Updated on 09/16/2011 7:58AM

The hidden cost of slots at the track


HALLANDALE BEACH, Fla. - The Kentucky legislature is considering a measure that could have a seismic impact on the Thoroughbred industry. If the General Assembly approves the introduction of slot machines at the state's tracks, it will radically alter the economics of the business.

Slot machines and video-lottery terminals have been principally used until now as a life-support mechanism for ailing tracks, revitalizing operations such as Charles Town in West Virginia and Delaware Park. But they have not yet been installed into a major-league U.S. track.

The principal Kentucky tracks, Churchill Downs and Keeneland, already offer some of the biggest purses and best racing in America. Proponents of the bill, which would allot 12.7 percent of slot revenues to horsemen, predict that it would cause purse money in Kentucky to double. Races for maidens could be worth nearly $100,000, and stakes horses would compete for sums in the stratosphere.

This might sound like a pie-in-the-sky vision, but the chance of passage is plausible enough that the the stock of Churchill Downs, Inc. spiked upward by 20 percent. While horse racing doesn't get special treatment by politicians in most other states, horses are Kentucky's most famous product and the industry has legislative clout. Moreover, Kentucky needs new revenue to balance its budget, providing an added argument for the pro-slot forces.

Everyone in the racing industry - horsemen, breeders, track owners - is dazzled by the dollar signs associated with slot machines, and only a few traditionalist question the merits of the devices. But if people in the sport were to look closely at the impact of slots, they would have to conclude that slot machines have not been an undiluted blessing. There are at least two downsides associated with them.

* When tracks get slots, racing becomes secondary.

Delaware Park has received a bonanza from slots, allowing it to offer exceptional purse money. Despite these resources, racing at Delaware is an annual disappointment. The fields are small. The races don't generate much interest in the simulcast marketplace, and as a result the Delaware betting pools are often unattractively small. Yet why should Delaware's management take pains to improve the product when revenue from racing is inconsequential compared to slots?

* When one track benefits from slots, others suffer.

Small, minor-league operations such as Charles Town are an anachronism in modern racing, and the track was ready for extinction until voters approved slot machines. The track now offers phenomenal purses for cheap horses: A field of $3,500 claimers competed Friday night for an $11,160 pot.

The purses have helped Charles Town's business, but they have simultaneously lured many horses from Maryland, denuding the lower-level races at Laurel and Pimlico that used to draw full fields. Smaller fields have made the racing in Maryland less attractive and hurt its business. If slot machines prop up tracks that can't survive on their own merits, while harming viable racing circuits, are they really helping the sport overall?

There is yet another potential pitfall associated with slot machines: What politicians giveth they can take away. When an otherwise unprofitable track is granted a monopoly on highly profitable slot machines, economist Maury Wolff observed, "The state is eventually going to ask: 'What is the racetrack bringing to this party?' " The state may well try to grab a bigger piece of the action for itself or cut the racetrack out of the equation altogether. Such a scenario is now playing out at Prairie Meadows in Iowa, the first American track to reap a windfall from slot machines.

Of course, such negative thoughts aren't going to dampen the ardor of racing executives seeking slot machines, because their upside potential is so great. If Kentucky does legalize slots, and $100,000 maiden races become a reality, the entire Thoroughbred racing landscape will change. The most important fact of life in the horse industry is that buying a Thoroughbred is an irrational investment; a tiny percentage of Thoroughbreds earn back their purchase price and the cost of their upkeep because purse money is inadequate - even at the top tracks. Slot-fueled purses would begin to alter this dismal imbalance in risk and reward and encourage more owners to get into the game.

If all of the major racing states legalized slots at racetracks, horse racing would enter a great new era. But most state legislatures don't have the concern for their horse industries that Kentucky does. If Kentucky were to become America's super-powerful racing state, it could lure top horses from California, New York, and other regions and weaken their racing. Slot machines are a godsend to the tracks that profit from them, but for the sport overall they are a mixed blessing.

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