12/18/2012 11:23AM

Beyer: Maryland tracks, horsemen end war


Maryland’s once-healthy Thoroughbred industry began its descent to minor-league status in the mid-1990s. When slot machines were legalized in neighboring states, horses and stables exited Maryland to compete for larger purses. Amidst the decline, Laurel Park and Pimlico suffered from bad management. Moreover, the tracks’ owners and their horsemen were constantly at war with each other, and they could never agree on any plan to revive the industry.

In view of this dismal history, people who care about horse racing can scarcely believe what has just happened. Maryland racing has not only been saved, but it is about to enter an era of growth and unprecedented prosperity. Dec. 14, 2012, will be remembered as the day that changed everything.

On that day, representatives of the Maryland Jockey Club and the state’s horsemen signed a 10-year agreement that establishes a new economic structure for the sport. They resolved the crucial issue (and other peripheral ones) that had divided them for the last two years.

When Maryland belatedly legalized slot machines and earmarked a portion of the revenue for horse racing, the Stronach Group – the tracks’ parent company – inexplicably failed to make a bid to get slots at Laurel Park. The slot franchise in Anne Arundel Country instead went to the Maryland Live! casino. Yet a percentage of money from slots – wherever they are located – goes into racetrack purses, and the revenue from Maryland Live! would give horsemen a windfall. But the Maryland Jockey Club was losing millions of dollars a year and had no incentive to operate more than a minimal racing schedule.

The track and the horsemen negotiated (often acrimoniously) for two years before they agreed on a logical plan. The horsemen ceded some of their slot revenue to management. If horsemen want to race more than 100 days per year – which they almost certainly will – they will pay a fee to the track for each addition day. Thus, the Maryland Jockey Club gets the chance to make a reasonable profit. (The two sides also resolved other long-simmering issues; the MJC will close the costly Bowie training center and will build additional stalls at Laurel.)

Tom Chuckas, CEO of the tracks, says the importance of the 10-year deal is that it allows everybody in the industry to plan confidently for the future. Purses at the tracks, already bolstered by revenue from Maryland Live!, now average about $245,000 a day. When new casinos in downtown Baltimore and Prince George’s County go into operation, that figure could approach $400,000 a day, putting Laurel and Pimlico in company with the nation’s elite tracks. Chuckas said, “Breeders can look ahead and breed Maryland horses. Owners can buy horses. And the Maryland Jockey Club can make plans for capital improvements. Now, it’s easier to make an investment of substance.”

Understandably, trainers, owners, breeders, and the tracks’ management are elated by their prospects. Yet the history of slot-machine subsidies in other states provides grounds for some skepticism.

At most of the tracks whose purses have been bolstered by slot money, the sport has not become more popular or self-sustaining. Thoroughbred tracks such as Parx Racing, Delaware Park, and Presque Isle Downs, as well as just about all of the harness tracks with subsidies, have few fans in the grandstand and unimpressive betting totals. Even committed racing fans pay little attention to them.
Most economists deplore what they call cross-subsidization, taking money from successful enterprises to prop up losers, and it’s hard to make a good case why states should force casinos to subsidize racetracks that can’t survive on their own merits.

Nevertheless, the Maryland horse industry is a special case; it deserves this help. The state’s tracks were profitable, and its breeding industry was an exemplary success, until Maryland was crushed by competition from tracks with slot money. The subsidy for purses at Laurel and Pimlico levels the playing field. And the nature of the Dec. 14 deal makes Maryland different, too. At operations such Parx, Delaware Park and Charles Town, which make huge profits from casino gambling, horse racing is largely irrelevant. But the Maryland Jockey Club won’t be in the slot business, and it has ample incentive to promote racing and to try to increase the sport’s business.

This will be no easy task. In the past, improving the decrepit facilities at Laurel and Pimlico might have lured more fans. But in an era when bettors watch can races on TV at home and bet by phone, Laurel and Pimlico aren’t going attract big live crowds except on special days. But if the Maryland Jockey Club wants to attract the attention of horseplayers, there is one thing that it could and should do: reduce the takeout.

Over the years, the Maryland tracks have sought to increase purses by extracting more money from every betting dollar. They used to take 15 percent from each win bet; now the rate is 18 percent. The takeout from trifectas is an exorbitant 25.75 percent. (By contrast, Kentucky takes 19 percent from its trifectas.)

Now that the industry is about to be awash in money from Maryland Live! and other casinos, there is no justification for squeezing every possible dollar from its customers. A substantial takeout reduction would appeal to simulcast bettors across the country and boost wagering on Maryland races. And it would contain an element of fairness. When a relatively small number of breeders, trainers, and owners are going to enjoy a windfall from the new economics of Maryland racing, the industry should give a small break to the betting public that has continued to support the game.

© 2012 The Washington Post