Statehouse Blues

New York Republican Gov. George Pataki's recent budget message included a stunning rebuke to owners and breeders in the Empire State: You are entitled to zero revenue from racetrack slot machines during their first two years of operation.

Like Pataki, Democratic Gov. Gray Davis of California is facing a massive budget shortfall. He, too, is willing to expand gambling, but is headed toward a snub of the horse racing industry in favor of Native American tribes that, perhaps not coincidentally, have made enormous campaign contributions to him before and after they got the green light to operate casinos. Native Americans have spent more than $120 million since 1998 on political activities in California.

Davis got taken to the cleaners in negotiations with the tribes four years ago, giving in to slot machines and blackjack at the casinos and getting the state treasury next to nothing in return. Now, Davis wants to renegotiate. His proposed budget includes $1.5 billion in revenue from Indian casinos, an increase from the $100 million the state currently gets from the tribes' estimated $5 billion in annual profit. For the Indians to play along, they will want to dramatically expand the number of slot machines allowed.

According to the report in the New York Times, attorneys for the tribes also are pushing for sports and Internet wagering and exclusivity in casino ownership. In other words, a new agreement could effectively prevent racetracks from trying to level the playing field and install slot machines during the life of the gaming compact with the state.

The move by Davis appears to be nothing more than a money grab for a state facing a $34-billion budget deficit. His administration will not be in a position of strength when it sits down with the tribes, and California's racing and breeding industry should be deeply concerned over what could result from the negotiations.

Pataki appeared to show a total lack of understanding for the relationship between racetracks and horsemen with his Video Lottery Terminal proposal for New York. Taking potential revenue away from purses and the New York State Thoroughbred Breeding and Development Fund will not serve as an incentive for the New York Racing Association to install VLTs. Fortunately, NYRA is in good hands under the leadership of Barry Schwartz, a New York owner and breeder, and it is unlikely a deal will be struck that unfairly tilts in the direction of the racetrack.

A Buyer's Market

The Horsemen's Benevolent and Protective Association is taking a commendable step by examining who is buying simulcast signals and how much each group is paying for those signals. Tracks and horsemen may have once looked upon simulcasting as "gravy" poured onto the primary revenue generated by on-track business, but those days are long gone.

Thus, the standard 3% most tracks charge for their signal is far too low, considering that more than 80% of a track's betting turnover is now handled at a remote location. A growing number of those locations are not supporting live racing, either, so very little of that handle finds its way back to purses or a racetrack's operating budget. That's one reason purses are growing at a lower rate than handle. In 2002, purses grew just 0.635, while handle increased by 3.19%. Using that handle/purse growth ratio, it will take a 25% jump in betting to fuel a modest 5% increase in purses.

That is not a good development.

Racetracks and organizations representing owners must begin to reevaluate simulcast agreements, particularly those involving operations that do not reinvest in their own live racing. Cut-throat pricing policies may be good for the buyer, but they are doing nothing to help the people who put on the show.