Instant Racing machine at Oaklawn Park.

Instant Racing machine at Oaklawn Park.

File Photo

Instant Racing Called 'Competitive' Product

Kentucky's horse industry may have to decide if Instant Racing is worth a shot.

An executive with RaceTech, the company that produces Instant Racing machines, said the product has held up well against electronic games of skill at Oaklawn Park in Arkansas.

Instant Racing machines are pari-mutuel in nature because the outcome of the games is based on previously-run races, but they closely resemble video lottery terminals. On March 11, a Kentucky Senate committee passed legislation authorizing Instant Racing at racetracks as part of an aid package for the horse industry.

Thus far, it appears the measure has a good chance to pass the Senate, which could take it up March 16. It has bipartisan support.

RaceTech vice president Louis Cella, whose family operates Oaklawn, said that since early 2009, when electronic games of skill such as video poker and blackjack were added to the mix at the Hot Springs racetrack, handle on Instant Racing increased. Electronic games of skill are more akin to VLTs.

“Instant Racing is a very competitive product to traditional electronic games of skill,” Cella said.

Oaklawn had the same number of Instant Racing terminals—354—for three years. With the introduction of the skill games, the track needed more space and built a gaming wing adjacent to the clubhouse that opened earlier this year.

Oaklawn now has 400 Instant Racing terminals and 400 skill games, but it “could grow north of that,” said Cella, who noted Hot Springs has a population of about 35,000.

The Kentucky legislation would set the minimum amount that can be paid to players at 81.5% of every dollar, or about the same as a pari-mutuel wager on a horse race. Oaklawn, however, keeps the return more along the lines of traditional VLTs or slot machines.

Oaklawn’s takeout rate in 2009 was 8.71%, which means about 91% of the money bet was returned to players. Casinos often tinker with the payback percentage to maximize the amount of money bet.

Cella said that last year, Instant Racing handled $242.9 million, which produced a “commission” of $21.1 million. Under a contract with the Arkansas Horsemen’s Benevolent and Protective Association, purses earned 15% of the commission, or $3.17 million.

“That has been consistent for the last several years,” Cella said.

Instant Racing handle was $225 million in 2007 and $228 million in 2008.

Cella said RaceTech hasn’t prepared revenue projections for the Kentucky market. He acknowledged Oaklawn is in a smaller market removed from immediate competition from casinos, but said markets such as Lexington, Louisville, and Northern Kentucky could at least produce similar numbers.

“We’ll let the economists figure that out,” he said.

Kentucky racing representatives have pushed for racetrack gaming for years, but have been hesitant to embrace Instant Racing for fear it won’t be able to compete with traditional gaming machines and table games at nearby casinos. They’ve said, however, they’re open to proposals that could generate revenue for the industry.

Because Instant Racing would be governed by pari-mutuel statute and overseen by the Kentucky Horse Racing Commission, there could be an opportunity to link Kentucky machines with those in Arkansas. When Instant Racing was launched about 10 years ago, officials said the goal was to link machines from state to state in an attempt to create jackpots—similar to a pari-mutuel carryovers available through interstate simulcasts.

“It would be tremendous, just like in racing when we have a pick six (carryover),” Cella said.

There hasn’t been opportunity for that, as Instant Racing machines only operate at Oaklawn Park and Southland Greyhound Park in Arkansas.

The Kentucky bill allows tracks and horsemen to negotiate their percentages of the Instant Racing commission. Cella said 15% for purses has worked well at Oaklawn because it “gives horsemen a tremendous boost and gives the track a boost to put on the show.”

In Kentucky, Instant Racing revenue would have the most impact on tracks with smaller purses.

If Turfway Park, for instance, were to handle $200 million a year through Instant Racing and produce a commission of $20 million, a 50/50 split with horsemen would generate $10 million for the track and $10 million for horsemen. In all of 2009, Turfway paid $12.9 million in purses, meaning purses would almost double.

Even if the split was 75% for the track and 25% for horsemen, purses would still increase $5 million a year, or 38%, using the $200 million figure.

If Churchill Downs did similar numbers with Instant Racing under the same 50/50 commission formula, purses would grow about 33% (from $29.5 million in 2009 to $39.5 million).

The tracks would have to fund construction of facilities to house the machines and related amenities. Cella said Oaklawn negotiated the 15% horsemen's share, which is consistent with the percentage of revenue paid to purses from VLTs and slot machines in other states.

Generally, tracks get a much larger share of the commission because they have to construct facilities and purchase machines.

Legislators said March 11 they understand Instant Racing won’t produce the revenue generated from VLTs or slots, but indicated the bill, sponsored by Republican Sen. Damon Thayer, is “passable” in both Houses.

“It’s immediate and sustainable assistance for the horse industry,” Thayer said.

The measure mandates 1.5% of Instant Racing handle to the Kentucky Thoroughbred Development Fund and Kentucky Standardbred Development Fund. The state would receive no revenue from Instant Racing under the bill, which could be altered should it make its way through the legislative process.