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



Ohio has three Thoroughbred racetracks that are located in the Cincinnati, Cleveland, and Columbus metropolitan areas.  Four Standardbred racetracks are in or near Cleveland, Columbus, Toledo, and Lebanon. 

Thistledown, home of the Grade II Ohio Derby, in Cleveland is owned by Magna Entertainment, but is for sale as the parent corporation is desperate for cash.  The Standardbred racetrack in Toledo, Raceway Park, is also owned by a publicly-traded company, Penn National Gaming, as is the harness track in Columbus, Scioto Downs, which is part of Mountaineer Gaming Group.

These seven racetracks are all having hard times, so much so that the Ohio State Racing Commission hired a consulting firm to make recommendations in the final quarter of 2008 because the Commissioners candidly admitted that they were bereft of ideas about what to do.  Ohio’s agribusiness breeding industry is fading along with the racetracks.  The cause is not due solely to competition from gaming in states contiguous to Ohio, but that is the lion’s share of the problem.

Full-scale casinos operate in Indiana, Michigan, and West Virginia, and Pennsylvania has slot machines.  Only Kentucky, across the Ohio River to the south, does not have some type of alternative gaming.  River Downs in Cincinnati is impacted by a nearby Indiana casino; Raceway Park in Toledo is close to Detroit; and the Cleveland-area racetracks have been badly damaged by the slot machines and racing at Presque Isle Downs in Erie, Pennsylvania (Thoroughbreds) and The Meadows Racetrack and Casino south of Pittsburgh (Standardbreds).   They also must contend with the full-fledged casino at Mountaineer Casino and Racetrack in Chester, West Virginia (Thoroughbreds). 

Ohio held statewide plebescites on casinos in 1990, 1996, 2006, and 2008.  The votes in favor of casinos were 38%, 38%, 43%, and 37%, respectively.   These initiatives all made the fatal mistake of restricting the locations where the casinos would be built, so, as a consequence, the areas of the state left out voted no.  In three of the four failed ballot initiatives, the county or counties for which a casino was proposed voted affirmatively.  This indicates that were all regions of the state to be cut in on the action, especially the population centers, a casino referendum might well pass.

In the 1990 referendum, only Lorain (near Cleveland on Lake Erie) was to get a casino with the vague possibility of later expansion to other parts of Ohio.  In 1996, riverboat casinos were proposed for four counties, three in Northeastern Ohio and the other in Hamilton County (Cincinnati).  In 2006, the ballot language permitted two casinos in Cuyahoga County (Cleveland) and at the State’s seven racetracks.  Most recently, in 2008, the proposal was for a single casino resort in one of Ohio’s poorest counties.   Penn National Gaming spent $36 million to defeat this measure in order to protect its properties–the Argosy Casino in Lawrenceburg, Indiana, and Raceway Park in Toledo.  Moreover, the Ohio State Racing Commission urged a no vote.

A ballot initiative would have a far stronger chance of approval if it were to specify casino permits for Cincinnati, Cleveland, Columbus, and Toledo, and, perhaps, for the Lake Erie Islands, near Sandusky, and Youngstown.  The likelihood is that cash-starved big city mayors and county commissioners would rally support.   

In the past, the major political movers and shakers of both political parties have weighed in against expanded gambling–most notably, onetime Republican governor and now U. S. Senator George Voinovich–who is retiring in 2010-and the most recent past governor, Republican Bob Taft, and the current governor, Democrat Ted Strickland.   Strickland is a former Congressman and Methodist pastor with an earned doctorate in psychology from the University of Kentucky.  He has the reputation of being fair-minded and honest. 

To Voinovich’s credit, while he has campaigned against alternative gaming and casinos, he has supported pari-mutuel wagering on horse racing because of the agribusiness supply chain behind it.  The significant economic impact of the horse industry and horse racing in Ohio is substantiated in the American Horse Council Foundation report by Deloitte and posted at Ohio Thoroughbred Breeders and Owners.

In the midst of the current Ohio budget crisis of mammoth proportions (around $7 billion), Strickland is wavering on his opposition to expanded gambling.  In 2008, he lent his support to letting the Ohio Lottery install Keno in bars, restaurants, and racetracks.  In early January 2009, Strickland said:  “I think it is impossible to know how deep this recession is going to be or how long it is going to last.  I am therefore willing to keep an open mind and listen to whatever argument that may be brought to me regarding gambling.”   

The Governor has already met with Penn National Gaming officials.   Penn National’s proposal, which has not yet been formalized, would be on the November 2009 ballot and would put casinos at all seven racetracks and maybe at other venues.  My Ohio Entertainment, the organization behind the failed 2008 casino ballot initiative, is proposing another referendum for November 2009 that would allow casinos in Cincinnati, Cleveland, and Columbus, plus the possibility of two additional locations.

The President of the Republican-controlled Senate says that he personally opposes gambling but would at least consider supporting a ballot proposal for the sake of assisting Ohio’s economy.  The new Speaker of the House, a Democrat, is an outright advocate of expanded gambling for the Buckeye state as a means to create jobs and bring in revenue.  Ohio’s largest newspaper, The Plain Dealer, on January 11, 2009, ran an editorial titled “It’s time to get casinos and their taxes and jobs.”  The co-authors were the president and the CEO of the Greater Cleveland Partnership.

Two days prior to the Obama inauguration, Ohio’s Democrats celebrated at a plush dinner and ball at the Renaissance Mayflower Hotel in Washington, DC, complete with music by the 235-member marching band from Ohio State University.  The cost was partially underwritten by sponsors, who paid anywhere between $10,000 to $75,000 each.  One of the sponsors was none other than Penn National Gaming.

As with previous casino proposals, there will be plenty of opposition from assorted organizations and individuals.  For instance, a Plain Dealer columnist wrote on January 18, 2009:  “Circulating in Columbus is a scheme to install video lottery terminals (‘VLTs,’ a sanitized term for slot machines) at Ohio’s horse-racing tracks and in a couple of downtowns…Except for the Bushes and the Clintons, no one has made a greater sense of entitlement than Ohio’s horse-track owners…The real object of VLTs will be, by Statehouse fiat, to further enrich people who are plenty rich already…”   (An objective observer who reads this columnist regularly quickly discerns that he often advances ad hominem arguments like this one and is resentful towards anyone who might make a profit that, in his view as a self-appointed moral arbiter, is excessive.)

Whether the racing agribusiness in Ohio receives help or not depends on four key eventualities.  First, the Governor will evaluate his re-election chances for 2010 by weighing the pros and cons of his offering tacit support for expanded gambling.  The deepening budget crisis will have a lot to do with his decision; if Ohio gets sufficient federal bailout funds from the Obama administration, then the gaming revenues will not look as attractive, given the Governor’s re-election risks of alienating important constituencies.  Second, if two or more competing casino proposals make the November 2009 ballot, the likelihood is that they will fail.  A focused effort is required.  Third, even if a casino initiative passes in a statewide vote, Ohio’s seven racetracks may or may not be included as sites.  Lastly, the odds of passage are increased if all of the major population centers are allowed to have their own casinos.

A perfect storm will have to occur for Ohio racing to be extended a lifeline in the sea of competition it finds itself drowning in from surrounding states.  Otherwise, the prognosis is grim.

In a battered state economy that is so dependent on the shaky “Big Three” automobile manufacturers, Ohio needs every job source it can get.  The unemployment rate is 7.8% and rising. 

Ohio’s racetracks employ many people and account for considerable local and state tax revenues, as do the independent contractors like trainers, veterinarians, and feed suppliers, whose businesses depend on the racetracks and the farms.  Horse racing is a sizeable agribusiness in Ohio and should be cultivated by elected officials.   One sure way to do that is to allow the racetracks to be more competitive so that their customers are not so easily lured to the racinos and casinos in nearby states.

 Copyright © 2009 Horse Racing Business