09/13/2012 11:16AM

Instant Racing: Not slots, but better than nothing


Should Kentucky racetracks be using Instant Racing electronic gambling machines to fight off casino competition in neighboring states?

So far, the numbers say no. But just before Labor Day weekend, Ellis Park in western Kentucky became the second track in the state to install the devices after building a $3 million, casino-style parlor in its grandstand to house them. The other track, Kentucky Downs, on the Tennessee border, opened its own $3 million Instant Racing parlor last year.

The case against Instant Racing machines – made most prominently by Churchill Downs Inc. – is that the devices have not yet demonstrated the ability to generate the revenue posted by the ever-evolving types of slot machines in the casinos across Kentucky’s western, northern, and eastern borders. As a result, Churchill, Keeneland, and Turfway have all adopted a public wait-and-see policy toward the devices while continuing to lobby the state’s legislature for the right to operate their own casinos.

Officials at Ellis and Kentucky Downs and the state’s horsemen remain supportive of the devices. To the tracks and the horsemen, any new revenue is better than no new revenue, especially on the second tier of the state’s circuit, where tracks have spent the last five years cutting live-racing dates as they continue to struggle to fill races.

“We’re not looking to get rich, we just want to get a little stability on the circuit,” said Marty Maline, the executive director of the Kentucky Horsemen’s Benevolent and Protective Association. “Nobody thinks for an instant this will produce the same revenue as slots do. Everyone understands that. But they’re a far cry from being a loser. They’re something.”

Churchill’s fear is that the political will to authorize casinos at Kentucky racetracks will evaporate if the tracks install the machines. As a result, it’s likely Churchill will continue to hold out until it’s clear the legislature has no intention of ever authorizing racetrack casinos, and so far the legislature has shown just enough interest to keep Churchill from reconsidering.

The early returns from Ellis certainly have not been boffo. The parlor, holding 177 machines, was opened on the Friday before the three-day Labor Day weekend, and over that weekend, customers bet approximately $150,000 each day through the machines, according to the Kentucky Horse Racing Commission.

But handle then dropped off considerably, with the average for the first nine days of the operation, including that Labor Day weekend, settling at $88,000 per day. At that level, Ellis is generating $41 per machine. The typical slot machine generates $300 a day, although that amount can vary widely depending on market conditions.

At Kentucky Downs, after a similarly slow start, betting through the devices has gradually climbed to a respectable figure. When it first opened its parlor, with 250 machines, handle was approximately $98,000 a day. Now, average handle per day on 350 machines is more than seven times that figure, at $700,000, with each machine generating approximately $166 a day. The proceeds have enabled the track to add two days to its race meet – for six days total – while more than tripling its total purse distribution, from $750,000 last year to $2.4 million this year.

It’s unclear if Ellis will have a similar experience with growth. For one, Kentucky Downs has a big advantage that Ellis does not: It is a half-hour drive north of Nashville, Tenn., where any kind of gambling other than the lottery is illegal. Given that location, along with the short race meet and the track’s rural setting, it’s no wonder that Kentucky Downs was the first to apply for a license when the racing commission authorized the devices by fiat two years ago (that decision has been challenged by an anti-gambling group).

Ellis Park also has a mix of unique attributes that could impact the popularity of the machines. Most significantly, Ellis is within the Evansville, Ind., metropolitan area, where a riverboat casino already operates. Another four casinos are within a 90-minute drive of the city in Indiana and Illinois.

While that puts the track at a disadvantage, it may also provide a critical test for the rest of the Kentucky racing industry as to how Instant Racing actually stacks up against slot machines when they are in the same market. So far, no track that operates the machines has done so in direct competition with slot machines.

In Ellis’s favor is that the Evansville market is enormous compared with Franklin, Ky. The 2010 census listed the Evansville metro area’s population as 358,000 compared with Franklin’s population of 8,000, and a significant part of that market comes from across the river in Kentucky.

“There are a lot of people who drive right by Ellis Park on the way to the casino in Evansville,” said Corey Johnsen, the president of Kentucky Downs. “It’s their challenge to get people to stop in and try their product.”

Louis Cella, the vice president of Oaklawn Park, the Arkansas track that developed the machines in partnership with AmTote, said the marketability of Instant Racing machines depended on whether the operator created an environment that mimicked a casino. Oaklawn has had Instant Racing machines since 2000, and it has since added an array of other games that Arkansas statute considers “electronic games of skill,” such as tabletop poker, blackjack, and craps.

“If you put the money in the facility and make it look like a gaming environment, the patrons don’t care if they’re playing the latest slot machine or an Instant Racing machine,” Cella said. “You have to have the air-conditioning, the smoke-eaters, the carpet, the good lighting, the food and beverage, the giveaways and the promotions. We act like a casino. It doesn’t mean we actually are a casino, but that doesn’t mean we can’t act like one.”

Even so, the Instant Racing machines at Oaklawn generate $170 a day, Cella said, still far below the industry slot-machine average.

Maline, of the Kentucky HBPA, said he was reluctant to guess the amount of revenue the Ellis machines might produce. Instead, he pointed to the decision by Ellis Park to keep the track’s simulcasting center open year-round now that the parlor has opened, and he said horsemen were hopeful that revenue produced by the machines would allow Ellis to reinstate a four-day race week, even if average per-day purses aren’t raised as a result.

“We’re just hoping that Ellis has steady growth,” Maline said. “They don’t have to do the kind of numbers that Kentucky Downs is doing to necessarily be successful. We just want a little help that makes it better for horsemen in Kentucky.”