Clock--or Time Bomb--Ticking in Kentucky
by Tom LaMarra
Date Posted: 1/27/2010 10:20:55 AM
Last Updated: 1/29/2010 1:58:12 PM

Turfway Park
Photo: Pat Lang

A light rain fell throughout the evening as temperatures hovered around 40 degrees—not uncommon for winter racing in Kentucky, and seemingly not a good night for business anywhere.

But they showed up, more than 4,000 of them, perhaps more for the $1 beers and hot dogs and the popular local band Doghouse than for the racing. It wasn’t your typical racetrack crowd, but the younger set had programs and pari-mutuel tickets in hand.

At post time for each race Jan. 22, 100-200 people braved the weather to watch the racing live on the apron. Seats that overlook the track from the second floor of the enclosed grandstand were mostly filled.

It was a very good night for Turfway Park, one that indicates Thoroughbred racing still has appeal in the greater Cincinnati market. A bump in on-track pari-mutuel handle and a profitable evening for food and beverage sales help the bottom line and keep people working, but don’t really help the purse account.

And that’s the problem. It was hoped cutting back to a three-day race week in January and February would generate revenue to increase purses at Turfway, but it didn’t materialize. The second condition book holds the line on purses, which have averaged about $119,000 a day so far this year.

Another development—the shutdown of full-card simulcasts at Ellis Park in western Kentucky from November 2009 through March of this year—has dented purses and Turfway’s bottom line. In Kentucky, the host track and horsemen receive 50% of the revenue from all wagers made in the state at other locations.

The situation would only get worse if other tracks or off-track betting outlets start cutting simulcast-only days. There are rumors to that effect.

As expected, some Kentucky-based trainers with better stock have shipped horses to Fair Grounds Race Course & Slots in Louisiana, Gulfstream Park in Florida, and Oaklawn Park in Arkansas, where average daily purses are almost three times those at Turfway. Purses at all three facilities benefit from revenue from alternative gaming.

But there’s more to the story. Some horsemen with more modest stock have taken to shipping to Hollywood Casino at Penn National Race Course in Pennsylvania, where purses are averaging $193,000 a day. The pot for an open $4,000 claimer is $18,000; an open $5,000 claimer at Turfway goes for $8,000.

One Thoroughbred owner who races in Kentucky and Ohio cited an example of how Kentucky-based horses are underpaid and perhaps underappreciated. A local trainer, he said, shipped to Penn National and his horse won for a $50,000 tag, only to have it return to Turfway and finish up the track for $17,500 at the next condition level.

Field size at Turfway is solid at 9.14 horses per race, but that comes at a price. Employees are working fewer days, and horsemen and jockeys have fewer opportunities to make a buck.

“I told you this time last year we’d be racing three days a week,” trainer Richard Finucane said the evening of Jan. 22 at Turfway. “We’re running 30 races a week now instead of 50 last year. It’s tough.”

Politics and the horse industry

This time last year, the Kentucky horse industry was buoyed by the prospect of action by the state General Assembly in regard to finding revenue sources for purses and breed development. By the end of June, legislation authorizing racetrack video lottery terminals had narrowly passed the House of Representatives—considered a major accomplishment—but died in a Senate committee.

The outcome led to an impromptu and raucous rally at Keeneland that seemed to re-energize horse industry representatives. A strategy driven by partisan politics, however, didn’t produce the desired results, and with almost one month in the three-month General Assembly session in the books for 2010, racetrack gaming legislation is improbable.

The rally of June 22, 2009, seems a distant memory. The horse industry, led by the Kentucky Equine Education Project, has been quiet this winter, working behind the scenes on the 2010 November election.

More than 200 candidates met the Jan. 26 filing deadline. One of them was Kentucky Horsemen’s Benevolent and Protective Association president Rick Hiles, who plans to challenge a sitting Republican from the Louisville area.

Soon after Democratic Gov. Steve Beshear on Jan. 19 offered a two-year budget plan that relies on more than $700 million in revenue from racetrack VLTs, leaders of the House and Senate dismissed the proposal. It was pronounced “dead” by Democratic House Speaker Greg Stumbo and Republican Senate President David Williams, who also indicated another major issue—broad tax reform—has little support during the current session.

It’s hardly the first time the issue of racetrack gaming in Kentucky has been declared dead, only to resurface a few weeks or months later. Complicating factors this year are a November election during which numerous legislative seats are up for grabs, and early posturing for the 2011 governor’s race.

“I always hold out hope,” Turfway president Bob Elliston said. “They were responding to (specific) questions of whether (the issue of slot machines) is dead. But the fact hasn’t changed—the horse industry in Kentucky has serious problems.

“I think most members of the legislature will say the horse industry is at a competitive disadvantage. Where we disagree is on the method of how to fix that.”

With no action on the governor’s budget plan, and no movement on legislation that would funnel racetrack VLT revenue to school improvements and construction, one bill remains on the table—unless legislators change course.

Republican Sen. Damon Thayer, instrumental in passage of various horse industry-related bills but since last year criticized by horse industry leaders because of his position on expanded gambling, said he still intends to pursue legislation calling for a constitutional amendment on VLTs in counties with racetracks.

The bill would start in the Senate Committee on State and Local Government, which Thayer chairs. Thayer insists he is hearing from horsemen and breeders that aren’t opposed to the “constitutional approach,” and that his bill “will be considered on its own merits at a time to be determined.”

On Jan. 26, Thayer confirmed the bill wouldn’t come up during a Jan. 27 committee meeting.

The measure most likely would need to be reworked to have a chance at passage. Thayer met with two racetrack officials and said he’s willing to continue the dialogue.

Track representatives have said their 25% revenue cut is insufficient for construction and operation of VLT facilities; a competitive bidding process could open the door to non-track VLT parlors that would create more pressure for racing; and provisions for local-option votes could delay or stymie the process.

Even if the measure called for tracks to get 40% of revenue with no competitive bidding, the horse industry probably won’t bite.

“If that’s the only way to get on a competitive landscape, many of us are not going to be around to see it,” Elliston said of the constitutional approach. “It’s not legally necessary, and practically it’s not the kind of assistance we need in the time frame we need it in.”

Still, Elliston said: “I don’t know what else is out there. We’re open to anything that would work.”

There has been little public discussion about the horse industry’s strategy on expanded gambling. Horsemen haven’t been openly critical, but a few said privately all options should be considered and pursued if at all possible.

It hasn’t been lost on some horsemen and breeders that Thayer’s legislation calls for 25% of VLT proceeds and half of the up-front licensing fees to go toward purses, breed development, and other programs. Elliston said the KEEP board of directors is holding its course.

“The KEEP table is broad and it is deep,” he said. “I think there is absolute unanimity at that table that we’ve handled this in an appropriate course. But I can envision someone who doesn’t know all the facts wondering if we’re on the right course.”

Instant Racing a viable option?

The Turfway president also said the industry is looking at Instant Racing machines, which resemble VLTs but are considered pari-mutuel because the results of games are based on recycled races. Democratic Attorney General Jack Conway issued an opinion saying Instant Racing would only require statutory changes in racing regulations, but there has been no further action.

The machines have helped Oaklawn in Arkansas raise purses incrementally, but Elliston and other track executives noted the Hot Springs gaming market isn’t comparable to that of Kentucky and neighboring Illinois, Indiana, Ohio, and West Virginia. They said Kentucky tracks might end up buying machines and constructing upscale gaming facilities for a product that doesn’t produce enough revenue to cover costs.

“I think it’s fair to say there’s going to be a serious evaluation of the feasibility of that product in this marketplace,” Elliston said.

Even Instant Racing, despite Conway’s ruling, faces obstacles. During a Jan. 20 Senate committee hearing, Williams mentioned the attorney general’s Instant Racing opinion, saying it “left some unanswered questions.”

The Senate president is opposed to any expansion of gambling in Kentucky.

Instant Racing has been pursued in other states with no legislative success. In Oregon, Portland Meadows installed machines then pulled the plug amid questions of legality. 

Competition for Kentucky from neighboring Ohio is coming. Voters statewide last year approved full casino gambling in the state’s four largest cities, and racetrack VLTs aren’t dead just yet.

Ohio racing industry officials recently offered two scenarios: A petition drive by racetrack VLT opponents could fall short, and Democratic Gov. Ted Strickland would have the option to authorize the Ohio Lottery to operate machines at tracks; or the petition drive will succeed, and racetrack VLTs will be on the November 2010 ballot in Ohio.

The situation in Kentucky racing is being compounded by other factors. The auction market continues to struggle; banks are pulling back on financing for horse farms and horsemen or calling in loans prematurely; and fewer mares are being bred, thus reducing the amount of boarding revenue generated by Kentucky farms.

Horsemen getting restless

Many of the year-round Kentucky horsemen participate in all aspects of the business—owning, training, and breeding. Wayne Mackey, an owner/trainer/breeder based at The Thoroughbred Center in Lexington, said it gets tougher with each passing year.

“It’s getting to be more of a struggle,” Mackey said. “I don’t understand how the legislature can be so clueless about the necessity of gaming for the horse industry in Kentucky. I just can’t understand it.

“I just hope it gets done—at this point it needs to get done as soon as it can. We need new sources of revenue immediately.”

“The governor at least put it out there in black and white,” said trainer David Pate, who is based at Turfway and races at all the Kentucky tracks. “They’re chasing everybody out of here. I like racing in Kentucky, but it’s hard to make a living (racing) three days a week. What needs to be done? That would take someone smarter than me, but we need something badly.

“All six of my kids have come up through this business. I have no desire to leave Kentucky, but it looks like we’ll be forced to, because some owners may want to race their horses elsewhere.”

Some operations have opted to split stables or regularly make trips out of town. Others have invested in horses not bred in Kentucky to take advantage of other programs.

The local poster girl is the 4-year-old filly My Sister Margaret, a West Virginia-bred that trains at Turfway under the care of Wayne Mogge. Owned by Sydney Racing LLC, some of whose partners live near Turfway, My Sister Margaret won the $450,000 West Virginia Jefferson Security Bank Cavada Breeders’ Classic at Charles Town Races & Slots in 2009.

The Bop filly banked $225,000 for her owners, who have had success with other West Virginia-breds in Charles Town stakes. The money is hard to pass up, and Mogge, who currently has a string at Gulfstream Park, isn’t averse to traveling.

My Sister Margaret has raced nine times but never has been led from her stall to the Turfway track for a race.

Managing partner Chris Brauns was born and raised in Ft. Thomas in Northern Kentucky and has a house in nearby Ft. Wright. He currently lives in Florida but keeps a close eye on Kentucky racing.

“I was born and raised in Kentucky and love the state,” Brauns said. “I travel a lot with my job, and I’m always proud to say I’m from Kentucky and am involved in the horse industry. My perfect scenario would be to buy a horse like (My Sister Margaret) and run the horse in Kentucky. But under the current structure, it just doesn’t make any sense.

“It’s sad to see what they’re letting happen there.”

From a financial standpoint, it makes little sense to run a horse not bred in Kentucky in maiden special weight and allowance events at Turfway because they compete for about half the purse. In a $21,000 maiden allowance race, such horses would run for less than $10,000.

In 2005, Sydney Racing claimed the 3-year-old gelding Bryceslittlesecret for $50,000 at Churchill Downs. Mogge took over the training and promptly sent the West Virginia-bred to Charles Town, where he won three consecutive state-bred stakes and banked more than $80,000.

“We started out with low- to mid-level investments and got involved in the claiming game,” Brauns said. “Now, it doesn’t make sense to claim a horse and wheel it right back in Kentucky. I’m a CPA by trade. I didn’t get into the racing business to analyze profit and loss, but after a few years, you realize the economics are very difficult.

“It’s simply more difficult to run in Kentucky with the other options that are out there.”

Getting harder to be positive

The mood at Turfway is surprisingly upbeat; 4,000 patrons on a chilly, damp Friday night can do wonders for a business burdened by negativity. The executive staff, often seen walking around the grandstand and talking to customers on race days, maintains the happy face.

On the evening of Jan. 22, Elliston was talking and laughing on the apron. But he offered a cautionary note on just how thin the margins are at the racetrack, and how alternative revenue sources are needed: Turfway makes more on a $1 beer than it does on a $1 wager.

With handle down on-track and throughout the state, that small share is getting smaller.

Horsemen are finding it even harder to be positive. They understand the decision to cut back on winter racing—the Kentucky HBPA agreed to do so basically to maintain some semblance of a winter meet—but are hoping it’s just a stop-gap measure.

Mackey doesn’t like the situation but indicated he’ll wait it out. “I’m all in,” he said. “I’m not going anywhere.”

Finucane, who ran two horses Jan. 22 and picked up modest checks for minor placings, probably isn’t going anywhere either, save for trips to Mountaineer Casino, Racetrack & Resort in West Virginia when the track opens March 1. But he said he’s tired of the status quo and the continued bleak outlook for progress in Kentucky.

“I won with my first starter this year,” Finucane said. “Maybe I should have quit after that.”



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