Ohio Tracks, Horsemen Must Negotiate VLT Deal

Negotiations between racetracks, horsemen expected in Ohio.

When the Ohio State Racing Commission unveiled its proposal for video lottery terminals in March, it didn’t include revenue splits for purses and breed development. The document said only 50% of VLT revenue would go to the racing industry.

“If you tell everyone they’re going to get a Cadillac, someone will complain about the color,” OSRC chairman Willie Koester said at the time.

Forget the color. Horsemen are concerned there may not be a Cadillac—or any car, for that matter. But one racetrack official said there will be a deal for purses and breed development that takes into account one of the highest state gaming tax rates in the United States.

Ohio horsemen were looking for answers after the state General Assembly July 13 passed a two-year budget that plans for $933 million in revenue from racetrack VLTs but has no language calling for the protection and improvement of horse racing. Democratic Gov. Ted Strickland’s directive authorizing the Ohio Lottery to implement VLTs sets the state tax rate at 50%, but offers no details on how the other 50% will be spent.

At the March meeting, Koester and Tom Zaino, the racing commissioner who devised the OSRC plan, wouldn’t speculate on the percentages, though Koester indicated adequate funds would be provided for purses, breed development, and numerous county fairs that host harness racing in Ohio.

The OSRC plan isn’t the one adopted by Ohio lawmakers, though there are some similarities. The commission called its plan “A Proposal to Save Ohio’s Horse Racing Industry,” but Strickland has said VLTs are being implemented to balance the budget, not help racing.

It doesn’t appear revenue for purses and breed development will be part of administrative regulations that will be adopted for gaming operations. The amount probably will be left to negotiations between racetracks, horsemen, and breeders.

In Florida, legislation authorizing racetrack slot machines didn’t include purse percentages, though it mandated a deal between tracks, horsemen, and breeders. The Ohio language doesn’t speak to that.

Ohio Horsemen’s Benevolent and Protective Association executive director Dave Basler said there is no protection for racing in the budget bill or VLT directive.

On July 14, Koester said he hopes the tracks and horsemen strike a deal that eventually puts purses at or near the level of those in neighboring Indiana, Pennsylvania, and West Virginia, where purses are fueled by gaming revenue.

“There’s going to be a Cadillac,” Koester said.

The OSRC can play a role in the process. Koester noted the commission by statute can set minimum purse levels for Thoroughbred racing and, after the statute is changed in the next few months, could do so for Standardbred racing as well.

“Negotiations will be left up to the tracks and horsemen,” Koester said. “The only power we have now is purse regulation.”

River Downs general manager Jack Hanessian said the state tax rate and per-track licensing fees of $65 million payable in five installments are issues. In addition, each track must spend $80 million on facilities the first five years, $20 million of it the first year.

“We’ve been kind of far apart on what (the horsemen) want and what we can afford to pay,” Hanessian said. “We’re going to make a deal; we want to keep the racing. A good deal hurts everybody. Nobody walks away happy. But we understand we need to make a deal.”

Earlier reports indicated the tracks were offering 4% to horsemen and breeders, but that was before the legislation passed. The legislation doesn’t say a racetrack must have horse racing to maintain its 10-year VLT license.

Thoroughbred horsemen have said 10% is a ballpark figure that’s in line with splits in other states.

Through July 13, total Thoroughbred purses paid in Ohio in 2009 were slightly more than $8 million for 174 programs at three tracks. Average daily purses at Ohio tracks are among the lowest in the nation: $39,054 at Beulah Park, $44,938 at River Downs, and $58,532 at Thistledown, according to The Jockey Club Information Systems.

Average daily purses at the state’s four harness tracks—Lebanon Raceway, Northfield Park, Raceway Park, and Scioto Downs—are even lower. Only Scioto Downs maintains a minimum purse above $2,000.

The new two-year budget relies on $933 million in VLT revenue from the state’s 50% cut. That leaves a similar amount for the seven tracks, which would pay $455 million in total licensing fees in the first two years, and at least a total of $140 million on facilities the first year.

Strickland’s directive calls for VLTs to be implemented as quickly as possible. Legislative language adopted by the General Assembly sends all legal challenges directly to the Ohio Supreme Court, something that could expedite the process.

To have VLTs operating by May 2010, racetracks will have to construct temporary facilities. Hanessian said River Downs, which figures to draw heavily from Kentucky, could build a temporary facility in a parking lot across the street from the track, or convert the mezzanine level to a gaming facility.

A permanent VLT casino could be located in the grandstand, which was built to accommodate addition of another level. River Downs, located adjacent the Ohio River, is on a flood plain.

“It caught us by surprise,” Hanessian said of Strickland’s order for VLT gaming at tracks. “Now, the state has to promulgate regulations or rules (for gaming operations).”

The OSRC plan, which was delivered to the legislature in late March, claimed the horse industry in Ohio is responsible for an economic impact of $2.185 billion a year, 37.5% of which comes from the Thoroughbred and Standardbred racing and breeding industries. The commission estimated the racing industry accounts for about 12,300 full-time equivalent jobs.

Ohio racetracks, through pari-mutuel handle, support the OSRC budget, breed development programs, harness racing fairs, and PASSPORT, a senior citizens fund. In 2000, PASSPORT received $5.3 million, but in 2008, the figure was $2.7 million, the draft proposal states.

Handle in Ohio continues to decline at a rate of about 12% per year.