Updated: Oct-05-2010
Created: Aug-21-2009

The deadline that was initially set for August 1 has been pushed back, but this week the window closes for the final proposals for the right to redevelop and operate Aqueduct Racetrack as a racino.  With the economy in a downturn, there will be pressure on New York’s elected officials to deliver a quick decision.  According to news reports, one of the proposals under consideration promises to make the Queens raceway the largest slot parlor in the world…  That’s right, Aqueduct Racetrack could become ‘the largest slot parlor in the world’.

 

Racetrack casinos, or racinos, have been around since the 1990’s and have spread geographically as more states have approved legislation to allow them.  While the controversy in New York rests on which plan to choose, for the racing industry it fits into a larger topic concerning the proliferation of racinos and how they affect the horse racing industry, host communities, and competing venues.

 

Racinos Increase Purses and Provide Jobs and Tax Dollars

 

According to Racinos.com, West Virginia pioneered the racino concept in 1990 when MTR Gaming Group was allowed to introduce video lottery terminals (VLTs) to Mountaineer Race Track and Gaming Resort in Chester.  Many states currently allow the operation of racinos; other states are considering following suit.

 

Where racinos have been introduced, there is evidence that they have had a positive effect on the horse racing industry.  For example, a July news article in the Portland Press Herald reported that purses had more than doubled and race dates had increased since the fall of 2005 when a racino opened at Bangor Raceway.  At Scarborough Downs, total purse figures rose from $1.9 million in 2005 to $4.3 million in 2008.

 

Racinos are a bright spot for the casino entertainment industry as well.  The AGA Survey of Casino Entertainment: State of the States report 2009 identifies racetrack casinos as the primary method of gaming expansion.   Although the industry as a whole suffered from declining revenues, gross revenues for racinos were up in 2008 by 17.2 percent, growing to $6.19 billion. 

 

The report identified expansion in Pennsylvania and Indiana as the primary drivers of growth in both gaming revenue and in tax contributions.  Additionally, Indiana added 1,412 new jobs to the racetrack casino sector in 2008. 

 

Drawbacks for Host Communities

 

Although the State of the States Report 2009 identifies steady growth in employment and tax revenues from racetrack casinos, some question if the industry statistics reflect the true benefits to communities. 

 

A Ball State University study of West Virginia’s racinos over a 26-year period determined that counties with racinos saw a one time employment gain of just over one percent, while the average salary in the area dropped by as much as 2.9 percent.  According to the Ball State University study, in “The Journal of Economics”, the average racino employee makes less than $14,000 annually. 

Critics of the study contend that the $14,000 average salary for racino employees is an underestimate of what similar employees would make in other geographic areas.  In an August article for the Tribune Business News, James Karmel, an associate professor at Harford Community College, disputed the relevance of the study when applied to other counties, saying that other studies have shown higher compensation for casino workers.  The example given was Massachusetts, where the average salary for casino workers was $35,000. 

 

Racinos Might Not Increase Fan Bases or Racing Handles

 

For racetracks and those who work for them, the addition of casino gambling is often seen as a salvation, credited with rescuing or reviving tracks that are struggling financially.  And for outsiders who are not accustomed to horse racing, the marriage between racetracks and casinos seems like an easy union since both racetracks and casinos offer gaming.  Where racetracks are already established, acceptance of gambling (often a political roadblock) has a historical basis.  In addition, much of the infrastructure to serve customers already exists on behalf of the racetrack.  While these things lend themselves to integration, the character of each type of play and player can be quite divergent.

 

In an editorial in United Press International, Joe Bob Briggs argued that horse players and slot players are two inherently different types.  Slot players thrive on instant gratification and the pure chance of slot play.  Successful horse playing, on the other hand, tends to favor preparation, study and skill.  Briggs cited the example of Louisiana Downs where the slot machines were originally interspersed throughout the grandstand.  After agitating both types of players with the setup, Louisiana Downs finally segregated the horse players and slot players on separate floors. 

 

On the other hand, most people with a vested interest in horse racing will happily carve out an area for casino players in exchange for the larger purses that often come with the bargain.  However, it can be a bargain with consequences.  Larger purses do not necessarily translate into larger handles or more fans.  The Portland Press Herald reported that in Maine, the overall handle was down by 11.09 percent in 2008 from the previous year, despite the larger purses.   No increase in fans was reported either. 

 

In the short term, horse racing fans will not see many disadvantages from transitioning into a racino, but the long term outlook is harder to predict.  In an August article in The Courier Journal, Wynn Jolley, a third generation Mountaineer trainer, described a progression from the initial positive impact he experienced through larger purses, to what he now sees as operators’ dwindling interest in racing relative to the more-profitable casino games.  Jolley was quoted as saying, “…I stand in the (Mountaineer) barn area, and I look at the casino on the hill, and I feel like I'm standing in the ghetto. All costs being cut are at the horsemen's expense, not the casino.”

 

States Compete For Customers

 

With more and more states legislating to allow for racinos, competition between states is a growing problem.   According to the State of the States 2009 Report, Pennsylvania experienced the largest increases in racetrack casino jobs and tax contributions in 2008.  Pennsylvania’s increase in tax distributions to state and local governments rose 89.3% from 2007 to 2008.  However, Pennsylvania’s gain appears to also been West Virginia’s loss.  A February article in The State Journal reported on West Virginia’s campaign to persuade lawmakers to authorize racinos to offer promotional credits.  Bog Griffin, CEO of Mountaineer Casino, Racetrack and Resort said, “It is the most critical issue facing us.”  Why were promotional credits such an issue?  Because part of neighboring Pennsylvania’s success came through their ability to draw customers by offering free play coupons to get customers into their facilities.  Unlike Pennsylvania, operators in West Virginia would have been required to pay tax on similar coupons if they issued them.    Mountaineer’s slot business dropped as much as 50 percent after Pennsylvania’s slot business began competing. 

 

The campaign in West Virginia appears to have been successful.  In an August 12 press release for MTR Gaming, Mountaineer’s parent company, the company stated that they were “preparing to take advantage of the approved non-taxable promotional credits, or free play, in West Virginia starting in September 2009. We believe that free play will position Mountaineer to compete more effectively in the expanding Ohio Valley market."  

 

Expansion Needs To Be Mutually Beneficial

 

Despite worries of market competition between states and the fear that racing will be overshadowed by casinos, many horse racing advocates welcome the boost that comes with expansion into casino gaming.  However, many acknowledge the necessity of finding a balance that can benefit both industries.