WHAT’S THE MATTER IN KENTUCKY? PART II

Top legislators shun [Governor] Beshear’s plea for gambling bill.” Louisville Courier-Journal, February 13, 2010

When General Motors and Chrysler were on the verge of financial collapse, the top elected officials in Michigan–and the other states heavily dependent on these firms–en masse and with alacrity did everything in their power to save the companies, which ultimately led to the federal bailout and prepackaged bankruptcies. Regardless of one’s position on government interference in the private sector in propping up weak companies, the fact is that state elected officials work closely with their business leaders to promote indigenous industries and companies. This encompasses such initiatives as tax breaks and incentives, worker training, lobbying the federal government, and loans and grants. Moreover, the more important an industry or company is to a state, the more sweeping and pressing is the effort.

The logic is obvious: industries and companies employ a state’s citizens and contribute to filling state coffers. In this day and age, the job description for governors, mayors, and other elected executives, entails economic development. This includes keeping companies from moving, attracting firms from other locales, encouraging and facilitating start-ups, and helping going concerns to expand in the state or community.

The rationale may be evident, but the situation in Kentucky pertaining to the horse racing and breeding industry defies explanation. I am the chairman of the board of a small business development center, whose job it is to assist people to start and expand businesses, have taught marketing and entrepreneurship in universities for years, and have co-authored a book on economic development. In all my experiences and research, I cannot find an example other than Kentucky where upper-echelon state elected officials have willfully worked to weaken the state’s number one industry, perhaps even with malice toward the enterprise, and have done so while ignoring the will of the majority of constituents. Imagine if prominent legislative leaders were anti-auto in Michigan, anti-wine in California, or anti-casino in Nevada. 

When the steel industry was leaving Pittsburgh for offshore destinations, elected leaders in Pennsylvania fought against long odds to retain the industry. The same thing happened in North Carolina when the textile industry was eviscerated. Officials in cities that have lost NFL franchises have battled mightly to keep them, realizing their importance not only to fans but also to the local economy. Recently, when the voters in Ohio approved a referendum authorizing four casinos, the governor and legislature in contiguous Pennsylvania wasted little time in permitting the Keystone state’s casinos to add table games to their fare. Kentucky, regarding its treatment of the racing and breeding industry, is the inexplicable exception that proves the rule that state leaders fight to the end to maintain homegrown industries, especially the most prominent ones.

One can only wonder about the rationale and motives of unresponsive legislators in Kentucky, particularly given the overwhelming sentiment of their own constitutents to permit slots at racetracks (voters favor racetrack slots by over a 3-to-2 margin). What prompts a person sworn to act in the best interests of the citizenry to purposefully and apparently contemptuously derail an industry that employs thousands of people, contributes so much in the way of tax revenues, with farms that provide a beautiful tourist-attracting ambiance to the Bluegrass region and a racetrack in Louisville that has a historical gem of a two-minute race telecast around the world? From the standpoint of costs versus benefits, what benefits could possibly outweigh the costs derived from downsizing Kentucky’s number one industry? The underlying motivations must be subjective and emotionally charged.

To illustrate, consider the objection voiced by Kentucky Senate President David L. Williams, who is the leader of the elected officials opposed to slot machines at racetracks. In his view, expanded gambling is deleterious to the welfare of Kentuckians, or else he would not stand in the way. Yet the gentleman has been a vigorous supporter of tobacco, as evidenced by his recognition in 2000 as a Friend of Tobacco (as extolled on his personal website). Contemplate the contradiction. Whereas gambling in moderation can be fun and entertaining, tobacco use has no redeeming qualities whatsoever, not even in moderation, and is responsible for a litany of physical ailments, including premature death. A political leader who defends tobacco–a dying industry in more ways than one–and blocks expanded gaming in the name of consumer protection has staked out an indefensible intellectual position and thereby has called into question his agenda and/or his analytical thought process. It would be educational to also determine Senator Williams’ attitudes toward two other mainline Kentucky industries with social baggage, bourbon and coal. To what extent has he fostered and promoted their continued well being?

Whatever the reasons, the end result is to undo the 225-year work that began in colonial days with Daniel Boone and continued with the endeavors of Henry Clay, Dr. Elisha Warfield, Matt Winn, Arthur “Bull” Hancock, and numerous other Kentuckians, both famous and not (see Part I of this article for an historical perspective).

As compared to other states in terms of the educational proficiency of its citizens, Kentucky has long been at the lower end of the rankings. Certainly, this is not an enviable position to be in, especially given the increasingly high-tech world that people live and work in. Ostensibly, a thinking person in the Kentucky governorship or legislature would do everything possible to keep the best of Kentucky tradition, notably its equine preeminence, while at the same time work to prepare Kentucky residents for the jobs of tomorrow.

The way to do both is patently evident. Strengthen the racing and breeding enterprises by expanding gaming at the racetracks so that they can at least be reasonably competitive with full-line casino offerings in tangential states–Indiana, Ohio, West Virginia–and not-too-distant Pennsylvania. This is a win-win because the state’s cut of the racetrack’s revenues could be dedicated by law to education, funding of commercially-promising technology research, seed money for start-up ventures, and loans for business expansion.

Kentucky has two choices: (1) ruin the racing and breeding industry and compensate for the lost tax revenues with cuts to education, social services, and the like; or (2) bolster the industry and obtain the funds to augment economic development efforts and to improve education. What elected official would want a legacy associated with the first choice? Apparently, a few powerful ones at least.

The ever-logical Dr. Spock of Star Trek fame would look at these choices and be certain that Kentucky’s elected officials, of all political persuasions, and the business community are working together, with a sense of great urgency, to save and strengthen the Commonwealth’s flagship industry and, at the same time, are beginning to reap the wherewithal to get the state and its citizenry positioned to compete in the 21st century.

Spock would be wrong. It does not compute. Something is amiss  in Kentucky.

Copyright © 2010 Horse Racing Business

Comments

  1. Graeme Beaton says

    Bill,

    Kentucky is not alone. Maryland’s racing industry is also falling prey to political suicide of a similar species. In Maryland’s case, the equivalent of ‘Blackjack’ Williams is House leader Michael Busch, a Democrat whose antipathy toward the racing industry, like William’s, seems rooted in an intense dislike of the State’s racing elite. Busch blocked racing at every turn in its quest for alternative gaming and then reluctantly conceded to a bill that set the bar so high on taxation and other penalties that it frightened Stronach into inactivity and thus slots slipped from Laurel’s grasp. I am not a psychologist or a psychiatrist so I won’t attempt to analyze why it is Williams and Busch do what they do, but they seem be acting out an immature vindictiveness against those they perceive to be the ‘haves’ and to hell with the people’s wishes and how it will harm their respective States. In Busch’s case, I am pretty sure that he is not for sale and that largesse and ego-stroking would not turn his opinions. Williams I am not so sure about. Maybe if we fed that giant ego he might step off his headline-grabbing power trip. Perhaps a statue at Keeneland toasting him as ‘a great friend of racing in Kentucky’ would do the trick. And then maybe he wants a lot more than that…at some point, informally and out of the spotlight, someone might ask him what he really wants.

  2. bill shanklin says

    Graeme,

    Your are so correct about Maryland. I went to graduate school at the University of Maryland many years ago, which is close to Laurel racetrack. In those days, Maryland racing was terrific and Northern Dancer stood at stud in the state. Now, the situation has deteriorated badly. I am aware of Mr. Busch and his antipathy toward racing.

  3. Apparently there are more than a few political types who would turn our country into an Oligarchical type of entity. They would then be able to control our social behavior through economic tyranny and perpetuate the power of their chosen few. The best way to attain such power is to curtail education and to use morality and “love of country” to persuade people to act against their own best interests. Opposing gambling, which a majority of people in this country enjoy is an excellent start towards creating such a society.

  4. Good post, Mr. Shanklin.

    Graeme Beaton…I couldn’t have said it any better…excellent observations.

    The arrogance that Williams and Busch so disdain with such vengeance would also appear to be part and parcel of their own short comings. Although, a thorough personal finacial and activity history (real estate, vacations, investments [including trusts and family members]) of both would be well worth the effort.

    The irony is not lost on me.

    p.s. Kentucky is also in the bottom 5 of 50 rated states concerning animal welfare and enforcement…surprise, surprise!

  5. The KY state motto is Unbridled Spirit. All of the bill boards at the state’s entry points use a horse head as the logo in combination with this slogan. Unbridled, the horse, was a Derby winner. The “powers that be” are more than happy to use the horse industry to their benefit.

    So, as the article asks, what would keep KY legislators from helping their signature industry? Two words….. “Unbridled Arrogance”

  6. Mr. Shanklin:

    Not trying to take away from your post, but you need to do a serious scrub of your “Angels of Mercy” list. You’ve left some serious anti-slaughter, especially racing advocates out and included some that are more than questionable.

    But it’s your sandbox.

  7. Mr. Shanklin wrote:

    This is a win-win because the state’s cut of the racetrack’s revenues could be dedicated by law to education, funding of commercially-promising technology research, seed money for start-up ventures, and loans for business expansion.

    I would caution giving the states immediate benefits of revenues derived from additional gaming. The racetracks have their own problems. Not the least of which is overbreeding and the perrennial problem of unwanted racehorses, poor stabling as well as dilapidated facilities for conducting live racing.

    Perchance a racetrack benefits from legalization of VLT revenues, they must implement incremental takeout reductions to keep horse racing wagering customers solvent.

    The horse racing customers should not be neglected.

    With the Ohio River valley offering a gamut of gaming locations, any implementation of slots at Kentucky racetracks will likely turn out to be a temporary crutch lasting but a few short years, not decades.

    Let us address the horse racing customer in any long term solution.

  8. Knight Sky,

    The racing industry cannot dictate to the state what to do with its cut of VLT revenues. Are you saying that parimmutuel takeout reductions should be subsidized by the state?

  9. I understand that remington. Let the state do what they want with “their cut” of VLT revenues.

    The idea is not to forget about the main reason why the slots exist in the first place (and are located on the premises of a horse racetrack). The racing product and their customers !

    Quite frankly if all the state cares about is VLT revenues they should be building casinos in the commonwealth instead of implicating (and neglecting) the horse racing end of the business.

    Merely propping up purses through VLT’s for a few years does not address the various problems in the horse racing industry. A long term solution where horse racetracks can be self-sufficient is the best road.

  10. remington:

    The state ALLOWS expanding gambling (or any gambling for that matter), factor in interstate federal regulations and the gambling venues certainly have a right to construct the proposition (as they always do….or the major bidder for same)

    The problem is the state decides the final terms and award. That doesn’t seem fair to me as they provide absolutely NO investment dollars, determine their revenue (without populous or industry vote) and just simply “allow” the expanding gaming proposition.

    Alot of control there with little investment and huge revenue skimming in my book (pun intended).

    As to pari-mutuel takeouts, first you have the host gaming enterprise, then you have the venue, then you have the jurisdiction all taking a chunk when the bettors still have to be paid.

    The last to be served are the horses, the purses, the bettors (in order of last being first).

    The gambling provider and state ALWAYS get theirs first.

    Since most horse racing states provide little purse funding (I’ll give you tax benefits, as are for most businesses) or breeder’s incentives…I think the state is subsidizing very little if anything.

    Further, take a look at a revenue generated by racing in a state and see the cut the state gets. Then proceed to their budget and see how much racing gets.

  11. Bill Shanklin says

    D. Masters,

    I am always open to adding worthy organizations to my Angels of Mercy page, as it is meant to be a continual work in progress. Also, I don’t want to include unworthy groups. However, every organization I have listed are, to my knowledge, bona fide equine rescue and refuge organizations. If you want to send me a private email at wls@horseracingbusiness.com I will consider what you recommend. Thanks.

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