“Yesterday’s Winner is a Loser Today”

                            Ernest Tubb

Whether or not you agree with the Federal-government bailout of Chrysler and General Motors is a personal preference, mostly depending on your ideology.  But anyone would concur that the elected officials in Michigan, Democrat and Republican alike, and the business community fiercely rallied behind the Wolverine State’s signature industry and spoke with a unified voice.  This “golden goose” was not about to go bankrupt if they could prevent it.

In Kentucky, the industry comparable to automobile manufacturing in Michigan is, of course,  the breeding, selling, and racing of horses, which directly and indirectly employs thousands of citizens, attracts significant out-of-state and foreign investment, promotes tourism, and undeniably contributes plenty of state and local tax revenues.

Yet all is not well, not by any means.   The racing industry does not need a bailout, but it does require a chance to compete on a more level playing field with casinos.

Churchill Downs, Ellis Park, and Turfway Park are fighting for their economic lives–with one hand figuratively tied behind their backs–against nearby Indiana casinos.   Even were Kentucky to legalize video lottery terminals, the tracks would still be disadvantaged because the Hoosier-state casinos offer both slot machines and table games.

Currently, Thoroughbred trainers in Kentucky often send their horses to Mountaineer Casino and Racetrack in Chester, West Virginia and Presque Isle Downs in Erie, Pennsylvania, as well as to other racing venues where purses are supplemented by alternative gaming.

Presumably, as in Michigan, elected officials in Kentucky–from both political parties–and business interests would have put aside their differences and unified to do everything possible to rectify the situation that imperils Kentucky’s version of the golden goose and thereby affects so many people, present and future.   As rational as this supposition may be, it is false.

Defying common sense and the economic enhancement of his State, the most recent former governor, Ernie Fletcher, a Republican from Lexington, the heart of the Bluegrass region itself, never tried to take the bold actions that would conserve and strengthen Kentucky’s vital horse-racing enterprise.  Enter the present governor, Steve Beshear, a Democrat, who defeated a field of contenders in his party’s primary by focusing essentially on one issue–installation of racetrack casinos.   He won and then handily defeated Fletcher in the general election, again with a laser-like focus on racetrack casinos.

Once in office, Beshear promptly proved to be powerless to get the bi-cameral legislature, with one house overwhelmingly controlled by his own party, to pass the enabling legislation to allow the voters of Kentucky to decide whether to amend the constitution to permit racetrack casinos.   The new speaker of the Kentucky House of Representatives, elected on January 6, 2009, is much friendlier to racing than the individual he replaced.   Inexplicably, however, Beshear has indicated that he does not intend to revisit the racetrack casino issue in 2009 and the president of the Senate remains adamantly opposed to expanded gaming, so prospects don’t look bright in River City and the Commonwealth.

Gambling is usually debated along cultural, religious, and moral lines.   The view here is that the alternative gaming question for Kentucky is in fact really one of long-range economic development on which the Commonwealth’s fate heavily depends in the decades ahead.  To be specific, alternative gaming is not itself the focal point for economic development, but rather, is a means to an end:   generating some of the capital to expand and diversify the Kentucky economy of tomorrow.

Industries, like people and products, have life cycles.   

Pittsburgh, for example, was and still is known as the “Steel City.”   Its famous football team is appropriately named “the Steelers” and its “Steel City Beer” is another namesake.  But the Pittsburgh-area economy is no longer dependent on steel, as it has made a bumpy transition after steelmaking moved offshore and to mini-mills.  

Another illustration: Dubai is diversifying at a frenetic pace in response to peak oil, although it has encountered some problems of late stemming from the credit crunch.

Leaders of cities, states, regions, and countries who are farsighted and want to provide for future generations, begin to broaden their economies before they are forced to do so.  It is nearly a certainty that today’s most prominent industries will be eclipsed someday.

Kentucky’s key industries traditionally have been bourbon, tobacco, coal, and horse racing/breeding.  Bourbon and tobacco are in decline, owing to the lifestyles of contemporary consumers and to unfriendly government policies.   Coal is still in strong demand, but is most likely living on borrowed time.  President-elect Obama is on record as being hostile to coal and his choice for Secretary of Energy, Nobel Prize-winning physicist Steven Chu, said that new coal-burning power plants are his “worst nightmare.”   Lastly, horse racing is in decline in Kentucky and nationally.

Reliance on these industries and the status quo does not bode well for Kentucky.    It is already a poor state that ranks low on the most important factor that it takes to compete in an increasingly global high-tech society: quality education.   (My family has deep roots in Eastern Kentucky and I have visited there often and have seen up close the poverty and the extremely limited resources that dedicated teachers have to work with.  Kentucky’s Fifth Congressional District has the shortest life expectancy in the United States.)  Further, national ratings of private and public institutions of higher education do not have any Kentucky university remotely proximate to the top echelon on the criterion of scientific research output.

Where must the money come from to mitigate this unfortunate and ongoing situation, if at all?   The answer is evident:   mostly from the tax revenues that Kentucky collects from its mature industries of the present, the cash cows,  and uses to educate and train its citizens in the skills appropriate to a high-tech, knowledge-based economy.

Thus it is difficult to fathom why elected officials would not do everything in their power to buoy the State’s current signature industry in order to gain more tax revenues for a longer period of time to foster economic development of nascent industries and companies.  Oddly, a democratically-elected body of legislators has persisted in denying their own constituents the free choice to decide for themselves, in a plebiscite, the fate of racetrack casinos. 

Kentucky’s bloodstock and racing enterprises need to be bolstered by allowing racetrack casinos, if, for no other reason, than for the economic vitality of the Commonwealth long after present-day elected officials are history.   Instead, the State’s restrictive laws on racetrack offerings have the unintended effect of promoting economic development in Indiana, West Virginia, and other rival venues, because countless Kentucky residents go there to eat, drink, gamble and stay overnight.

Contemplate a gloomy but plausible scenario for Kentucky, circa 2059:

The Commonwealth of Kentucky is about like it always has been in the economic pecking order among the states, muddling along in the lower ranks and never having found large-scale industries to replace coal, bourbon, tobacco, and horse racing.  This failure kept the State from making the investments in education, infrastructure, and business incentives necessary to compete effectively in the mid-21st century.

The Bluegrass of 50 years ago is mostly a memory.  Many of the farm owners tried to save their land from development, but the population growth ultimately swamped their efforts and the price of real estate and the faltering bloodstock business made it prohibitive for agricultural use.   Calumet Farm is now a residential development, Calumet Farm Estates, complete with white fences and the old red entrance gate.  The single remaining barn is a community center for subdivision residents.   The Kentucky Horse Park shows visitors a short movie depicting what the Lexington area looked like when it was blanketed by horse farms.  Churchill Downs and Keeneland are still in business, as shadows of their former selves, whereas the rest of the State’s racetracks are gone.   Most of the secondary and tertiary suppliers to the racehorse industry–veterinary clinics, feed vendors, bloodstock agencies, advertising agencies, and the like–have downsized or vanished.

After years of sleeping while the horse-racing industry plummeted, legislators finally came to and rose above personal agendas and politics.  The racetracks got alternative gaming, but it was too little too late.  By the time racetracks were permitted to install slots, the machines’ popularity had run its course.  Generations raised with far more challenging interactive electronic devices and 3-D Internet found the machines boring.

Indeed, no one knew it at the time, but the slot machines of 2009 would be passé in 10-15 years.  Web 3.0 was just beginning to emerge and it would be revolutionary.  With 3-D Internet, for example, a husband can try on a suit at a clothing retailer, look in a store mirror, and have his wife at work or home comment on the appearance.  Web 3.0 allows a poker player to be in his family room in Des Moines, Iowa, and occupy a virtual seat at a table in the poker room at a casino in Las Vegas, where he plays with electronic cards.  There is no distinction between betting at a racetrack and wagering from elsewhere, as everyone uses a mobile device. 

Governments long ago gave up the impossible task of trying to stop gaming within their borders and instead decided to regulate and tax it.

Looking back, people of 2059 are amused and perplexed when they learn about how controversial slot machines were to the Kentucky legislature of 2009.  Compared to today’s technologies, slot machines were pretty tame stuff.   However, a University of Kentucky history professor put the moral argument that took place over alternative gaming into perspective.  She told of how the Viennese waltz was scandalous when it was introduced, the product of lower class society and gin mills, because the man and woman held each other ‘sinfully’ close while dancing.   She said that about 100 years ago, an entertainment icon named Elvis Presley appeared on the top-rated television program of its day, the Ed Sullivan Show.   Presley’s hip-swiveling gyrations while singing were so ‘vulgar,’  many complained, that Sullivan ordered his camera crew not to take pictures of Presley below the waist.  

People are heard to lament, even now, how much better shape Kentucky would be in economically if the horse-racing industry would have been sustained earlier and longer by slot machines.  At least the machines would have filled tax coffers for awhile and provided some of the wherewithal for investing in the future of Kentucky.

The horse was out of the barn [pun intended] when elected politicians seriously endeavored to save the racing and breeding industry.

The January 31st edition of Horse Racing Business constructs a brighter future for the Commonwealth in When Kentucky Awoke and sketches how the horse-racing industry can be used as an economic lever to achieve it.

Copyright 2009 by Horse Racing Business.

Coming Attractions

January 31:  When Kentucky Awoke

February 14:   Racing’s Misguided Muhammad Ali Philosophy of Publicity

 February 28:   Churchill – Down or Up?