An ugly dispute over purse supplements for a New Jersey harness track could have long-term ramifications as officials devise a plan for the future of horse racing in the Garden State, and it also sheds light on the complications that can arise when racing and gaming are linked.
The latest fight is over the almost $7 million Freehold Raceway is to receive from now through 2010 under an agreement that funnels revenue from Atlantic City casinos to purses at three racetracks in New Jersey. The issue is language in the agreement forged between the casinos and the New Jersey Sports and Exposition Authority rather than the purse supplement itself.
Freehold, located in central New Jersey, is owned by Pennwood Racing, whose partners are Penn National Gaming Inc. and Greenwood Racing, two Pennsylvania-based companies. PNGI, which has grown into one of the largest gaming entities in North America, won’t sign the purse supplement agreement because it keeps the parent companies—not just Freehold—from pursuing gaming outside of Atlantic City.
Horsemen, represented by the Standardbred Breeders and Owners Association of New Jersey, have seized on the dispute. They claimed Freehold, which races about 10 months a year, would be forced to close without assistance for purses, and called on the New Jersey Racing Commission to take action.
The SBOANJ has threatened to rescind its approval for Freehold to offer simulcasts. The association has such rights under the Interstate Horseracing Act of 1978.
“The racing commission should withhold approval of 2009 race dates at Freehold for this license-holder until this matter is settled,” SBOANJ president Tom Luchento said Nov. 13 in his latest statement on the matter. “And if track ownership still refuses to sign, the track should be sold to other interests who would sign the purse supplement agreement.”
A four-year casino subsidy deal that expired in 2007 was based on New Jersey racetracks—primarily the state-owned, NJSEA operated Meadowlands and Monmouth Park—not pursuing legislation to authorize video lottery terminals at the tracks. Atlantic City casinos in turn provided money to racing in exchange for not having to worry about competition from the state.
Freehold, at the urging of harness horsemen, was included in the deal. Atlantic City Race Course, owned by Greenwood, was not.
A different playing field
The three-year deal agreed upon earlier this year calls for $90 million--$30 million a year—in supplements. But the language is different, according to Freehold officials, who say they weren’t involved in devising the wording of the document.
In a Nov. 11 letter to Joe Corbo, vice president and general counsel for the Casino Association of New Jersey, Freehold president and general manager Don Codey Jr. said there were no “affiliate or parent restrictions” in the previous deal. Now, PNGI and Greenwood—not just Freehold—can’t pursue gaming anywhere outside of Atlantic City, but other gaming companies, including those based in Atlantic City, can do so.
For instance, Harrah’s Entertainment, which operates in Atlantic City and also owns Harrah’s Chester Casino & Racetrack in neighboring Pennsylvania, wouldn’t be restricted from pursuing gaming in New Jersey in the unlikely event it’s expanded by the state legislature.
“Freehold is willing to be bound, and that will prevent future gaming to occur at Freehold Raceway during the next three years, which we believe was one of the goals of the (purse enhancement agreement),” Codey said in the letter. “Asking for restrictions beyond that is unreasonable, non-mutual, and unrelated to the benefits conferred. Most importantly, Freehold has no authority to bind its joint venture partners.
“Thus, Freehold respectfully requests that we move through this impasse by agreeing that only Freehold Raceway will be bound by the PEA.”
Codey suggested the document be modified to reflect location restrictions—racetracks—rather than entities that may own them. On Nov. 14, he told The Blood-Horse PNGI has obligations as a publicly traded company to avoid such restrictions on potential business activities.
“Who in their right mind would do it?” Codey said. “Any prudent businessman cannot do this.”
Codey said the casino association told him the Freehold letter has been circulated to all casino companies in Atlantic City and, realizing the issue is “time-sensitive,” would respond as quickly as possible.
“Penn Gaming is more concerned about its casino investments and properties elsewhere in the United States than it is about harness racing at Freehold,” Luchento said. “The racing commission should look seriously at the refusal to sign as an act detrimental to racing and jeopardizing the current racetrack ownership to operate Freehold’s license in 2009.”
Racing commission gets involved
The NJRC will award racing dates for 2009 at its Nov. 19 meeting. Regulators have summoned SBOANJ officials to a meeting Dec. 3 to address the Freehold dispute and their threats to yank approval to offer simulcasts. Pennwood requested the horsemen delay any action on simulcasts, and the NJRC agreed with the petition, Codey said.
“We respect the NJRC’s efforts to bring the involved parties together, but still retain the right to pursue the options available to us,” Luchento said. “We would still argue that if Pennwood refuses the purse supplement or is unwilling to match the amount out of its own resources, the company is not fulfilling its contractual obligations to the horsemen.”
The SBOANJ in its releases has said racing at Freehold is in jeopardy without the supplement, and that purses could drop to $25,000 a day, chasing horsemen out of the state. Freehold has applied for its customary 192 days of racing in 2009.
Codey acknowledged average daily purses could drop from $50,000 to $35,000 without the supplement, but he disputed suggestions the track would close. He noted Pennwood has continued to overpay purses by 20% in anticipation of Freehold receiving its supplement: $1.6 million for 2008 and about $2.6 million in 2009 and 2010.
Codey said with harness racing winding down at tracks in the region, Freehold would continue to attract interest from horsemen, even with a worst-case scenario. “Would we not get as many horses in the entry box?” he said. “That’s possible. But 80% of the horsemen who race at Freehold do not race at The Meadowlands, (which opens Nov. 21).
“The main issue here is providing funds to purses for horsemen. We want to get the money to the horsemen. We’ve tried several avenues and have been turned down, but we’re still trying to get the horsemen these funds.”
Atlantic City on the fence
Meanwhile, the future of Atlantic City Race Course remains unclear. Greenwood has applied for six racing dates in 2009 even though the New Jersey Racing Commission earlier this year said it must apply for at least 20.
Greenwood has been seeking a cut of the casino supplement—about $2.5 million a year—to support an expanded meet, and enlisted the help of legislators in southern New Jersey. As of Nov. 14, no deal had been made.
The racing commission will decide the track’s fate for next year at least at its Nov. 19 meeting. There have been indications Atlantic City could be granted a meet of some sort.
Maureen G. Budgon, president of Atlantic City Racing Association Services, couldn’t be reached to comment on the status of racing dates or the purse supplement talks. But she earlier told the Press of Atlantic City the track made a small profit on its six-day, all-turf meet this past spring and wants to continue offering live racing and year-round simulcasts.
Greenwood hasn't publicly commented on the Freehold dispute and where it stands on the restrictions targeted by PNGI.
Atlantic City, despite its location only 15 miles from the Jersey casinos, has pulled in crowds of 2,500-5,000 for live racing held late in the afternoon on weekdays in April and early May. Officials noted that on several days, the track outdrew Belmont Park in New York and regularly attracted more racing fans that other tracks in the Mid-Atlantic region.
Handle on its races, which average more than 10 horses, would be much higher if the track exported its signal; a dispute with the New Jersey Thoroughbred Horsemen’s Association scuttled that plan this year, but that could be revisited should the track race in 2009.
Whether Atlantic City remains in the New Jersey racing mix and is permitted to grow its business is only one issue expected to be addressed by a study on the state’s racing industry. The SBOANJ said the latest casino purse agreement calls for the study, with recommendations on long-term funding for racing, to be in the hands of Gov. Jon Corzine by July 15, 2010.
There have been suggestions from some legislators for VLTs at Meadowlands, but the efforts have gone nowhere given the power of the casino industry in the state. The study figures to examine whether the private casino industry should continue to subsidize horse racing, and whether racing should have its own dedicated revenue from gaming; how to encourage the building of off-track betting parlors; and racing dates.
The NJSEA is currently required to offer 141 Thoroughbred racing dates per year under an agreement with the New Jersey THA. Those dates go to Monmouth and Meadowlands; any racing at Atlantic City is considered a bonus.