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Carlino: 'We're Not Running Public Charity'

PNGI continues to add racetracks but has no intention of losing money long-term.

Penn National Gaming Inc. believes racetrack gaming can be a major economic driver but shouldn’t be viewed as a means to increase pari-mutuel wagering on racing, company president and chief executive officer Peter Carlino said.

PNGI, which continues to add properties to its fold, is the largest racetrack operator in the United States in terms of holdings. Most of the facilities have some form of gaming.

In response to questions during a Feb. 3 teleconference on the company’s fourth-quarter and year-end earnings for 2010, Carlino said PNGI is the “proud owner” of racetracks but has an “obvious strategy” when it comes to purchasing them. Within the past year PNGI has bought or acquired an interest in tracks in Maryland, Ohio, and Texas.

“Racetracks tend to end up with slots—that’s our long-term play,” Carlino said. “Operating tracks at a loss is not in our long-term plan. We will continue to ratchet down costs—we’ll be tough and brutal about that. We’re not running a public charity.”

PNGI, which owns 49% of the Maryland Jockey Club tracks—Laurel Park and Pimlico Race Course—was in a battle with horsemen and breeders late last year over 2011 racing dates. PNGI wanted to drastically reduce live racing dates to cut costs, but industry participants sought a full schedule to maintain stability and buy time to negotiate a future course.

“We wanted to right-size the business and got a violent reaction to a sensible suggestion,” Carlino said of the Maryland battle, which ended—at least temporarily—when Democratic Gov. Martin O’Malley stepped in to facilitate an agreement that helped Laurel open on time in early January.

PNGI and MI Developments, which owns 51% of the Maryland tracks, claimed they have been losing millions of dollars a year, though some have disputed the contention. In his comments, Carlino said racetracks can’t exist without slot machines or video lottery terminals, and also suggested it is folly to think gaming will drive healthy increases in wagering on horse races.

At some tracks with slots, Carlino said, “they run the same old (horses) for two or three times as much money. It does nothing to increase handle, and nothing will change that demographic.”

He did say, however, that slots actually are a “green activity” because the revenue they produce for racing leads to growth in agriculture and related businesses, thus fueling economic growth. He said horse racing has a place in the mix.

“It’s a huge economic engine,” Carlino said. “With a straight face I can say it is not generating handle but it has helped develop a healthy business in your state. There’s a message to be shared there. Let’s see how effective it is (when lobbying for racetrack gaming).”

Despite the proliferation of racetrack gaming in the United States, most of the leading tracks by average daily purses paid and total handle each year have no gaming but run shorter meets of high quality. Other smaller tracks with gaming may pay $25 million to $35 million a year in purses but the money is spread out over 200 or more days a year.

Overall declines in handle on horse racing have been common in recent years regardless of whether tracks have gaming.