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Squeeze play puts Maryland in dire straits
LAUREL, Md. - Just a few feet inside the main entrance of Laurel Park on a recent weekday, a five-gallon bucket sat in the middle of the floor, catching a steady stream of droplets from a cracked roof several stories above.
Not that this much mattered, since there were precious few customers to actually see it. In stark contrast to bygone days, Laurel sits virtually empty even as horses race across its track, a testament to how progress and modernization have eluded it. Less than 20 years ago, Laurel and its fellow Maryland Jockey Club track, Pimlico, were perhaps second only to the New York Racing Association tracks along the Eastern seaboard.
Today, however, Laurel is struggling mightily, and the leaky-roof metaphor that Maryland fans once cast with condescension toward the Charles Town Races or Philadelphia Park has boomeranged with a cruel reality. Tracks in several states adjacent to Maryland are flourishing, buoyed by slots revenues that allow them to lure the horses and horsemen who otherwise might be racing in Maryland. While many people in racing are reluctant to call slots a panacea, there can be no doubt that West Virginia, Delaware, and now Pennsylvania - states with racing programs that once were clearly inferior to what Maryland offered - are more vibrant and successful than Maryland for reasons directly traceable to their onsite slot machines.
Not that nobody saw it coming. For years, proponents of Maryland racing have warned that they will be overwhelmed by neighboring competition if some form of alternative gaming is not legalized at state tracks. And as time has passed, and the competitive gulf has widened, the straits have become more desperate.
"We are in survival mode," said Lou Raffetto Jr., the president and chief executive officer of the MJC, which is owned by Magna Entertainment. "It forces one to make moves one normally wouldn't make."
The most recent and overt manifestation of that desperation came Jan. 25, when the MJC, citing a financial inability to justify the $500,000 purse, announced it would not be able to run the Grade 1 Pimlico Special on May 18. The Pimlico Special has long been recognized as the second-best race on the circuit, behind only the Preakness, and its cancellation came as a jolting reminder of how far Maryland racing has fallen. Since being revived in 1988 following a 30-year hiatus, the Pimlico Special also was discontinued once before, in 2002, for essentially the same reasons as this year.
"Our horsemen don't care that much about the Pimlico Special since it's usually an out-of-town horse that wins it," said Raffetto. "But they do understand the prestige it brings to our program. Still, knowing the shortfalls we face, we couldn't sit back and cut our overnight races while using $500,000 for one race."
Raffetto said the MJC has been using reserve funds totaling nearly $8 million to overpay purses during the 2006-07 racing seasons just to keep overnight purse levels at roughly $200,000 per day.
"Come 2008, without slots or some sort of subsidy, our landscape will change even more dramatically," he said. "We cannot maintain that $200,000 level - at least not for anywhere close to the 184 days a year we've been running - because there simply is no more money. This is not some hollow threat."
Counting stakes, the average per-day purse payout over 184 race dates in 2006 at Laurel and Pimlico was almost $240,000, compared with about $212,000 when 219 dates were run in 2001. Raffetto said these levels are unsatisfactory, especially when compared with the sharp purse increases that occurred in Delaware and West Virginia, and what is expected for Pennsylvania, when their tracks were remade into racinos.
The prospect of Maryland eventually getting slots at state racetracks hinges on a complex set of political factors, and debate about the need for slots is arguably the state's hottest political potato. Ultimately, it could be the state's own dire financial plight that will finally lead to the approval of slots by the state legislature: Maryland faces a $1.8 billion budgetary deficit in 2008.
Maryland racing and the state itself "are both like ships sinking," said Raffetto. "We both know we have huge financial problems - and once you're under water, it's that much harder to get back to the surface. Right now is the time to start thinking about a solution. We know that, and most of the legislators know it, too."
Raffetto said he strongly believes that a slots bill will be passed by the Maryland legislature next year. "We feel really good that everything will be coming together by this time next year," he said. "In the meantime, the clock is still ticking."
Meanwhile, the time has come for Philadelphia Park in Bensalem, Pa. On Dec. 19, some 2,100 slot machines became operational on the first and third floors of the five-story grandstand that sits on 440 acres just north of downtown Philadelphia, and with a net-win of about $370 per machine per day (12 percent of that total goes toward purses and other racing-related programs), a palpable sense of excitement has enveloped the local racing community. Philly Park eventually will have 5,000 machines, and the math for what that portends over time is mind-boggling.
Hal Handel, the chief executive officer at Philadelphia Park, took time on a recent Friday afternoon to give a private tour of the renovated facility, occasionally pausing to shake his head in wonderment at how dramatically his workplace is changing. Already, some $100 million has been allocated for Philly's transformation into the newest player in the East Coast's lineup of racinos, and Handel said the final investment probably will total $400 million to $600 million, "depending on what the final plans look like," he said.
Philadelphia Park is one of 11 new casino facilities that have been licensed in Pennsylvania. Six are at racetracks (including Penn National), and five are stand-alone facilities, including two in the process of being built in downtown Philadelphia. There is a formula that determines how net winnings will be distributed to horsemen, the state, local municipalities, and a specially created tourism fund. The bottom line for racing at Philadelphia Park potentially could be "purses of $450,000 to $500,000 a day, when it's all said and done," said Handel.
The early gross revenue estimates for the 2,100 machines at Philadelphia Park are about $23 million per month. Penn National, located near the smaller market of Harrisburg, is expected to handle about half of what Philadelphia will.
Philadelphia Park joins Delaware Park, which began offering slots in December 1995, and Charles Town and Mountaineer Race Track, which started in 1997, in the racino parade that, by sheer competitive force, has exacerbated the problems that already existed in Maryland racing. Compounding the regional disadvantage is the fact that other states have buttressed their racing programs through various means: New York legalized slots at eight racetracks in 2001, including Finger Lakes and Aqueduct, although implementation at Aqueduct has been stalled by political infighting, and New Jersey is in the final year of a four-year deal that provides substantial casino subsidies to purses in exchange for an agreement that tracks did not pursue slots. When put into effect in 2004, the projected overall worth of the four-year subsidy was $86 million, which also included Standardbred purse subsidies as well as facility improvements for Monmouth Park for the 2007 Breeders' Cup.
"Obviously we're in a box in more ways than one," said Raffetto.
The politically savvy Handel said he empathizes with the Maryland situation, having endured similar types of frustration during his lengthy tenures in New Jersey and Pennsylvania. "They are in a really, really tough spot," he said. "If you go back 20 years, to the quality of horse and horsemen they had there, it was comparable to anywhere in the world. They are blessed with a racing heritage that not many other states have, which makes it all the more ironic that they find themselves in the very precarious situation they're now in."
From a national standpoint, Maryland is not alone. The racing industries in other key states such as California, Kentucky, and Illinois all continue to plead for financial relief by way of alternative gaming, and Handel wonders when, if ever, it might all reach a point of saturation.
"It seems the public has an insatiable appetite for slots," he said. "How it all sorts itself out over the next five to 10 years is going to be very interesting."
Such futuristic discussions, however, are of little help for Maryland racing, which currently finds itself in a time and place that fairly beg for immediate answers. Last weekend, when two Grade 2 stakes were run at Laurel partly as a way of interrupting the routine of winter, there was little joy in the frosty air, no doubt because of the uncertain future facing the circuit.
"We've reached critical mass," said Raffetto. "We honestly cannot take any more of the status quo. Like I said, the clock is ticking."