Slot Machine

Slot Machine

Anne M. Eberhardt

Is Racing Using Its Slots Money Wisely?

Could horse racing do more with its revenue from casino-style gaming?

As hundreds of millions of dollars in revenue from slot machines flows to horse racing, there is growing sentiment that perhaps the racing industry is failing to capitalize on the new wealth by solely pumping money into purses and breed development programs.

The issue was addressed Dec. 9-10 during panel discussions at the University of Arizona Symposium on Racing and Gaming in Tucson, Ariz. And it’s becoming far more serious as taxpayers and states, struggling to make ends meet, ask why gaming revenue should support racing.

“Someday, somebody is going to look at this and say, ‘Why are we supporting this industry? Why are we doing this?’ ” said Mike Smith, a former Indiana lawmaker and president and chief executive officer of the Casino Association of Indiana. “It’s critical for horse racing to try to increase its fan base.”

In Pennsylvania, slots at five racetracks and one resort casino produced $307.8 million for the horseracing industry from November 2006 through November 2008, said Melinda Tucker, director of racetrack gaming for the Pennsylvania Gaming Control Board. Purses for Thoroughbred and Standardbred racing got $246.3 million; Thoroughbred breed development, $22.2 million; Standardbred breed development, $27 million; and horsemen’s health and pension plans, $12.3 million.

Tucker said there have been plenty of positives, including an understanding by lawmakers and gaming board officials of the importance of horse racing to the state’s agricultural economy. She also provided a list of things she believes should have been included in the Pennsylvania Race Horse Development and Gaming Act of 2004.

Tucker said dedicated funding would have been useful to support the state’s two racing commissions, equine drug testing, equine health research programs, retired racehorse care, a marketing fund for horse racing, and money for county fair harness racing. She also said money for improvements to stable areas and upgrades to racing surfaces should be a percentage of slots revenue, not a fixed amount.

In Pennsylvania, tracks are required to spend $5 million to $10 million on such improvements; some, such as Philadelphia Park Casino & Racetrack, have committed more, she said.

“A revenue stream for equine health would be a wonderful thing to do in legislation,” Tucker said. “And clearly we know racetracks attempting capital improvements can’t get far with $5 million.”

The two Pennsylvania commissions—one for Thoroughbred racing and one for harness racing—are funded by a 1.5% tax on pari-mutuel handle, which continues to fall. The commissions’ workloads, however, have increased 50% to 100% with the opening of new racetracks.

The commissions have consolidated staffs and are trying to market horse racing in an attempt to boost handle and revenue for their operations.

The situation isn’t lost on regulatory agencies, many of which are dealing with unfunded mandates and declining revenue. When there’s insufficient funding for drug testing and investigations, but a $4,000 claimer is racing for a $21,000 purse, people begin asking questions.

“Does the Pennsylvania Gaming Control Board have any discretion to basically deal with what has put a tremendous strain on racing commissions?” said Ed Martin, the president of the Association of Racing Commissioners International who has repeatedly called for new funding mechanisms for regulators in racing jurisdictions.

Officials acknowledged that in general, on-track pari-mutuel handle has declined at tracks with casino-style gambling, though Scott Wells, general manager at Remington Park in Oklahoma, said live handle is up 4% since gaming machines began operating, and gaming revenue increases during live race meets. If handle is down, however, gaming subsidies could be considered a failure by observers, officials said.

Jack Ketterer, administrator for the Iowa Racing and Gaming Commission, said casino gambling improves the bottom line but increases in money wagered on racing shouldn’t be expected. He said it’s important to instead focus on the benefits to equine breeding and economic development.

In a twist, racetrack casinos are subsidizing a resort casino in French Lick, Ind. When slots were approved for Hoosier Park Racing & Casino and Indiana Downs, it was mandated the tracks each give the French Lick casino 1% of their revenue for five years to mitigate losses from competition.

When riverboat gambling was legalized in Indiana in the early 1990s, racetracks received a subsidy from the casinos. That subsidy is being phased out as the tracks produce their own slots revenue.