03/04/2002 12:00AM

Kentucky slots push in final furlong


LOUISVILLE, Ky. - These are the final days of a debate that could well result in an historic change for the Thoroughbred racing industry in Kentucky, where few things are more emblematic of the state than the horse itself.

The issue is slot machines at racetracks, which is being addressed by the Kentucky General Assembly in Frankfort. Virtually everyone involved calls the slots issue a political hot potato, both complex and controversial.

The debate pits racetracks, horsemen, and their allies - who want to use slots to increase revenues - versus a loose coalition of groups that strongly oppose the expansion of gambling on moral grounds. The opposition, which includes groups with religious affiliations or that stress family values, could get some help from an unlikely source: riverboat casinos in neighboring Indiana and Illinois that want to maintain their share of revenue from Kentucky customers.

To considerable fanfare, a racing industry-sponsored slots bill was introduced last week in the House of Representatives. On Monday a formal three-hour hearing was conducted before the Licensing and Occupation Committee in Frankfort, at which representatives from both sides spoke. Now the legislation faces a long, arduous battle, and it is anyone's guess as to the final outcome.

"There is tremendous interest in Frankfort in some form of gaming bill, some form of helping the Thoroughbred industry," said Kentucky Racing Commission chairman Frank Shoop, who is the chief fund-raiser for Gov. Paul Patton and the finance chairman of the state Democratic Party. "There is a lot of interest in something passing. But simply because of the complexity and sheer magnitude of the issue, it will be debated and debated and debated. It's not going to come quick."

Representatives of Kentucky's Thoroughbred tracks and horsemen's groups worked diligently in recent months to draft the complex bill. The proposed breakdown of revenues from slot machines is 35.05 percent for the state, 52.25 for the racetracks, and 12.7 percent for horsemen.

"Within the industry, we reached a broad agreement on most issues well in advance of any initiative in my tenure," said Churchill Downs president Alex Waldrop. "But we are in an arena that we don't control, and it's impossible to predict what will happen over the coming weeks in Frankfort."

The most visible critic of slots has been the Rev. Dr. Nancy Jo Kemper, executive director of the Kentucky Council of Churches and a leader of a group called Citizens Against Gambling Expansion. Kemper has appeared regularly on television and radio programs to debate the issue. On the web page for the Council of Churches, a litany of social ills stemming from addictive behavior is recited as reason why gambling should not be allowed to expand.

From her office in Lexington, Kemper said Wednesday that while she had not had time to examine all of the bill's details, "I think it's a very bad deal for the state. There is nothing in there that, in the long run, will benefit either the state of Kentucky or the Thoroughbred agribusiness.

"There's far too much for the racetracks and far too little left over for everyone else. The state will have enormous out-of-pocket start-up expenses that it just can't afford. There is just no way the state can afford this, not mention that it's terrible public policy."

Competing within the industry

According to racing officials, there is no issue more critical to the sport's well-being in Kentucky. The proliferation of casinos in the region, primarily in Indiana, has contributed to a slump in attendance and handle at Kentucky racetracks. Less than 10 years ago, as full-card simulcasting took flight, Kentucky racing ranked among the best in North America in numerous business categories. Keeneland in Lexington and Churchill Downs in Louisville continue to rank among the top tracks in average daily purses, but racing officials contend that without additional revenues from ontrack slots, business will suffer.

"There's not only the issue of what the riverboats are doing to us, but how we have to keep abreast with the competition within our own industry," said David Switzer, executive director of the Kentucky Thoroughbred Association, one of two groups representing horsemen on the issue. "I'm not just talking about how tracks like Mountaineer, Delaware, and Prairie Meadows have done with slots. You've got New York getting slots now, and Florida's talking about it. California will get a major boost with their new in-home wagering. Do we really want to lag behind all these other states in terms of purse levels, and what that would do to our simulcast signal?"

According to figures from a Pricewaterhouse Coopers study commissioned two years ago by the Kentucky Finance and Administrative Cabinet, purses at Kentucky Thoroughbred tracks could be increased annually by $100 million within three years of the introduction of slots. The current purse level is about $80 million annually.

Switzer said industry officials have used those numbers to project the following increases in average daily purses within three years of slots approval: Churchill, from $416,000 to $764,000; Keeneland, $655,000 to $1.15 million; and Turfway, $172,000 to $464,000.

An impact beyond horse racing

Perhaps the most important aspect of the slots debate is that Kentucky, like most states, is in desperate need of additional revenue. The budget shortfall in 2001-02 was $553 million, according to an estimate by state budget director Jim Ramsey. Estimates in the state study say that slots at racetracks could produce $1.7 billion in tax revenues in the first six years of implementation.

"Obviously with the budget shortfall, you have individual legislative members who perhaps are not interested in Thoroughbred racing but are very concerned about health and educations issues, which would be facing severe cuts," said Marty Maline, executive director of the Kentucky division of the Horsemen's Benevolent and Protective Association. "With this opportunity to perhaps attain a major revenue source that doesn't involve raising taxes, it makes [slots] more attractive to these legislators."

At a news conference last week, the industry bill's sponsor, Rep. Jim Callahan, a northern Kentucky democrat, said: "We've identified a potential source of important revenue in this state. This is a very important day in the history of the commonwealth."

The racing industry has failed several times to bring slots to the state since the early 1990's, when Jerry Carroll, then the owner of Turfway Park in northern Kentucky, began forecasting that outside competition could damage the racing industry. More than any other Kentucky track, Turfway - now owned by a partnership of Harrah's, a gaming and hotel company; Gtech, a lottery company; and Keeneland - has been affected by nearby casinos. Three riverboat casinos are within easy driving distance of Turfway, which is 15 miles south of Cincinnati, across the Ohio River.

As recently as 1995, Turfway dominated the gambling landscape in the Cincinnati metropolitan area. But now the track accounts for only 1 percent of overall handle. According to Turfway, its ontrack handle is down 43 percent, from $150 million in 1995 to $86 million last year; net revenues are down 12.5 percent during that period. The advent of full-card simulcasting in Ohio several years ago also has helped to accelerate Turfway's decline.

"We clearly have been tasting the competitive forces on all levels in this area," said Bob Elliston, who became Turfway's president in 1998. "We are treading water at best. I've said before that in five, seven, 10 years, all of a sudden it might be prudent to take a look at what these 197 acres are worth. I know that right now it's difficult to justify investing in this facility for the future."

Everyone at the ready

All five of Kentucky's Thoroughbred tracks stand ready to accommodate slots: Churchill Downs, Keeneland, Turfway, Ellis Park, and Kentucky Downs. In addition, three Standardbred tracks are targeted by the bill.

Churchill already has made contingency plans to house slots in a $127 million, multi-year renovation project that has begun in recent months. But Waldrop, Churchill's president, said an even greater financial commitment might be needed to combat fierce competition from the Indiana riverboat casino operated by Caesars. He said a new facility costing as much as $100 million might be required.

Even Keeneland, which once hired a lobbyist to fight slots, will be ready if slots are approved. Keeneland president Nick Nicholson said he would prefer to enter into a cooperative agreement with The Red Mile, a Lexington Standardbred track, on a slots venture.

"Whether the slots would actually be here, there, or somewhere else is something we'd have to determine," he said.

For years, Keeneland resisted slots. Former chairman Ted Bassett, in a revealing statement from the mid-90's, ridiculed the notion that slots presented an imminent danger to Kentucky racing and called the riverboats a "mythical armada."

Keeneland's position was understandable because the track long has been insulated by a unique set of circumstances. Its primary business is horse sales, not racing, and its location in central Kentucky is well removed from the border-state areas and riverboats that have competed with racing at Churchill, Turfway, and Ellis Park. Also, Keeneland's short racing schedule (two meets totaling 31 days a year) is less susceptible to competition than longer meets at the state's other tracks.

"The situation changed," said Nicholson. "The success of the Indiana riverboats negatively impacted not only racing in Kentucky, but also the general economies of the state. From an offensive standpoint, we had to join forces to counteract that trend.

"From a defensive standpoint, we saw that civic leaders in northern Kentucky and Louisville recognized the realities and started gaining momentum to go ahead and try this [a slots campaign] without the horse industry. Obviously we didn't want Kentucky to have slots without us being part of the equation."

Opposition forces remain strong

While the racing industry is gearing up, so is the opposition.

Companies such as Caesars, which operates a riverboat near Louisville, and Argosy, which operates one in the Cincinnati area, have hired lobbyists to oppose the slots bill. Several other casino companies also have hired representatives to look after their interests.

"You'd have to be pretty na?ve not to know that they're going to work for what's in their best interests," said Switzer, of the Kentucky Thoroughred Association, who predicted that the Indiana casinos based near Kentucky borders will use their considerable financial muscle to assist anti-slots groups in whatever ways possible.

The opposition has begun to hammer away on the theme of social issues tied to an expansion of gambling. Editorials and letters have flooded newspapers in Lexington, Owensboro, and elsewhere in the state, pleading with legislators to rebuff slots. The collective voices of the anti-slots movement seem to be saying that regardless of whether Indiana or any other neighboring state is enticing Kentucky citizens to spend their hard-earned money across the border, enough is enough.

The racing officials who were instrumental in drafting the industry-sponsored bill - including Waldrop, Turfway's Elliston, the HBPA's Maline, and Switzer - already have held lengthy consultations with key House and Senate members. The next hurdle for the bill is to pass through various House committees and sub-committees. If the bill makes it out of committee, then it goes to the House floor for a vote. Then it's on to the Senate (a simple majority is all that is required in both chambers) and the governor's desk. Shoop said Gov. Patton is "especially interested" in slots legislation, although Patton has been publicly noncommittal on the issue.

Maline said the consensus timeline for a final resolution is late March or early April, just as the legislature recesses.

In recent weeks, some legislators floated their own ideas of a bill that would raise revenues through new forms of gambling. But at this point, none is as tangible, strong, or comprehensive as the one being pushed by the racing industry.

Still, the legwork involved in attempting to gain support for the slots bill from individual legislative members has proven highly difficult.

David Williams, a Republican who is Senate majority leader, and Sen. Tim Shaughnessy, a Democrat and longtime racing proponent, have both voiced doubts recently that there is enough support for passage.

Greg Stumbo, a Democrat who as majority leader is considered the most powerful member of the House, recently told the Louisville Courier-Journal that while he doesn't think there is sufficient support yet, House members "are interested enough to at least listen to the proposals."

None of the racing industry leaders is predicting victory, but most give the slots issue a 50-50 chance, give or take a little.

"This whole issue will be driven by the budget," said Keeneland's Nicholson. "Concern over the horse business will not pass this bill. It's only because of the serious financial predicament the state is in that this has a chance."

"I'm encouraged by some legislators' comments recognizing that ours indeed is a signature industry of this state, plus their concerns with the budget," said Maline. "This doesn't require any new taxes, and when you see how well it's doing in other states, it becomes a very viable alternative."

"We've got our ducks in a row," said Waldrop. "But we can't pat ourselves on the back, because that might not be enough."