INTRIGUE IN THE BUCKEYE STATE

July 18, 2009 by

Governor Ted Strickland of Ohio, a Democrat, was steadfastly opposed to expanded gambling in the Buckeye state as recently as June 2009.   Since his election in 2006, he has promised to veto any bill that the legislature might send him permitting racetrack slots.   In addition, he campaigned against a 2008 ballot initiative that would have installed a casino in Clinton County.   The Ohio Senate, with the Republicans in the majority, has also opposed alternative gaming, while the Ohio House has supported racetrack slots since the Democrats gained control in 2008.   The Ohio State Racing Commission, whose members are all Strickland appointees, have strongly supported racetrack slots.

With a huge budget deficit and a looming cut in state services, Strickland had a 180 degree change of mind if not of heart.   In a compromise agreement with Senate Republicans to break a budget deadlock, the legislature crafted language enabling the governor to permit Ohio’s seven racetracks to each install 2,500 video lottery terminals.   The operation is to be under the auspices of the Ohio Lottery Commission.  

This rapid turn of events has created flux and questions and the fallout is likely to greatly affect the fate of racing entities in Ohio and states surrounding it.   The many “what ifs” and “what will they do” would perplex a soothsayer in predicting how things will eventually shake out.   Here are the major contingencies.

1.  The governor and the legislature are about to be challenged in court, mainly on the basis that any expansion of  gambling must be sanctioned by Ohio voters in a statewide referendum.   A nonprofit named the Ohio Roundtable and a couple  of church groups have already promised as much.   Ironically, the United Methodist Church is a leader in the anti-slots movement and Governor Strickland is an ordained Methodist minister.   The Ohio Supreme Court may quickly dismiss legal objections or the justices might agree with the plaintiffs.   Even if the constitutional authority of the governor and the legislature is ultimately upheld, the case could drag on.   Moreover, there is the possibility that the antigambling forces will sponsor and win a statewide vote repealing the work of the governor and legislature.   In that event, racetracks would have to give up slots and take a heavy loss in the process owing to the machines that were purchased and the facilities that were remodeled or built from scratch  to accommodate slots.

2.  A casino initiative is planned for Ohio for  the November 2009 ballot.   It would allow for a total of four casinos–in Cincinnati, Cleveland, Columbus, and Toledo–and 20,000 slot machines.   A key player is Dan Gilbert, who is the founder of Michigan-based Quicken Loans and the majority owner of the Cleveland Cavaliers NBA franchise.   Should the casino referendum be approved, then the quasi-geographical monopoly on slots enjoyed by the racetracks would disappear.     Six of Ohio’s seven racetracks are located in the metropolitan areas of Cincinnati, Cleveland, Columbus, and Toledo and the other track, Lebanon Raceway, is considering a move to near Dayton.   The racetracks would still have a lucrative franchise, just not as valuable.

3.  Prior to the slots authorization by the governor and the legislature, Penn National Gaming (owner of Raceway Park harness track in Toledo and an Indiana casino near Cincinnati) was reported to be in favor of the November casino initiative.   Now, with its harness track in line for slots, Penn National Gaming’s top management has a decision to make regarding supporting or not supporting the November ballot initiative.   (Penn National Gaming hugely funded the campaign to defeat the 2008 ballot referendum on the casino in Clinton County because it would have competed against its Indiana casino.)   Interestingly, Penn National Gaming  did not join with management of the other six Ohio racetracks when they recently wrote to Governor Strickland to embrace his slots plan.   If Penn National Gaming assists in funding a winning marketing campaign for passage of the casino ballot initiative and then does not secure the casino license for Toledo, it will have seeded competition for its own racetrack.

4.  MTR Gaming Group owns Mountaineer Casino Racetrack and Resort in Chester, West Virginia, Presque Isle Downs and Casino in Erie, Pennsylvania, and Scioto Downs (harness track) in the Columbus, Ohio, area.   MTR Gaming Group is no doubt opposed to the proposed November Ohio casino ballot issue.   On the other hand, the slots authorization is a two-edged sword.   Scioto Downs will gain slots but MTR Gaming Group’s West Virginia and Pennsylvania properties will be damaged financially by slots at  Cleveland’s Thistledown (Thoroughbreds) and Northfield Park (Standardbreds).   MTR Gaming Group’s racinos in Chester and Erie are very dependent on Ohio customers.  Whether stock market investors see slots in Ohio as a net gain or a net loss for MTR Gaming Group looks to be the former.   On July 10, 2009, the day when Governor Strickland and the legislature came to an agreement on slots, MTR Gaming’s stock opened at $2.35 per share and closed at $3.48 per share for a 48% gain.

5.  River Downs in Cincinnati could be a big winner and Kentucky’s racing industry a big loser.   River Downs is only 14.7 miles away from Kentucky’s Turfway Park, across the Ohio River, 90 miles from Keeneland, and 107 miles from Churchill Downs.   A racino at River Downs might be the death knell for Turfway Park (thanks to the gift from the Kentucky Senate in keeping slots out of Kentucky) as racing and slots customers in the Cincinnati metroplex, including Northern Kentucky, gravitate to the River Downs racino.   At the moment it is uncertain how much Ohio purses will be augmented by slots.   If the horsemen are treated well and purses increase dramatically, then convenient River Downs will likely be a favored place for Kentucky stables to race.   Incredibly, a down-on-its-luck River Downs reinvigorated by slots could detract significantly from the quality of summer racing at Churchill Downs.   Think about the lure to sports and racing fans from Louisville and Lexington of a day at River Downs followed by a Cincinnati Reds game at night.

6.  Thistledown near Cleveland is soon to be auctioned off  by the bankrupt Magna Entertainment Corporation.   Suddenly, with the prospect of slots, Thistledown’s market value has escalated.   Thistledown is likely to recover from the verge of extinction to become a healthy going concern once it is able to compete on more even terms with racinos at Mountaineer Casino Racetrack and Resort (which has both slots and table games) and Presque Isle Downs and Casino.   However, a buyer has to value Thistledown not knowing whether a new casino is coming to Cleveland, depending on how the November ballot comes out.

7.  The Cleveland-area racetracks–Northfield Park and Thistledown–are within seven miles of one another and the Columbus-area racetracks–Beulah Park and Scioto downs–are nine miles apart.   This proximity should assure a battle royal.   If Ohio voters in November 2009 approve casinos for Cleveland and Columbus, the competition will escalate even more.   

8.  Assuming that the slots installations are not slowed by legal challenges, how soon the racetracks can get them up and running remains to be seen.   The governor’s goal is to have them functioning by at least May 2010 so that the state can apply its slots revenues to the budget, which would be much quicker than other states (e.g., Pennsylvania) were able to do so.   One of the racetracks is planning on temporarily housing slots in its grandstand while it builds a state-of-the-art slots/hotel complex adjacent to the track.   It ambitiously wants to have slots open to the public by the end of 2009.

How these matters turn out should have a profound effect on horse racing in Ohio and contiguous states.   Fortunes will be enhanced and impaired in the process.

Copyright © 2009 Horse Racing Business

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Specifics of the slots legislation:

• Each racetrack must pay a $100,000 nonrefundable application fee and a $65 million licensing fee.   The first payment on the licensing fee is due in mid-September 2009 with four installments thereafter.

• Licenses will be awarded for a 10-year period.    A racetrack must agree to make at least $80 million in facility improvements within the first five years of operating slots.  The initial year’s investment must be at least $20 million.

• Half of the net revenues generated by the slots will go to the state of Ohio, which is one of the largest percentage cuts in the United States.   Part of the state’s revenues will be used to cover operational costs and the remainder will go to school funding.    Horsemen’s groups will negotiate directly with racetracks to determine the portion of slots revenues that will go to purses.

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WHY HORSE RACING DECLINED

March 21, 2009 by

In its halycon days from about 1900 to 1960, horse racing was a leading spectator sport in the United States, following only Major League Baseball in total attendance. Sports fans knew of and many followed the exploits of equine stars like Seabiscuit and War Admiral, Citation and Stymie, Nashua and Swaps, and Greyhound and Adios. Some of the best sportswriters covered horse racing and their prose was often elegant.

Now, except for premier events, the on-track crowds are sparse and the television audiences are small. Newspapers in general have fallen on hard times, owing to the Internet, and few of them have the economic strength to employ a dedicated racing writer. The number of racing fans in the United States may be less than 3 million out of a country of 302 million people. Among the overall population, the name recognition of even top Thoroughbred racehorses is low (with the occasional and brief exception of a Smarty Jones) and the situation is much worse for Standardbreds and Quarter Horses.

Following are some of the major factors that account for this deterioration:

1. Urbanization. As the United States evolved from an agrarian society to one based on manufacturing and services, the percentage of the population with ties to farm life dwindled markedly. The vast majority of people today know little about livestock of any kind. Most folks have never lived on a farm and do not have relatives who do. Thus the rural culture that once fostered an affinity for “a good horse” gradually gave way to one in which there was no such widespread interest. Today, NASCAR drivers are much better known among the general public than leading jockeys.

2.  Population Expansion in the Sunbelt. The Sunbelt states have been rapidly growing as compared to the Northeast and Midwest.   This trend is not in racing’s favor. While racing has a foothold in Arkansas, California, Florida, Louisiana, and Texas, high growth states like Georgia, North Carolina, Tennessee, and some others do not permit racetracks to operate and have a culture that has no recent history with horse racing and one that generally opposes gambling.

3. Blue-Collar Blues.  These kinds of jobs have increasingly moved to low-cost offshore nations. Moreover, the loss of blue-collar employment is likely to be permanent. The only sector where unions are gaining members in the United  States is government. I have never heard this reason offered as a cause for racing’s travails, but I am convinced that it is a prominent one.

Thoroughbred horse racing is often referred to as the “Sport of Kings.” Yet the sport, along with harness racing, has traditionally been heavily supported by automobile workers, electricians, and other people who work with their hands. Northfield Park in a Cleveland, Ohio, suburb is located adjacent to a Ford plant. Current and bygone racetracks in Chicago, Detroit, Philadelphia, and similar cities with concentrations of blue-collar workers have suffered as the United States economy has moved away from high-paying blue-collar jobs to a service base. The problems at “working people’s” racetracks have been exacerbated by the current recession.

4. Communication and Information Technologies. Old-timers often correctly cite racing’s tepid reception to the popularization of television in the 1950s as a prime cause of decline. Unlike the National Football League, which embraced TV, racing executives were fearful that it would steal their on-track audiences. However, in recent times, racing has exploited telephone and Internet wagering to great effect; so much so, that the off-track business model has eviscerated the on-track model. But racing had no choice. In the fast-paced milieu of the 21st century, if it were not for remote wagering, betting handle would be a fraction of what it is today. The 2008 contentious dispute between advance deposit wagering companies and horsemen, over the equitable division of takeout, badly damaged handle because races at some tracks were inaccessible to bettors.

5. Competition. Horse racing, for many years, was one of the few legal wagers available in the United States. This quasi-monopoly encouraged a hubris that led to a “take it or leave it” attitude toward customers. Undoubtedly, the legendary poor treatment of customers at racetracks has its origins in this former era. With the proliferation of state lotteries and casinos in various parts of the country (and lately illegal but easily accessible offshore Internet gaming sites), horse racing did not abandon its old ways of doing business…and the result was predictable. In fact, most tracks did not know how to compete for customers. Even today, what racetracks offer to customers in the way of amenities and conveniences is lacking, as compared to casinos.

6. Eroding Leisure Time. Studies have documented what Americans already know firsthand– that they are working more than ever. Vacations are shorter and cell phones and wireless handheld devices keep people tied to work even when they are supposedly off duty. Thus Americans have less time for leisure pursuits than they once did and lazy afternoons at a racetrack during the week are incompatible with this reality.

7. Fading Attention Span. Today’s society, particularly for the young, revolves around almost instantaneous communications made possible by cell phones, computers, and instant messaging services like Twitter, and social networking sites such as Facebook and YouTube. People once were satisfied to attend horse races to socialize and handicap in the 30-40 minutes between races, while spending four or five hours at a racetrack. Except on racing’s biggest days, or at a few lifestyle racetracks like Saratoga , Keeneland, and Del Mar, the 21st century American finds a day at the races too slow to suit his or her tastes. Simulcasting has stepped up the action, but people can also bet on a variety of races from off-track locations.

Racing cannot undo any of these societal transformations to bring back the “good old days.”  The most brilliant strategist cannot reverse the irreversible.  The issue is whether the sport can continue at a critical-mass level in the United States for other reasons, such as attracting more young fans and additional patrons from the fast-growing Hispanic population.

The inescapable conclusion is that horse racing will never again become a major sport to rival football, basketball, and baseball, mainly because the average sports fan is too far removed from the rural culture that appreciated a fast horse and because the window of opportunity is long past. Still, horse racing can be a viable niche sport–or it can fade into oblivion. The March 28, 2009 Horse Racing Business explores this subject in the article “In Search of a Future.”

Copyright © 2009 Horse Racing Business

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