Kentucky Horse Tracks Battle Economy, Slots

Ron Geary thought he'd made it through the worst of it. The owner of tiny Ellis Park in western Kentucky salvaged the racetrack's summer 2008 meet with a bit of showmanship.

Nontraditional events like "Wiener dog" and ostrich racing turned Ellis Park into a modest success story, and brought a little buzz to the tidy dirt oval hard by the Ohio River in Henderson, about two hours west of Louisville.

While the handle at racetracks throughout the country fell almost 10% in the third quarter, the place with the small soybean field planted across the infield fell just 3%. As other operators struggled to bring people to the races, attendance rose slightly at the track Geary purchased from Churchill Downs Inc. two years ago.

All things considered, it was one of the better meets in the track's storied 87-year history.

Geary fears it may also be one of the last.

"The summer of 2009 is going to be extremely bleak," he said.

While Geary isn't naive enough to think racing is immune to the global economic downturn, he knows racing as a whole will survive. Pictures of crowded grandstands at Ellis Park during the Great Depression tell him that. The question is which tracks will thrive and which ones won't make it.

Geary's biggest concern isn't the economy but the growing chasm between states like Pennsylvania and Indiana where racing is subsidized by alternative gaming--such as slot machines and video lottery stations--and states like Kentucky that have to rely almost entirely on wagering for survival.

"Kentucky has allowed all of our surrounding states to use alternative gaming at racetracks to supplement their total operations as well as greatly improve their purses," Geary said.

When the betting windows open at Ellis Park next summer, the track will have something Geary never anticipated: local competition.

Indiana Downs and Hoosier Downs, both within easy driving distance from Ellis Park, will expand their spring and fall meets after Indiana lawmakers approved a measure allowing alternative gaming at both tracks. Instead of having the summer pretty much to itself, Ellis Park will have only a two-week window in July to call its own.

Geary estimates the Indiana tracks will be able to offer $180,000 in daily purse money next summer thanks in part to revenue generated by alternative gaming. He expects to offer about only $135,000 in daily purse money in 2009 at Ellis Park, a figure largely based on how much money is wagered on races at the track and how much is bet on other races across the nation at the park's simulcast facility.

"That's going to be our death knell," Geary said. "There's no way any Kentucky track can survive that purse differential."

There's no easy way out.

The only way Geary can raise the purses at Ellis Park is to get the track's handle up, and the best way to do that is to increase field sizes, which translates into more betting because there are more options to choose from.

The problem is that trainers who would consider bringing their horses to Ellis Park can now opt to go to tracks in states where the purses are bigger because of revenue from slot and video lottery machines.

It's already happening.

Trainer Larry Jones, who spent more than two decades grinding out a living at Ellis Park, moved his operations to Delaware Park in 2005 because of the track's lengthy seven-month meet and lucrative purses provided by tourists dumping their quarters into slot machines.

"Money is what you've got to chase in this game," Jones said. "This is a business. Why run (at Ellis Park) for half the purse that you can run in up here and not have to run any harder here."

Jones is hardly alone. Geary estimated more than 400 horses that would have normally run at Ellis Park this summer were sent elsewhere.

"I've had trainers tell me they love Ellis Park, but they have expenses they have to meet," Geary said.

Kentucky isn't the only state struggling to keep up. California and Texas, both major racing states, are slumping at the gate and the betting window.

Though Oak Tree's meet at Santa Anita in Arcadia, Calif., posted a modest increase in handle during its fall meet, most of it was due to a two-day visit from the Breeders' Cup. Take away the money bet on the two richest days in horse racing and on-track handle was down 14% for the meet.

While the downturn in the economy can be attributed to some of the loss, California tracks now find themselves competing with Indian casinos for the wagering dollar. Texas, like Kentucky, is watching some of its horsemen head to places like Louisiana, where alternative gaming is available.

"Clearly tracks and jurisdictions that can take advantage of new revenues of alternative gaming have an advantage over tracks that don't have access to those revenue sources," said Alex Waldrop, president and CEO of the National Thoroughbred Racing Association. "It remains to be seen if California, Kentucky and Texas can adjust."

Some say a racing society of "haves" and "have-nots" is already here.

"I think you have that right now," said Charles Hayward, president of the New York Racing Association. "The racing circuit in Maryland has been devastated because there's gaming in West Virginia, gaming in Delaware and the purses there are substantially higher because of subsidies from the gaming."

Maryland, however, finally received the boost it was looking for when voters approved a state constitutional amendment authorizing the General Assembly to place up to 15,000 slot machine terminals at five sites, one of them likely being Laurel Park. It's a move Maryland Jockey Club president and CEO Tom Chuckas said would keep the state's horse industry "strong for years to come."

Even New York, which boasts Saratoga and Belmont Park and has made alternative gaming available at some harness tracks, is getting more involved. State lawmakers have approved a plan that would allow video lottery terminals to come online at Aqueduct in the second quarter of 2010.

"(NYRA) will be profitable in 2009, but in 2010 the VLTs will provide a substantial increase in capital improvements," Hayward said.

The proof lies a few hours to the east in Pennsylvania, which has become a racing hotbed after lawmakers approved alternative gaming in 2004.

The measure stipulated that casinos put a portion of their revenue into the Pennsylvania Race Horse Development Fund. The majority of the money the fund receives is then put into things like purses and sire stakes.

Two years after the first casino opened, Pennsylvania has more than 13,000 alternative gaming machines spread out over six tracks, two of which--Presque Isle Downs in Erie and Harrah's Chester just south of Philadelphia--opened after alternative gaming became available.

The machines have turned into ATMs for the state's racing industry. The amount of purse money at Pennsylvania tracks nearly doubled from $63 million to $121 million between 2006 and 2007, the first year alternative gaming was widely available. The number will be significantly higher in 2008 despite total handle actually declining over the same period.

The owners of winning horses aren't the only ones benefiting from alternative gaming. The gaming measure in Pennsylvania also required tracks to reinvest some of the money from the gaming subsidy back into the track. Philadelphia Park has already committed $25 million toward the renovation of 36 barns and 12 dormitory facilities located on the track's backside area.

"It's helped the industry tremendously," said Melinda Tucker, director of racetrack gaming for the Pennsylvania Gaming Control Board. "There's a lot of money being spent on the backside. It's not just about the purses."

That makes racing in Kentucky an even tougher sell. While purse levels in Pennsylvania have doubled, Kentucky's have remained stagnant at about $80 million paid out each year since 2004.

Even Churchill Downs, home of the Kentucky Derby, was forced to reduce purse levels during its current fall meet because of a number of factors, including the economic downturn and an ongoing dispute with horsemen on how to split money bet through advance deposit wagering accounts.

"It's a concern for us because horses are going to run where the purses are," said Churchill Downs president Steve Sexton. "In states where there is no alternative gaming, purses will stay flat and costs will continue to escalate."

Kentucky Gov. Steve Beshear won election in 2006 based partly on a platform to offer voters a constitutional amendment that would allow casinos in the state. It never got off the ground and looks like a long shot to gain any traction in next year's General Assembly.

"It's going to be a very difficult task for us to be in a position to survive," Geary said. "We might have our meet, but we might not have any horses show up."

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The Associated Press

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