09/19/2002 11:00PM

After leading horse to water


New York - If you put a peep show in the back of a harpsichord shop, you would almost certainly increase the traffic into the store. But would the new customers develop an interest in harpsichords just by walking past them en route to their desired destination?

This is the riddle facing the racing industry as it increasingly converges with "alternative gaming," the polite term for slot machines. Slots, or similar one-armed bandits doing business under names such as "video lottery terminals," have transformed the racing business in nearly a dozen venues, and are inevitably headed to bigger markets, including New York and Kentucky.

Slot revenue has sent purses skyrocketing in places such as Delaware and West Virginia and saved the racing business altogether in other markets. The revenue potential is spectacular and has racing officials in premier markets dreaming of $100,000 maiden races in the near future. Slots may also be a much bigger part than is generally acknowledged of the long-term plans and value of the leading companies in racing: Machines in a major market could do more for Churchill Downs Inc. or Magna Entertainment than any conceivable upturn in their racing operations.

The money is irresistible but the question remains: Can onsite slots do anything to build interest in racing and increase parimutuel handle, or is it merely a lucky subsidy for an otherwise stagnant industry?

The topic was addressed last week in Las Vegas at the Global Gaming Expo, a massive annual convention that draws 10,000 delegates from the gambling industry worldwide and provides more than 190,000 square feet for exhibitors to hawk new products. In previous years, racing-related seminars during the week drew as few as a dozen attendees, but two panels on slots and racing this past week attracted closer to 100 listeners.

The immediacy of the topic was underlined even by one speaker's cancellation. It was announced that Jim McAlpine, the CEO of Magna, was a last-minute scratch because of "pressing business in Maryland." The next day, it was reported that Magna had entered a $68 million bid to purchase Rosecroft Raceway, a harness track that would become a slots palace if and when Maryland approves the machines.

At the panel McAlpine had to miss, Peter Carlino, the chief executive of Penn National Gaming, recounted how slot revenue has transformed a struggling racetrack operation into a highly profitable gambling enterprise. Carlino thinks the slots-racing marriage is a win-win arrangement, but told his audience bluntly that there is virtually no crossover audience or potential to increase handle.

Mark Wilson, who worked with Hubbard Enterprises to bring slots to New Mexico tracks before becoming the chief executive of the Television Games Network, saw some hope for the racing game itself.

"Even if it's just 5 or 10 percent of the slots audience where we have a chance to make a racing fan, I think there are things you can do to attract the 'thinking man' from that group to racing," he said.

A few days earlier at Turfway Park, Bob Elliston, that track's chief executive, said the same thing. Turfway's purses would soar if Kentucky approves slots, but Elliston said he hopes racing would reap other benefits.

"There should be a way to do this where you can get some of the new people to like racing," he said. "It's a real opportunity and I'll be disappointed if we don't make the most of it."

What's the answer - having the strippers perform to harpsichord music? Maybe. At Oaklawn Park, the slot-machine equivalents have a racing theme and an optional handicapping component that introduces an element of skill. The machines are smack in the middle of the grandstand, and television monitors with live racing are everywhere. At other venues, though, you can easily get from your car to your machine and back without ever being in danger of exposure to a horse or a race.

There are two reasons that tracks on the verge of getting slots should be thinking long and hard about true integration instead of just counting the money. The first is, this really is an almost magical marketing opportunity - what more can a racetrack ask than to have a new audience of people who already like to gamble delivered right to the premises? One possibly fair criticism of the sport's national marketing effort has been that it is too diffused by being pitched at the general population instead of narrowed to existing gamblers. Here's a gift-wrapped target audience.

The second is that the slots bonanza may not last forever. Already some state governments are getting stingier about the share of slots revenue that will be returned to racing, and there may well come a point where revenue-strapped legislators decide that state treasuries are worthier recipients of all those buckets of quarters than horse owners.

If that day comes, racing will be in much better shape if it has turned some of the peep-show denizens into harpsichord fanciers.