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Thursday, September 3, 2009

Riding the VLT Gravy Train - A Cautionary Tale

While the racing industry is correct in attempting to secure VLTs, many people feel they are a temporary band-aid which will allow harness (t-bred and q-breds) racing to fix its issues to become more popular. Others feel VLTs are the end all; purse supplements have become corporate welfare for harness racing's future and the argument of green space or preserving jobs is all we need to keep the welfare payments coming.

For those that feel VLTs are the end all, I give you for your consideration the story of Monticello Raceway.

The VLTs at Monticello began operating on June 30, 2004 and purses increased. In 2006, Monticello Raceway issued a press release highlighting the fact that purses for their May 2 race card was going to be the highest ever ($94,500) for a card of overnight racing at Monticello Raceway. The racing program for that day consisted of twelve races. On that May 2nd card was a $15,000 Preferred Handicap; a $12,500 'winners over' race and a $5,000 non-winners of $300 per start conditioned race.

A look at a current condition sheet at Monticello shows the following: Preferred horses go for $9,400 for a field of eight (a decrease of $5,600); a full field in a winners over $10,000 lifetime race for $9,400 (a decrease of $3,100). As you can see the purses have been cut, with the cuts greatest in the upper classes. In addition, some of the upper classes which used to be written back in 2006 are no longer written.

What happened?

When Monticello's VLT parlor opened, the only VLTs in operation in the state were at Finger Lakes Race Track, Buffalo Raceway, and Saratoga Raceway; these along with the Indian Casinos in upstate New York were out of market. One could argue the Indian Casinos in CT also were out of market. Monticello had a monopoly. Now, there are VLTs at Pocono Downs and Tioga Downs (each being less than two hours away). Yonkers Raceway opened which poached not only New York slot players who live closer to Yonkers but it also took the Northern New Jersey slot players who frequented Monticello.

So what does this mean? First of all, if you are an existing racetrack with slots, enjoy these glory days because they are coming to an end. Let's look at Yonkers Raceway. What do you think is going to happen to their VLT business once Aqueduct opens their VLT parlor? What happens to their VLT handle if the Meadowlands gets VLTs which I expect will happen in the next three years? Kiss your VLT revenue from New Jersey residents good bye. Care to speculate what this will do to the purse account at Yonkers? The horsemen may have to choose racing for half of what they are racing for now or race fewer days to minimize the purse cuts. Saratoga Raceway? There is talk about casino gambling coming to Vermont. What will be the impact on Saratoga? What happens to the Meadows in Western PA once slot machines come to Ohio next year (assuming the anti-slot foes loose their court challenges)? Ohio horsemen, while your purses will improve from their current level, don't expect a big windfall as slots will eventually come to Kentucky and you may have freestanding casinos in Ohio.

This is not even the worse case scenario. Let's consider the fact that Pennsylvania has in the past taken some of the VLT money directed to horse racing to cover some state budget issues. What happens when (notice 'when', not 'if') Pennsylvania or another state decides maintaining social programs are more important than racing and they decide to take more of the VLT revenue and divert it to the state budget instead of purse accounts; something easy to do when you have an empty grandstand? What happens if a state that has only VLTs decides to offer full service casinos not at a racetrack? Purses will come back to more reasonable levels. The question is how low.

Now, if that is not bad enough, let's consider the following. What happens to racing at tracks that due to the loss of slot revenue find themselves no longer able to service their debt? Empire Resorts, operator of Monticello Raceway, has been fighting to stave off bankruptcy and recently sold company stock to another company which gives the new investor one share less than 50% of the company to get working capital and are fighting a lawsuit to keep bondholders from calling in $65 million in bonds. Yonkers Raceway initially found the slot revenue was not enough to service their debt and as a result, New York State changed the law to give track owners more revenue to help pay off the debt. Will Yonkers be able to continue to service their debt when Aqueduct finally opens their slot parlor and The Meadowlands gets VLTs? One would assume being the states are dependent on the revenue from the VLTs they will pass new legislation to help the racetracks get past this economic difficulty. Out of whose hides will it come from especially when the track operators show that racing is a financial drain on their stability as racing can't support itself? Watch the states change the law so racing is no longer required to maintain the VLT licence. If the states don't pass legislation helping the tracks you may find some racetracks filing for bankruptcy and find land developers with no interest in racing buying the track property for redevelopment.

Here is situation outside of racing which illustrates the point. If a patient is in a hospital on life support, the doctors does everything they can to make the patient well, viable to survive on his/her own. At some point if the patient is doing better, the doctors will wean the patient off life support so they can live without assistance. Eventually, if the patient is not improving the hospital administrator may order life support turned off and the patient will die.

Harness racing is on life support. If racing does not do anything to improve its business by accepting the new landscape and adapt to strengthen its business by getting people to come out to the races as well as increase wagering both on and off track someone is going to pull the plug. It is just a question of when. All is not hopeful. We need people who can think outside the box and realize the new reality is hear to stay and make the best of it. Many people offer suggestions to improve the sport from cutting the takeout, less racing days, speed up the day's races, make it easier to understand the program, but it seems most people seem content to do nothing or are overwhelmed by the challenge. Those who care need to get rid of those that are content with the status quo and those who are overwhelmed by the challenge need to step aside and let those willing to face the challenge step up to the plate. Harness racing is a great sport and with the right people in charge it can survive in the new world. Make no mistake, hard decisions lurk ahead, sacrifices need to be made; some people are going to loose so everyone else will prosper.

Now is the time to step up to the plate. Who will be leading the charge?

3 comments:

JLB said...

Having raced at Monticello, Yonkers, and Pocono, there is no doubt that Pocono offers the best facilities for the race fan. In addition, it would appear from my experience that Pocono's surface is kindest to the horses (no surprise given that it is not a half-mile track, but the fact is that the turns are well banked and the surface has a decent cushion). Pocono also has minimal time between races, with 14 to 16 race cards. If, however, it does not does do something to lower the absurd 35 % takeout on trifectas, its already somewhat anemic handle will continue to suffer. This is too bad, because the fields are full, and the racing quite competitive.

Pacingguy said...

This is one thing I don't understand, with so little of the purse being funded by the actual handle, what would be the harm in reducing the takeout? Basic common sense tells you that reducing the takeout will churn the money more thus increasing the handle and making up, if not increasing profits.

I realize there is statutory take outs which the state requires, but I challenge Pocono Downs and the horsemen to cut the takeout for 30 days; reducing their portion of the takeout and publicize it. See what happens. If we are all wrong in our asumptions handle will actually increase at least they will have the proof next time someone calls for the takeout.

JLB said...

I do not know if you aware that, at Pocono, PA-breds, plus horses owned by Pa. residents or trained by Pa.-based trainers (the PA. Harness Horsemen's Assoc. determines eligiblity) now earn a 50% bonus if they win a race (no bonus for any other position). This is up from 20% less than two years ago. Given the financial windfall that the local horsemen are enjoying, your recommendation should be that much easier to implement - but I doubt it will happen.