machines are used for illegal gambling that is part of a multimillion-dollar underground economy that has existed for decades.

I used to wonder why the city and county had so many bars. Could Baltimoreans be drinking that much beer, I wondered. But then I met Charlie Wilhelm, who enlightened me.

For years Wilhelm ran a lucrative crime ring as a loan shark, bookmaker, and drug dealer. In the early 1990s he also ran a Dundalk bar called Joe’s Tavern with several video gambling machines. In one eight-hour shift, Wilhelm told me, they could bring in $5,000 to $6,000, paying out about $1,000 to winners.

Wilhelm and his thieving friends were on the honor system to report their income to the IRS and the Maryland Comptroller. Forget the beer. They were running a mini-slots parlor, fronting as a bar— virtually tax-free.

Wilhelm later worked undercover for the FBI, turned his life around and became a carpenter. After I co-authored his memoir, I began studying video gambling machines for the Abell Foundation.

In 2005 I counted nearly 3,500 video gambling machines licensed in the city and county (more than the number of legal slots at Dover Downs) and estimated they brought in between $91 million and $181 million a year. With the help of law enforcement gambling experts I also concluded that millions in taxes were being lost because the machines owners were underreporting their income.

Since then, not much has happened in the way of enforcement. The city and county continue to ignore their own vice squads and license the machines as if they are games. Maryland Comptroller Peter Franchot has tried to crack down on the untaxed industry, but his auditors have difficulty scrutinizing income from the machines.

Consider the two-tiered system that might result if the November slots referendum passes, allowing the state to build five slots facilities, including one in Baltimore City, possibly in South Baltimore behind the football stadium:
• Legal slots: Slot machines would be owned or leased by the state, just like Maryland’s lottery machines, with income from each machine tracked by state computers linked directly to each machine. Otherwise, if the state allows privately owned machines the operators would be cleared through criminal records checks, with the state having full computerized access to each dollar fed into a slot machine. Legal agreements would be signed between the state and slots operators to ensure the state gets its cut.

• Illegal slots: Video gambling machines are owned, in many cases, by convicted felons and, naturally, tax evaders. (One stole $3.5 million from city schools and the public works department.) Only they have keys to the machines to empty cash, which they share with bar owners. Often a vending company owner keeps the bar owners on a short leash by advancing a loan to purchase the bar. The loan must be repaid with proceeds from the machines. It’s a vicious cycle.

Occasionally an undercover vice detective (who’s not busy enforcing prostitution and public urination laws) might catch an illegal payout. But charges are usually shelved with the help of shrewd lawyers who know the drill by heart.

So, who’s minding the store? Obviously not city and county governments, or the state legislature, which made an attempt during the recent General Assembly to outlaw the video gambling machines but exempted Baltimore and Baltimore County from the ban.

With business as usual, let’s imagine the gambling scenario, come November, if Maryland voters pass a referendum.

That scruffy man in Hampden will now have a choice: He can stay in Hampden and gamble early in the morning at his pizza parlor, which he can probably walk to from his home. Or he can find his way downtown to play the legal slots.

All over Baltimore, in dozens of neighborhoods, gamblers will have that choice, too. Ironically, if the city builds a slots facility south of downtown, it will be in close proximity to the city’s highest concentration of bars—surrounding the Inner Harbor—many of them sporting video gambling machines.

So the competition will be close by. And what if state officials don’t reap the hefty income from the new slot machines they expect? They can just blame the competition. {EXA}

Joan Jacobson is a freelance writer based in Baltimore.