10/16/2008 11:00PM

Gambling feeling economy's pinch

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NEW YORK - Nice guys don't always finish last. The sky is not necessarily the limit. And it turns out that gambling is not recession-proof.

The idea that gambling industries in general, and horse racing in particular, are immune to economic hard times has been an article of faith approximately since Seabiscuit ended the Great Depression, or at least supposedly made everyone forget about it. The theory was that gamblers don't stop gambling any more than breathers stop breathing, and that the escapism of wagering and the chance of winning an especially welcome jackpot would keep gambling bullish even in the most bearish times.

As recently as the recession of 1991-92, the figures seemed to support the theory. Las Vegas kept building like there was no tomorrow, and American racetracks chugged along. This time around, however, the conventional wisdom has been demolished. Well before this month's full-blown worldwide financial crisis, gambling was having one of its roughest years ever, showing nearly identical sales declines to other retail and entertainment businesses amid an all-but-official recession, and things have gotten worse as the year has gone on.

Casino revenues are off by double-digit percentages almost everywhere. The mega-successful Connecticut casino resorts Foxwoods and Mohegan Sun have abruptly halted construction projects and laid off hundreds of employees. Share prices of gaming companies, from American tracks to British bookmaking firms, are at or near five-year lows. Wagering on Thoroughbred racing in this country, stagnant but steady for a decade, plunged 10 percent during the third quarter of this year and could be off by more than a billion dollars by year's end.

Some researchers say that the whole idea of gambling's immunity from outside economic factors was always overrated. Eugene Christiansen, a prominent industry analyst, called it "an old idea that has very little relevance, and maybe no relevance to the United States today," earlier this year when the first cracks began appearing. Others argue that it may have been true more than a generation ago, when legal gambling in this country was largely confined to live racing and a handful of casino destination resorts, but not in an America with gambling as handy as the nearest neighborhood lottery terminal or slot machine.

The casino companies have been hit even harder than racing for the very reason they have become more successful than ever over the last decade: their diversification. A decade ago, they relied on gambling revenue for the majority of their profits but, for example, last year MGM Grand Mirage booked more than twice as much in sales from food, lodging, and entertainment as from gambling. That change has exposed the casino giants more to traditional downturns reflecting the economy, but now their gaming revenues are down, too.

What's racing's excuse? Track executives were hemming and hawing about gasoline prices all summer, but given the wide availability of in-home betting, badly managed as it is, there should have been an offsetting spike in couch wagering. There wasn't. It appears that wagering has lost its cloak of protection as supply has increased and has become just another form of discretionary spending subject to being scaled back in tough times.

What will this all mean for Friday and Saturday's Breeders' Cup, an event which has been practically reinvented in hopes of growing a $129 million handle on eight races two years ago into a two-day, $200 million event in the next few years?

It was already going to be an apples-to-trapezoids comparison between this year's 14 races in presumably sunny Southern California to last year's 11 races amid downpours at Monmouth. The eight "traditional" Cup races handled $112 million in commingled bets at Belmont in 2005, $129 million at Churchill Downs in 2006, and $105 million at Monmouth in 2007. But now three of those races have been moved to Friday, and Saturday's card consists of the other five plus four new or nearly new races of uncertain quality and appeal.

The good news for the Breeders' Cup is that with the huge decline at Monmouth being the most recent point of comparison, it won't be hard to spin next weekend's financial performance as some sort of rousing improvement. The bad news is that this time, and perhaps for all times from now on, that performance will not be immune to the economic forces at work in the world beyond the track.