10/21/2009 11:00PM

Shifts in slot subsidies stir questions

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Pennsylvania horsemen and breeders will almost certainly be getting 10 percent of the revenue from slot machines at racetracks in the state, down from 12 percent, but some horsemen believe the loss will actually mean more money for owners and breeders.

Such is the confused state of casino gambling and horse racing subsidies in the Mid-Atlantic and Northeast, where the recession and a rapid expansion in gambling opportunities are muddling financial projections from state budgets to purse earnings.

That's particularly the case in Pennsylvania, where slot machines first appeared at racetracks in 2006. In 2008, the machines generated $1.6 billion in revenue of which $194 million went to Standardbred and Thoroughbred purses and to breeders' award programs.

Two weeks ago, the state legislature passed a budget cutting the racing industry's share of the slots revenue from 12 percent to 10 percent, but some horsemen contend the loss will be more than made up by an increase in slot-machine revenue generated at new casinos set to open in the next 12 months. In addition, horsemen are battling to get a cut of the revenue from new table games, which will almost certainly be legalized later this year.

Todd Mostoller, the executive director of the Pennsylvania Horsemen's Benevolent and Protective Association, is reluctant to predict how the cut will affect racing programs at the state's three Thoroughbred tracks: Philadelphia Park, Penn National, and Presque Isle Downs, which held its first meet in 2008.

"We don't really know what we're dealing with yet," Mostoller said. "There are a lot of different variables."

The legislature is considering different bills to legalize table games. The House is considering a bill that would tax the games at up to a 37 percent rate, and the Senate is considering a bill that would tax the games at a 12 percent rate. With that wide a gap, final action on the bills isn't expected until November.

Horsemen are lobbying to receive a cut of the table games as a make-up on the cut from the slot-machine revenue, according to Mostoller. As support, they're handing out copies of a study by racing economist Richard Thalheimer showing the legalization of table games in West Virginia in 2007 reduced slots play by 8 percent. The casinos are countering with a study from their economists that contends the legalization of table games leads to 12 percent more play in the slots area.

Pennsylvania breeders are less concerned about the reduction in the subsidy percentage than they are about the recession, according to Judith Barrett, the owner of Godstone Farm and the recipient of more than $360,000 in breeders' awards in the last 19 months, according to state records.

"A lot of stallions came into the state just last year, and I heard all winter that no one could find any mares for them," she said. "This was well before [the subsidies were cut]. So I don't know what's going to happen. But a lot of my clients with mares are asking me to sell them, and there are no buyers. And there are people with weanlings and yearlings who can't afford to get them to the races and they want them sold, and there are no buyers for them either. That has nothing to do with the cuts, and everything to do with the economy."

Breeders are still thankful for the state's initial largesse. In 2004, the average purse per race in Pennsylvania was $7,829, according to state figures. With slot-machine subsidies, the average purse jumped to $16,819. In addition, Thoroughbred breeders' awards jumped from $7.7 million in 2004 to $21.7 million - or approximately $7,825 per Pennsylvania-bred foal in 2004 to $16,960 per foal in 2008, based on Jockey Club estimates.

All that growth occurred despite total wagering on Thoroughbred races in Pennsylvania, from in-state and out-of-state sources, dropping 15.4 percent, or $119.6 million, from 2006 to 2008, even with the opening of Presque Isle and the addition of 109 live racing days since 2006, an increase of 28.4 percent.

While average purses and breeders' awards were doubling and tripling, however, the state's breeding industry was plodding ahead - growing, certainly, but without sustained rates. The foal crop in 2004 was 984 foals, according to the Jockey Club, a number that shot up to 1,256 the next year as breeders prepared for slot machines to come on line. Since then, however, the crop has stagnated: It was 1,261 foals in 2006 and 1,246 foals in 2007, the latest year for which figures are available.

For comparison, the leading breeding state, Kentucky, had a foal crop of 10,454 in 2007; Pennsylvania was seventh, behind Florida, California, Louisiana, New York, and Texas.

Dr. William Solomon, owner of Pin Oak Lane Farm, which stands 10 stallions and was third on the breeders' awards list for 2008, pointed to the legislature's action this year as a "warning signal" that the state's racing industry needs to better demonstrate the agricultural merits of the subsidies to purses and breeders' awards. To do that, he said, horsemen at racetracks need to receive less money, instead of the current split that directs 80 percent of the subsidies to tracks and 16 percent to breeders.

"You have to be able to show that the money is doing what we said it would do, and we haven't done that when all we're doing is shoveling money to the horsemen who ship in to race here," Solomon said. "The horse industry needs to come together and think about building this industry, and that means building up the breeding industry."