Archives for June 2009


At the close of 2008, in the United States there were 44 racetrack casinos operating in 12 states.   According to the American Gaming Association, these racinos were a bright spot in an otherwise dismal year for gaming.   While casino revenues in 2008 decreased for the first time in this decade, racino revenues bucked the downturn.   In 2008, racino revenues tripled 2002 revenues, to $6.19 billion, and soared by 17.2% over 2007 revenues. 

Racino gaming has fueled racing purses.   As a result, horse owners and trainers are increasingly leaving racetracks without gaming in search of a better payout at racinos.   In Kentucky, the center of Thoroughbred breeding in the United States, the lack of slot machines (video lottery terminals) at the racetracks has had a deleterious effect on purses, so much so that Churchill Downs has found it difficult to fill some of its races.   Many owners and trainers have taken their horses to the greener pastures, pun intended, in nearby states with racinos.

The long-term issue, or the overriding question, is how long lawmakers in racino states will continue, or should continue, to subsidize racing purses.   Imagine addressing an audience of taxpayers or legislators, who want to hear your reasoning as to why horse racing should be subsidized by gaming.   What is the rationale, or the justification?  What would you say?

Suppose, for example, you had to craft a rebuttal to a questioning editorial about slots revenues subsidizing racing that appeared on the Philadelphia Inquirer’s on June 19, 2009.   In part it read:  “If you’re one of the 3,000 owners/operators of a race horse in the state, or holder of one of 10,000 related jobs, saving the state’s horse-racing industry is important.   If you’re someone who likes to bet on horse races in your home state, growing the industry is convenient.  But if you’re a child whose Head Start funding is about to be cut . . . or a parent who has kids in public schools . . . or a senior citizen facing cuts in health-care coverage, all of which the Senate-proposed budget would affect, maybe it’s time to be a little less generous to the horse-racing industry.”  [click here to read the full editorial]

Arguments for Subsidizing Racing with Gaming Profits

The reasoning for subsidizing racing purses with gaming revenues is “tip of the iceberg” logic.   The economic impact observed at a state’s racetracks–the jobs and tax revenues– is what is readily visible.   Because of the multiplier effect, racetracks create demand for secondary and tertiary suppliers.

Note that this logic is identical to the justification that the federal government used to bail out Chrysler and General Motors.   Not only would an untold number of auto workers lose their jobs in a severe downsizing or liquidation of these companies but so would hundreds of thousands more people who were employed by their vendors. 

Similarly, cities often help to build stadiums and arenas to entice or keep professional sports franchises largely because of the money the community receives from fans attending games and patronizing area businesses such as restaurants and parking lots.   The subsidies are justified accordingly.

Ohio has seven racetracks that are struggling mightily to remain in business  because the Buckeye state is surrounded by states with casinos and/or racinos, except for Kentucky.   According to a study by Deloitte that was done for the American Horse Council Foundation, the total estimated annual economic impact of horse racing in Ohio is $731 million and $81 million in state and local taxes.  Thoroughbred and Standardbred racing account for 8,200 direct jobs and 16,000 total jobs.   If the racetracks disappear, so do the bulk of these benefits.   In spite of this impact, the only reason that Ohio’s governor, a longtime adamant foe of slots in the Buckeye state,  is now a reluctant convert to racinos is that he is facing a $3.2 billion budget deficit and slots at racetracks can offer some relief.    The alternative–raising taxes and drastically cutting services–is not the ideal way for the governor to prepare for a 2010 re-election campaign.

Proponents of gaming at Kentucky racetracks, like the Kentucky Equine Education Project, accurately use the same genre of evidence, citing, for example, “2.3 million estimated attendance at Kentucky Thoroughbred and Standardbred tracks, $217 million economic impact of the Kentucky Derby, and $8.8 billion economic impact of the state’s tourism industry, which features the horse industry as its signature promotional attraction.”    Notwithstanding the indisputable importance of the bloodstock industry to the Bluegrass state, 45 representatives in the Kentucky House recently voted in a special session of the legislature against allowing the state’s racetracks to install slots (52 voted yes) and the Senate Budget Committee apparently killed the initiative altogether–by a 2-to-1 margin.

Another justification for gaming subsidies to racing is that they provide the wherewithal to fix up the dilapidated structures at many racetracks, or to build new facilities, improve food offerings, and cater to customers.   With the legalization of slot machines in Pennsylvania, The Meadows Racetrack & Casino south of Pittsburgh was transformed from a deteriorating Standardbred track into a modern complex encompassing a casino, entertainment, a bowling alley, and improved harness racing.   This new and inviting ambience might encourage more racing fans to attend in person.

Arguments Against Subsidizing Racing with Gaming Profits

The standard operating procedure in corporate strategy is for top management to redirect cash flow from product lines that are either mature or declining to product lines with the growth potential to become the cash cows of tomorrow.   A cash cow is a mature business that earns more than it needs to maintain its market share position.  For instance, at General Electric, some of the profits from slow-growing mature product lines like major appliances are put to work in GE’s most promising nascent businesses.  

The main argument against using gaming cash flow to enhance racing purses is that pari-mutuel wagering is a mature product and should be able to stand on its own.   Taking cash flows from a growing product line like gaming and diverting it to a mature product line like pari-mutuel wagering is normally contrary to conventional corporate strategy.

Consider MTR Gaming Group.   For the year ended December 31, 2008, the Company increased revenues over 2007 by 13.2%–from $415.8 million to $470.8 million.   Gaming comprised 88.8% of revenues and pari-mutuel commissions accounted for 3%, with the remainder coming from food, beverage, lodging, and other.   Pari-mutuel wagering is such a mature product and such a small part of the corporate portfolio that the rationale for subsidizing purses is difficult to fathom…unless one can convincingly make the “tip of the iceberg” argument.   A West Virginia legislator has suggested that MTR Gaming Group’s Mountaineer Casino Racetrack & Resort abandon live racing and become a simulcast facility only.

The situation is much different at Canterbury Park Holding Corporation in Minnesota.   In 2008, revenues from racing constituted 29% of total revenues.   Card club revenues were 52% and most of the remainder of total revenues came from concessions, admissions, and parking.   In this instance, advocates of horse racing would have a much sounder argument than they would at MTR Gaming Group.


The strength of racing’s position, in a given state, for receiving purse subsidies from gaming will depend on its ability to show factually that it is responsible for many jobs, significant tax revenues, and the well-being of a large number of ancillary businesses.   Horse racing interests in Kentucky, Maryland, and New York, for instance, would have a strong argument in this regard, whereas the case would be harder to defend in states where horse racing is not a consequential agribusiness.   However, as the situtation in Kentucky demonstrates, irrefutable hard facts about horse-racing’s importance as an economic contributor do not always persuade government officials.

If management of a racetrack can get alternative gaming, by all means it should do so.   In the near term, enhanced purses, larger breeder funds, and other benefits will be forthcoming.  But racehorse owners and breeders are chasing fool’s gold if they expect alternative-gaming subsidies to last forever.   History is clear as can be that governors and legislators covet additional revenues, especially when times are difficult, and gaming revenues are an easy target.  With the explosion in Medicaid and other social services, the future looks to be one in which a budget crunch is a perpetual problem, as in California, New York, and most other states.

The pari-mutuel industry needs to use whatever monetary largess it receives to modernize its facilities, improve customer amenities, figure out how to attract more fans, and come up with innovative bets that do not take an expert handicapper to understand.   Otherwise, subsidies will further weaken a patient already reeling by rendering them even more dependent.   At some point, the patient will have to stand on its own.   

In addition, there is the very real risk that slots and table games will decline in popularity, as they proceed through  their  product life cycles.   In particular, slots may not be of much interest to today’s Internet-oriented younger generations as they age. 

Also look for some of the states to rathchet up the competition by expanding gaming even more.  States with slots will seek table games (e.g., Pennsylvania) and states with casinos will try to install sports betting (e.g., Delaware).  Then there is always the possibility that Internet gaming will be legalized.  The end result is that, in this competitive milieu, slots will be pretty tame fare and certainly not a long-term solution to racing’s problems.  

However, as renowned economist John Maynard Keynes famously observed, the “long term is a misleading guide to current affairs.  In the long run we are all dead.”   Racing’s dire straits in many venues indicates that the only realistic course of action is for racing interests to seek slots revenues to survive in the here and now and live on to fight for customers in the unknowable future.

The July 11, 2009 edition of Horse Racing Business examines the subject “Can Slots Players Be Attracted to Pari-Mutuel Wagering?”

Copyright © 2009 Horse Racing Business



Serving Illinois, Indiana, Michigan, Ohio, Pennsylvania, and West Virginia since 1990, with offices in Springfield, Indianapolis, Lansing, Columbus, Harrisburg, and Charleston 

June 23, 2009

 TO:                 Honorable Charlie Borders, Kentucky State Senate

FROM:           William David, Executive Director, EDCMMS

SUBJECT:     Rejection of Slots Bill

On behalf of the government, business, and union leaders—and, most of all, the people–of the six states in our economic development compact, we thank you profusely Senator Borders for yesterday’s courageous work of your Budget Committee.   Unlike Kentucky, which can afford to be selective in the industries it wants, our member states have been devastated by the current worldwide economic downturn, the closure of automobile plants, outsourcing, and intensifying global competition.   In view of this malaise, your assistance in keeping our racing/gaming enterprises growing is appreciated so much so that I cannot put it into appropriate words.   I see that, incredibly, you were able to get the senator representing the Bluegrass region itself to vote no on the slots proposal.   What a master political stroke!

I know that it took fortitude for you and your colleagues to begin to dismantle the Commonwealth’s 150-year-old signature industry, by rejecting racetrack slots, especially since opinion polls show that the majority of adult Kentuckians favor them.   Sometimes democracy is messy and it is best if those in the know, those with a functioning moral compass, make decisions that save citizens from their own misplaced desires.

I can fully appreciate that you view gaming as “evil” and believe that the jobs and tax revenues that will be lost by Kentuckians are a necessary concession to what is right.   To digress, if you ever want to rid your state of other undesirable industries, we at EDCMMS would like to talk with you about the Toyota plant in Georgetown, the Corvette facility in Bowling Green, and the Ford truck plants in Louisville.   As you know, these produce cars that pollute, waste depleted resources, and kill people.   Also, we are particularly interested in the Brown-Forman headquarters in Louisville, the nefarious purveyor of Jack Daniels and other corrupting spirits.   Sorry, Senator,we don’t have an interest in taking your state’s tobacco companies off your hands, as we see that as a passé hedonistic business with lots of legal liability.

In return for your support on the slots bill, several of the casinos and racinos in EDCMMS states are eager to employ some of the experienced personnel that will be dislocated from Turfway Park, Ellis Park, and Churchill Downs, which, as you are aware, are proximate to nearby casinos.   We think that this is the least we owe you.   Moreover, if Ohio gets racetrack slots soon, as hoped for, we anticipate an increase in business from Kentucky residents at River Downs in Cincinnati.

With warm personal regards, WD.

cc: Governors Steve Beshear (KY), Pat Quinn (IL), Mitch Daniels (IN), Jennifer Granholm (MI), Ted Strickland (OH), Ed Rendell (PA), Joe Machin (WV), members of Kentucky State Senate

Copyright © 2009 Horse Racing Business.


This week’s Horse Racing Business evaluates the following resolution:   The late Dale Baird, the number 1 Thoroughbred horse trainer ever in recording wins, should have his name enshrined in the National Museum of Racing and Hall of Fame.

Hall of Fame election standards for trainers:

The Hall of Fame specifies that a candidate must have worked at the craft  for a minimum of 25 years.

The criteria for electors to apply in evaluating candidates are embodied in the Hall of Fame’s mission, which “is to honor the achievements of those horses, jockeys, and trainers whose records and reputations have withstood the difficult test of time.”

A. Factors Supporting Dale Baird’s Admission to the Hall of Fame.

Mr. Baird, age 72 at the time of his death, began training Thoroughbred racehorses in the summer of 1961, so when he died in a traffic accident on December 23, 2007, he had over 46 years’ experience.

Mr. Baird is the leading Throughbred trainer of all time in career wins.   His total was 9,445 and no one is remotely close to this number.

Mr. Baird was the first trainer ever to reach 7,000, 8,000, and 9,000 wins–in 1996, 1999, and 2004, respectively.    Only three other trainers have attained 5,000 wins (Jerry Hollendorfer, King Leatherbury, and Hall of Famer Jack Van Berg).

Mr. Baird was honored with a Special Eclipse Award following the 9,000-win mark, a recognition of high distinction, as determined by experts in the Thoroughbred sport of racing.

Jack Van Berg is in the Hall of Fame and, like Mr. Baird, he was a noted trainer of claiming horses.

The criteria for admission to the Hall of Fame are very subjective and could accommodate Mr. Baird’s admission.

B. Factors Weighing Against Dale Baird’s Admission to the Hall of Fame.

Mr. Baird’s wins were overwhelmingly in claiming races.  Unlike Mr. Van Berg, he had no Grade 1 or Classic victories.

Mr. Baird’s record was achieved mostly at a less competitive racetrack.

Mr. Baird purchased approximately 200 horses per year and many of his cast-offs purportedly ended up in slaughterhouses.   In this regard, Mr. Baird’s reputation may not have met the test of time.

C.  Yes, No, or Maybe

The Hall of Fame criteria are so inexact that electors are left to interpret as they so desire and apply their own standards.  It is not possible to be a “strict constructionist” in adhering to the language.  For this reason, one can make a reasonable case for or against Mr. Baird’s induction.

Mr. Baird’s win total is so far ahead of everyone else’s that he, ipso facto, is the statistically most outstanding trainer of all time, and then some.   Further, some other trainers in the Hall of Fame are reportedly not clean on the issue of directly or indirectly dealing with slaughterhouse buyers for unwanted racehorses, so there is precedent here for his admission.

Considering only the overwhelming superiority of Dale Baird’s wins vis-a-vis other trainers, from all eras, a Hall of Fame induction would unquestionably be perfunctory.   But when “quality of wins” is factored in, the evidence does not support Mr. Baird’s induction because he had no Grade 1 or Classic wins.  Presumably, a Hall of Fame trainer must demonstrate his or her ability to compete at the highest levels of the sport of horse racing, although the Hall of Fame’s admission standards do not specifically say as much.

Going strictly by the Hall of Fame’s stated criteria, Mr. Baird could be admitted.   However, I come down against his induction through my particular slant on the Hall of Fame’s phrase “trainers whose records and reputations have withstood the difficult test of time.”   My interpretation of what the word reputation means is not having a history of suspensions for rules infractions and winning multiple races at the top echelon.   While Mr. Baird did not have a history of suspensions, he did not win at the pinnacle of the sport.

Admittedly, I am reading into the criteria my personal predilections.   Others may see things differently and would be on solid ground, given the vague language on admission.   The Hall of Fame needs to tighten up its criteria so that it is more precise in what constitutes a Hall of Fame training career.   If Grade 1 and Classic wins are requisite, state that fact.  And say how many of each are needed at the minimum.

Dale Baird is unlikely to get enough votes to achieve Hall of Fame status.  Nonetheless, his legacy does not need the imprimatur of the Hall of Fame to confirm that he was one superb trainer.   The ability of a trainer who had nearly 9,500 career wins is self evident, regardless of the degree of competition.  This is a mark that may never be surpassed.   

Whether Mr. Baird’s exclusion is justified on the facts is arguable.   He may be an elite trainer who is being kept out of the Hall of Fame by a case of elitism on the part of some voters, or his record may not measure up to the great conditioners in racing history. 

Copyright © 2009 Horse Racing Business