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


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.



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