Tracking The Slots

The mid- to late-nineties were tough times for the Louisiana racing and breeding industries. In just six years’ time, the number of mares bred in the state had fallen by 35 percent and the number of race days in the state had dropped from 520 to 295. The cause was obvious. In 1992, video poker was legalized in Louisiana and two years later the first of what would be many riverboat casinos in the state opened. Horse racing and its rich tradition was being battered from all sides.

Fast forward to 2013 and the Louisiana racing and breeding industries are booming. Just 10 years after things had bottomed out in 1997 the racing and breeding statistics were hitting new highs across the board. In 2007 the amount of mares bred in the state was up to 4,154, an increase of 119 percent over 1997 figures. The average purse per race had increased by 109 percent. In Delta Downs, the Fair Grounds, Evangeline Downs and Louisiana Downs the state has four thriving racetracks.

It’s all because of racetrack slot machines, which first appeared at a state racetrack in 2002.

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“The slot machines are what fueled this industry and got it to where it is today,” said Jay Adcock, the owner of Red River Farms, one of the state’s leading breeders. “Honestly, we can’t survive without slots machines. When the riverboats first came here they put a big hole in our business. We were the only gambling game in town. Then people found a new game that was new and fast-paced. I think I can speak for basically the whole industry in the state. Would I still be in business without the slots? Yes, because this is the only thing I know. But where I now keep 100 mares a year I would probably keep 30 or 40. Where I have nine stallions I probably would have half that many, four or five. Where I now breed 350 mares a year it would be half that.”

Adcock’s farm is in Coushatta, Louisiana, about 1,800 miles from Toronto. But he’s not so far away that he doesn’t follow what is going on in Ontario and shake his head in disbelief.

“I saw what they did in Ontario taking all that slot money away from racing,” he said. “If someone wanted to cripple an industry they sure figured out the best way to do it.”

He says that not just because his business is doing well but because every business he associates with is benefitting from racetrack slots.

“The spinoff from what we do is remarkable,” Adcock said. “I have 12 full time employees and if our numbers were to go down so would our number of employees. Not only that, look at the feed, the hay I use every month. Look at the tack. I pay for people to take care of our fences. I hire people to care for the grounds. There are so many little things that people don’t really see.”

Racing is Big Business

Louisiana is far from alone. It is one of 11 thoroughbred states that have slot machines at its racetracks. Two others, Kentucky and Arkansas, allow Instant Racing games, a slot machine like device where the outcome of the spin of the wheel is determined by historical horse races. The common thread between all 13 states is that legislators realized that racetrack slot machines are good for the state, the economy and, yes, horse racing. In Louisiana, the importance of the latter was the primary reason racetrack gaming was legalized.

The revenue split from slots-at-racetracks programs varies from state-to-state with the largest share going to the government and the casino operator. Following is the horsemen’s share in the five states discussed in this article:

New York: 7 percent for purses. 1.25 percent for the breeding fund. In 2014 and beyond the numbers will increase to 7.5 percent and 1.5 percent.

Louisiana: 15 percent for purses of which 70 percent of that goes to thoroughbred racing and 30 percent to quarter horse racing. An additional 2 percent of the slots revenue goes to the thoroughbred breeding fund.

Ohio: The legislation in Ohio that approved racetrack slots says that no less than 9 percent can go to racing and no more than 11 percent. Of that amount, 70 percent goes to overnight purses and 30 percent is allocated to purses for state bred races and other breeding programs. The lack of precise numbers means the horsemen, breeders and racetracks must negotiate. At Thistledown, the only Ohio thoroughbred track that currently has slots, those negotiations have not been completed. In the meantime, the track has raised purses roughly the equivalent of 10 percent of the slots revenue.

Delaware: 10 percent of the slot money goes toward purses. There is no breeding program in the state.

Florida: 12 percent to purses and 1.2 percent to the breeding fund.

“The racing industry creates a multi-billion dollar influx of revenue into the state,” said Roger Heitzmann III, the secretary-treasurer of the Louisiana Thoroughbred Breeders Association. “The trickledown effect is what makes it that way. For the most part our politicians understand this. Our Director of Agriculture, Dr. Mike Strain, is a big supporter of the racing and breeding industries. He has done studies himself and he knows what lies behind getting the horse to the races, the thousands upon thousands of dollars that are spent just to get a horse to its first start. Many members of the House and Senate closely follow the racing game, as well. For one, they enjoy the game and that’s a luxury that we have. They follow it because it is a big and important business in Louisiana.”

Politicians in Louisiana were generous to racing. Fifteen percent of the net win from the racino slots goes toward purses. Louisiana has also paid particular attention to its breeding industry and requires that at least three Louisiana-bred races be run on any racing card in the state. Thirty percent of the thoroughbred industry’s share of the net win from slot machines goes toward purses for Louisiana bred races.

New York, New York

Louisiana racing is good, but nothing compares to New York.

New York was once the unquestioned leader in thoroughbred racing in the U.S but its position of pre-eminence started to erode, largely due to its dysfunctional relationship with off track betting. New York is the only state in the U.S. where the OTBs are not run by the racetracks and instead of helping racing New York’s OTBs siphoned money away from the tracks. California and Kentucky racing caught up with New York and, some would argue, passed it.

The first racetrack slot operations in New York began in 2004, but the New York Racing Association tracks were left behind. Due to political infighting and bureaucracy, NYRA didn’t get gaming until late 2011. By that time, slot-fueled purses and breeding programs in Pennsylvania and other neighboring states had given horsemen and breeders plenty of lucrative options, further weakening New York.

“There was a seven-year trend, from 2004 to 2011, where we were in a serious downward spiral,” said Jeffrey Cannizzo, the executive director of the New York Thoroughbred Breeders, Inc. “Things were pretty bad.”

Cannizzo said that about 100 breeding farms in the state closed, or about 25 percent of the farms in the state. The mare population dropped by 37 percent, the foal crop by 35 percent, and the stallion population by 57 percent.

In 2011, a casino at Aqueduct opened and everything changed. Purses for both New York-bred and open races at the NYRA tracks are the best in North America. At Belmont, allowance races go for as much as $79,000. Cannizzo projects that by 2014 the breeding fund for New York breds will pay out $20 million annually, a 100 percent increase from the pre-racino era.

New York breds are now a hot commodity The amount of mares bred in 2012 was 1,637, a 37 percent increase over the previous year. Cannizzo expects the number will go even higher this year.

In 2012, the New York Horse Racing and Agriculture Industry Alliance commissioned a report that found that the New York equine industry, which includes standardbreds, contributed $4.2 billion to the state economy in 2011 and yielded about 33,000 jobs. The study also found that each race horse in the state generates about $92,000 of economic activity and that there are 80 jobs in the racing and breeding business for every 100 horses.

Rolling in Ohio

The latest slots state in the U.S. is Ohio, where resurgence in the breeding and racing programs happened overnight. In 2003, 606 mares were bred in the state, a number that plummeted to 168 in 2011.

“The Ohio breeding program was down to a small number of people breeding to race because there was no market to sell the horse at public auction,” said Tim Hamm, the president of the Ohio Thoroughbred Breeders & Owners.

Hamm estimated that about 320 mares will be bred in Ohio this year and said the numbers are likely to keep increasing over the next few years. The fund for Ohio bred races was $1.7 million last year and Hamm said it will increase to $8 to $10 million within two or three years.

“The program is just getting rolling,” he said. “The numbers are going to take a few years to build up, but there’s life in the program and there’s going to be a commercial market for Ohio breds. Ohio breds sold well at Keeneland September. Some of that is because they were nice horses, but it’s also because of the anticipation for the slots.”

What’s Your Cut?

New York and Louisiana top the list when it comes to racino success stories. Florida sits somewhere down that list. When slots came to the Florida tracks, the cut to purses was just 6.75 percent and the breeding fund got only .75 percent. Slots at Gulfstream and Calder brought only marginal increases in purses and seemed to do little for the state’s breeding program. Still another problem is the glut of gaming facilities in the state, where dog tracks, jai alai frontons, Indian casinos and the so-called “cruises to nowhere” all compete for the casino customer.

Even with slots, the industry had to weather some tough years. The number of mares bred fell from 7,073 in 2006 to 3,029 in 2011. Seeing how little an impact the slots were having, the Florida racing industry lobbied hard in 2009 to change the way slots revenue was cut up. Racing leaders got the state to reduce its share of the slots money from 50 to 35 percent, which put more money into the pockets of the track owners. With so much money freed up, the cut for purses was increased to 12 percent and the cut to the breeding program increased to 1.2 percent.

The Florida breeding industry enjoyed an immediate resurgence and the 2013 foal crop will be bigger than the one from the prior year. Lonny Powell, the CEO of the Florida Thoroughbred Breeders’ and Owners Association, said that there is something to be said for getting a smaller slots cut than other states.

“We saw some of the early states that got into the racino business getting really strong deals for the industry and those got to be looked upon down the road by those outside the industry when economic times got tougher as deals that were too good,” Powell said. “People thought everyone was getting too rich. There have been a number of slots jurisdictions where their money has been redirected to non-racing industry activities. Looking back in hindsight, I remember there was some reaction from others that Florida didn’t shoot high enough. That’s probably a good thing. Now, the money is probably right where it needs to be where there is no impression that the industry is getting subsidized. Our program has stayed off the radar screens of those wanting to move money from one area to the other.”

Delaware is another state where the racetrack-slots marriage has been less than perfect. The problem in the “First State” has been finding horses to fill racing cards, even racing cards with big purses. One of the problems is that there is, for all practical purposes, no breeding industry in this tiny state where finding room for horse farms would be a challenge.

For years Delaware Park flourished without a state breeding industry to support it. Located about halfway between Philadelphia and Baltimore it drew horses and fans from the north and south and had the luxury of being part of the Maryland circuit. With Maryland racing setting off on its own and with Pennsylvania legalizing thoroughbred racing, Delaware started to get squeezed on both sides and closed down in 1982. It reopened two years later under new ownership but became a minor-league racetrack.

That all changed when racetrack slots were legalized in Delaware in 1994. With far better purses and racing stock and with slots track owners getting plenty of money, Delaware Park racing became some of the best in the Mid-Atlantic region of the U.S.

Delaware Park, the lone thoroughbred track in the state, is still a lot better off today than it was in the pre-slots day, but it has fallen behind the competition. Once slots came to Pennsylvania and West Virginia, area horsemen had other opportunities to run for rich purses at the racinos.

Delaware’s biggest problem has become finding horses to fill its racing cards. Unlike competing states it has no influx of Delaware breds to put in the starting gate, which puts it at a major disadvantage versus Pennsylvania, New York and West Virginia, slot states that have invested in their breeding programs. Delaware Park had 137 race days in 2008. It will offer only 81 this year.

Yet, there’s little doubt that Delaware Park would not be in business today without casino gaming. You take that racetrack away and you’ve killed off hundreds of jobs and buried an industry. In Delaware, two standardbred racino tracks are also operating, offering good purses and providing jobs.

That’s a common theme throughout the U.S. where the majority seems to understand that when it comes to slots and racing everyone comes out a winner.