Pros, Cons of Second Indianapolis OTB Parlor Stated

Indiana Downs officials made their pitch for a Marion County satellite wagering facility during hearings conducted by the Indiana Horse Racing Commission May 22. Track representatives and experts who spoke on behalf of the racetrack testified a second Indianapolis OTB parlor was needed due to IHRC rules changes. They also said the state's largest market is still underserved by Hoosier Park's Trackside OTB, located downtown.

Tom McCauley, attorney for Indiana Downs, told commissioners a series of IHRC rulings had led to the track's insistence that a condition to their permit be amended. When officials were granted a permit in 2001, it came with conditions. The condition in question prevents Indiana Downs from seeking a Marion County off-track location unless the Indiana General Assembly adopts alternative gaming.

McCauley said the restriction, coupled with the change in riverboat tax revenue allocation between both racing associations, crippled their ability to adequately compete with rival Hoosier Park. He said Indiana Downs needs to place OTBs where "handle and purses are maximized."

Sports economist Mark Rosentraub contended metropolitan Indianapolis is a largely untapped market. He noted Marion County and the six counties that surround it--including Madison and Shelby counties--offer a population of 1.5 million, a quarter of the state's total population. He pointed out that in markets like Chicago, there are many more off-track locations per capita than Indianapolis.

"It is critical that OTBs are placed in large population centers in order to generate revenues to protect and enhance the horse racing industry," Rosentraub said.

Industry consultant Martin Lieberman testified that a second Marion County facility was necessary to the industry. He explained that, unlike other states that also offered telephone or account wagering, Indiana's racing product is generally inconvenient.

"There is no delivery system in this state," the New York racing veteran said. "In this region there is none."

Indiana Downs chief executive officer Ralph Ross told commissioners the change in riverboat tax revenue allocation created an adverse situation for the track. Ross, who owns a nearly nine percent stake in Oliver Racing--Indiana Downs' majority owner--said he invested in the Shelbyville operation based on an October 2001 ruling by the commission that established a 50/50 split in the riverboat subsidy.

Commissioners later changed the allocation to an equal split for half the subsidy doled out to the associations with the second half dispersed based on handle. Ross also said ownership proactively spent an additional $1 million to construct a turf track, fulfilling another condition to their permit. A later ruling by the IHRC resulted in an added $3.5-million expense.

When asked whether he would prefer the 50/50 split of the riverboat allocation and no Marion County OTB parlor over an Indianapolis presence and a handle-based allocation formula, Ross replied: "It depends on how much you want to gamble."

Hoosier Park officials argued a second Indianapolis off-track location would be detrimental to their Trackside location, as well as the racetrack itself. Attorney Bill Diener told commissioners that in both Indiana Downs' Lawrenceburg and Shelby County applications, a Marion County satellite facility was not mentioned. He also noted that Rosentraub and Lieberman, who spoke on behalf of Indiana Downs during permit hearings, endorsed pro-forma financial projections submitted by operators, projections the track is now falling far short of reaching.

Hoosier Park vice president of finance Steve Wilkening testified that in the first four months of 2003, the net growth in handle for the Indianapolis market has been 2% over the same period one year ago. He also explained growth had been achieved more than 151 more business days than the previous year.

Wilkening said Hoosier Park and Indianapolis Trackside are down a combined 12.8% over the same four-month period last year. He said it was directly attributable to Indiana Downs' opening in December. He also countered that while Indiana Downs representatives said four months is not adequate to forecast the year, it was long enough to spell a loss for Hoosier Park.

"There is no growth in central Indiana," Wilkening said. "Quite frankly, there's a lot of patron poaching going on. Four months is long enough for me to say we are on target to lose money."

Will Cummings, a Boston-based industry consultant, told commissioners a second Marion County OTB parlor would lead to increased handle, but it would be incremental compared to the costs required to open such a facility. He said the increase in operating expenses to generate the incremental handle could lead to two unhealthy tracks.

"I really doubt you would have more healthy tracks," Cummings said. "I don't see the industry's interests served with two sick tracks."

Cummings also said Rosentraub's comparison of the Chicago and Indianapolis markets was "apples to oranges." He said Chicago is considered an "old market," and that new markets like Indianapolis perform far differently.