Issue April 24, 2012

Weep some more, my lady

Following another defeat of expanded gaming, Kentucky’s horse industry braces for further decline

Well over 100,000 visitors will attend the Kentucky Derby, betting, imbibing and singing along to “My Old Kentucky Home.” But regardless of how impressive the first Saturday in May might be at Churchill Downs, many fear the bluegrass is on the brink of losing its status as the mecca of the horse industry.

Facing increased competition from other states beefing up their industry with revenues from casino gaming, Kentucky tracks have cut down their racing days and purse winnings. Meanwhile, owners are increasingly moving their horses to states with higher purses and
breeding incentives.

The Kentucky horse industry’s hopes of overcoming this competitive disadvantage were once again dashed this past February, as the state Senate killed yet another effort to bring casinos to racetracks.

“I would say Kentucky is under siege on multiple levels, and I wouldn’t call the Kentucky Senate a very good foxhole buddy,” says longtime horse racing writer Ray Paulick, founder of the widely read Paulick Report website.

With no clear change in store for Kentucky’s political landscape, the horse industry is now bracing for what could be an even more dramatic decline in the
coming years.

“I don’t want to say that this is the death of horse racing (in Kentucky), because I don’t think it is,” Paulick says. “But this is definitely going to impact Turfway Park first.”

Though racing at Churchill Downs and Keeneland in Lexington are the A-list celebrities of Kentucky, Turfway Park in Northern Kentucky has long been the track with the most races. But many believe Turfway’s days are numbered.

Turfway, which has already decreased its number of racing days, announced in March plans to cut non-stakes purses by 25 percent. This comes at a time when many tracks around the country — in Indiana, West Virginia, Pennsylvania and New York — are increasing purses due to revenues bolstered by their casinos.

Turfway’s dilemma is exacerbated by gambling competition nearby, with Indiana’s riverboat casinos and a new casino soon to open in downtown Cincinnati. Such competition has also impacted Churchill Downs — with Horseshoe Casino in New Albany — and Ellis Park in Henderson, located near two “racinos” across the river in Indiana.

According to statistics complied by The Jockey Club, Kentucky has seen a more than 20 percent decrease in the number of races since 2007. Additionally, more horse owners are choosing to send their horses to breed in states that provide financial incentives, such as New York.

Patrick Neely, executive director of the Kentucky Equine Education Project, says this exodus is the inevitable business result of Kentucky’s competitive disadvantage.

“As new states (increase purses and breeding incentives), the exit out of Kentucky to other states is only going to continue, and probably become more rapid,” Neely tells LEO. “So it’s a decision for horse owners and farm owners: Where are you going to do business? And if you can make more money locating your racing operation or your breeding operation in New York, you’re probably going
to do that.”

Though Churchill Downs is bolstered by the prestige and revenue of the Kentucky Derby, it’s not immune to the problems facing Kentucky’s smaller tracks. Churchill has reduced its racing days in recent years, and its meet following the Derby faces increased competition from Belmont Park in New York, racing at the same time with purses increased 44 percent with a possible $100,000 bonus for owners of horses who win their first race.

“This year, they’re sending horses to New York from Kentucky that they normally wouldn’t,” Paulick says. “And for every horse that goes somewhere else, it makes it that much harder to put on a good racing program.”

Despite these difficulties, those in the industry are hopeful that a new form of gaming can help stem the tide: instant racing — a slots-like game in which people bet on previously run races.

Kentucky Downs, a small track in Franklin with a limited number of races, was the first Kentucky track to install instant racing machines last summer, following decisions by Attorney General Jack Conway and a circuit court declaring such games are constitutional.

Much like Oaklawn Park — an Arkansas track that was the first to attempt instant racing, with great financial success — Kentucky Downs saw an instant boom in revenue with its year-round gaming operation. By March, they had made $4.7 million in profits, with a portion of that going to purses around the state.

Ellis Park will be the next Kentucky track to try instant racing, scheduled to begin on the first day of their summer meet July 4.

“I think the smaller tracks are certainly in jeopardy, but we hope that instant racing is a good placeholder, a good life preserver for them,” Neely says.

But this life preserver still has a chance of being deflated. On Wednesday, the Kentucky Court of Appeals will begin hearing oral arguments on the constitutionality of instant racing. The appeal was brought forth by The Family Foundation, which — like many legislators in Frankfort — rails against the evils of gambling, particularly for its negative impact on the poor.

But even if instant racing survives the appeal — and spreads to a once skeptical but increasingly interested Churchill and Turfway — Paulick notes that unlike Kentucky Downs, these tracks will have to compete with full-fledged casinos right across the border.

“No matter how good a job they do, it’s not going to generate as much revenue as full-out casinos, or even just a slot machine parlor,” Paulick says. “The owner of Oaklawn told me that you can’t just stick those machines on a cement floor and expect people to come in and spend money and time on them. You have to create an environment and customer services that are similar to what casino patrons are used to.”

Though instant racing might not turn out to be the answer, until their foxhole buddies change, they’ll take any help they can get.