Are Racinos Saving the Horse Industry in Other States

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Are racinos saving the horse industry in

other states?

Source: Lexington Herald-Leader | June 15, 2009

John Cheves

Table of contents

Are racinos saving the horse industry in other states? .........................................................1Introduction .............................................................................................................. 1Nobody seems to know the future of horse racing.................................................. 2West Virginia ........................................................................................................... 4Indiana ......................................................................................................................4Pennsylvania ............................................................................................................ 6

Introduction

Jun. 15, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- The dozenstates that already have racinos -- horse racetracks with some casino gambling, usuallyslot machines -- prove that such places can rake in billions of dollars.

What they don't necessarily do is save the horse industry .

That's what some legislators, horsemen, economists and others in those states report. Noone knows whether a law authorizing Kentucky racinos will emerge from the GeneralAssembly session that starts Monday, but these other states give some indication of how

racinos might work here.

Nationally, horse racing's popularity has waned for years. Track attendance is down. Soare handles, the sums wagered. Thoroughbred handles have slumped 10 percent since2003, to $13.6 billion.

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This is true even in states with booming racino operations, where a slice of casino moneygoes to fatten track purses and breeder incentives, making the states more attractiveplaces to race and breed horses.

Take Pennsylvania. Racinos are so hot there that a new racetrack has opened -- a rarity

for a fading sport. But most of the $1.6 billion in 2008 racino revenue came from the slotmachines, not the tracks. And although the sums slipping into slots exploded, the handlesshrank.

Take Florida. That state has a chain of racinos and casinos elbowing each other along theInterstate 95 corridor near Miami, with more to come. But the number of Thoroughbredhorses starting races is falling. And horsemen who lobbied for racinos now complain thatslots -- less profitable than predicted -- failed to double the purses, despite promises fromgambling interests.

"We got pimped on the legislation," horse trainer Michael Deters told the Miami Herald

this spring.

Rather than revive the sport of kings, casino gambling claims the throne for itself,national experts say. Horses are forgotten amid the clanging slot machines.

"They just can't be dependent on slots," said Richard Thalheimer, a gambling economistwho runs Thalheimer Research Associates in Lexington.

"For the racing industry, racinos provide a breather," Thalheimer said. "They give theindustry a chance to experiment and do research on how to survive. ... That doesn't haveto mean bringing people back to the tracks physically, but it does mean getting them to

bet on horses again."

Nobody seems to know the future of horse racing.

Fewer, but higher quality, races are a possibility, said Doug Reed, director of the RaceTrack Industry Program at the University of Arizona.

"We've perhaps overdosed on racing. The NFL doesn't play five football games a day allyear round," Reed said. "It just gets tired if you try to run hundreds of small meets a year.The audience for that isn't there anymore."

That's one reason many gambling experts and state officials warn against more statesleaping into the racino business right now.

Another is the recession.

This is not a good year to expect lucrative competitive bids for racino licenses or thecapital investments needed for high-quality restaurants, concert halls and hotels, they

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said. In Indiana, several casinos are in bankruptcy or limping toward it, while both of theyear-old racinos struggle with financial problems.

For all their money, racinos bring a fresh set of problems .

Lawmakers warn that the gambling industry constantly pushes for more leeway -- tablegames, sports betting, anything to one-up other gambling states -- even as it begs forrelief on how much money it's required to give the government through taxes and fees.

More than half the states have considered gambling legislation this year, including eightracino states that sought to further expand gambling or give financial breaks to theindustry, according to a report by the National Conference of State Legislatures.

"The current wave of gambling expansion may be gathering more momentum as nationaleconomic and state fiscal conditions continue to deteriorate," the NCSL wrote in itsreport. "States continue to consider the expansion of gambling as a possible way to fund

government."

Add to this the legal and ethical concerns. Gambling's massive profits fuel the fear ofgovernment corruption as gambling interests seek favors. The parade of politicians sentto prison in gambling-related scandals includes former Louisiana Gov. Edwin Edwardsand members of the Kentucky General Assembly caught in Operation BOPTROT, an FBIinvestigation that led to the conviction of more than a dozen legislators in the early1990s.

In West Virginia, a former state lawmaker who now owns a slots distributorship wasnamed in a federal indictment last week on charges of bribery, racketeering, gambling

and obstruction because of his ties to state lottery officials.

"Gaming carries with it a stigma. Government must not enhance that stigma," saidIndiana state Rep. Trent Van Haaften, a Democrat who supported racinos in his state buthas since butted heads with the industry. "States that come to depend on gaming revenueneed to be sure that they have a solid regulatory environment to control how everyoneoperates."

For their part, racinos and horse owners grumble about politicians squeezing them sohard for money that it's difficult to invest in facilities or fatten the purses enough toattract horses to their tracks.

Elected leaders cite saving the horse industry as their motivation when they allowracinos. But the resulting cash piles are tempting honey pots as they struggle to balancestate budgets. Tens of millions of casino dollars have been clawed back from track pursesto pay for the daily operations of government.

Three nearby states provide interesting case studies.

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West Virginia

West Virginia launched the racinos concept, legalizing them and opening the first one in1994. It now licenses four that reported $951 million in gambling revenue last year, about$430 million of which went to state and local governments.

Expanded gambling noticeably boosted West Virginia's horse industry by giving it largerpurses and breeder incentives, according to a study several years ago by Arizona's RaceTrack Industry Program.

West Virginia's share of the U.S. Thoroughbred foal crop leapt 232 percent over the lastdecade, although with just 1.9 percent of the market -- 645 foals -- it's barely a blip onKentucky's radar. Kentucky dominated the industry with nearly one-third of the crop in2007, or 10,424 foals, up 4 percent from 1997.

West Virginia has suffered a decline since 2004 in Thoroughbred purse size (down 11

percent to $70.3 million) and in the number of Thoroughbreds starting races (down 17percent to 8,569).

Part of that is due to competition from nearby states that added racinos, carving up thegambling pie into smaller slices. Part of that is due to the recession: West Virginia'soriginal racino, Mountaineer Casino, Racetrack and Resort, has laid off 268 workerssince November.

The chief cause, though, is the West Virginia legislature, which decided in 2005 to drainmillions in casino money from racing purses to pay for other government needs, such asthe workers compensation program and a state employee pension fund.

The horse industry should be warned that casino money can be given and taken awaywith equal ease, said Reed of the Race Track Industry Program. It needs a specific planfor investing its windfall, and it needs to move on that plan fast, he said.

"Racing can't just say, 'We have slots now, so we're set,'" Reed said. "Especially whenyou're in hard economic times, the legislature might view your purse money as a moretempting target than, say, raising taxes. You shouldn't assume that this money will bethere for you forever."

Indiana

Indiana legalized racinos in 2007 and opened two of them a year ago at Hoosier Park andIndiana Downs, racetracks in the center of the state.

"The racing operations were not financially feasible on their own," said Jeff Smith,general manager of racing at Hoosier Park.

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Their gambling revenue for the first year with racinos was $205 million, about $51million of which went to state and local governments.

Horse industry officials say they're optimistic, although it's still too soon to tell how muchthe industry is being helped.

Thoroughbred purses rose 1 percent last year to $13.9 million; the number ofThoroughbred horses starting races fell 3 percent to 2,585. Indiana is only a minor playerin Thoroughbred breeding, producing 1 percent of the 2007 foal crop.

The first coin had barely dropped into a slot machine before the racinos returned to thestatehouse to lobby for better terms.

They complained that the $250 million in up-front licensing fees that each racino had topay was killing them. They wanted a partial refund, $75 million in tax breaks and theability to offer table games such as blackjack.

So far, the legislature has shrugged off these entreaties.

"Both racinos borrowed the money to pay their licensing fees, and in this economy, theyhad to accept a fairly significant interest rate. Now both of the tracks tell us they're notdoing as well as expected, so they're having a hard time keeping up the payments," saidIndiana state Rep. Scott Pelath, vice chairman of the House Ways and Means Committee.

"Indiana has a lot of lessons to offer other states," Pelath said. "Once you get into thebusiness of gaming, you're always going to be stuck refining the system, trying to keepthe industry healthy so you maximize its contributions to the state. Casinos are not the

kind of business where you can just open it up and leave it alone and all goes well."

Indiana's horse and gambling interests say it's partly the legislature's fault that the racinosare stumbling.

Most racino states charge a small licensing fee and then make their revenue on taxes afterthe facilities open. Pennsylvania set a precedent when it charged $50 million for a racinolicense.

Indiana lawmakers -- desperate for immediate cash to offset rising property taxes thatinfuriated voters -- set their price at five times Pennsylvania's.

"For other states contemplating such a thing, they should look long and hard at theselicensing fees," said Michael Brown, executive director of the Indiana Horse Racing andBreeding Coalition.

"Two hundred and fifty million dollars just to sit down at the table when you apply isreally a crippling amount," Brown said. "It truly stunted the development that the tracks

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Newstex ID: 35753591

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Are Racinos Saving the Horse Industry in Other States