Last week, a racing colleague sent me this article - Is Horse Racing Still Too Big To Fail? - written by Ryan Goldberg and published on the sports blog ‘Defector’.
I have read a number of Goldberg’s articles and had the opportunity to hear his address at the 2013 Jockey Club Round Table conference, Perspectives on Medication and Integrity. A Journalist’s View. I encourage you to go to the 2013 round table link here on the Jockey Club website and find his article. It discusses many important issues and I think you will find it provocative and interesting.
Here are a few samples:
“The advances in pharmacology have had certain benefits. Nearly every drug has a therapeutic purpose if used properly. So you would presume, then, that each racing jurisdiction guided by the science would treat each medication the same. Of course, as I learned, this isn't the case.
“No two states are the same. Even neighbors and stables shipping on familiar circuits, like from Florida to New York, find wildly different policies in each new place from what drugs are allowed and in what dosage, to how they are tested, to the penalties for violating these rules …”
“I heard along the way from several officials that racing is a clean sport. To them, I would say that depends on world-class testing. Racing does not have that at the moment.
Outdated methodology
“I learned that Florida uses a methodology seen as outdated since the 1980s. New York uses something one step up from there, a test that, when used for general screening, has been eclipsed by newer methods.
“Of the 16 laboratories which handle the nation’s drug testing, after all these years only two recently earned RMTC [Racing Meditation & Testing Consortium] accreditation. Very little of this is public knowledge.”
Goldberg’s article lays out the unsettling fact that Thoroughbred and Standardbred racing purses are increasingly subsidized by gaming payments, and the industry is losing focus on the importance of wagering on our races.
He continues, “It’s a story rarely told outside the racing industry, and understandably so. Horseracing is propped up by tax dollars from casinos that have nothing to do with what happens on the track or at the betting windows. Although the sport loses public interest with each passing year, at least 24 states, almost threequarters of those with racing, directly subsidize it with public funds.
“Based on publicly available information and statistical analysis, the total is likely to be close to $1 billion annually.”
There is no question that these purse subsidies are in the hundreds of millions, but according to the Jockey Club Fact Book, 2019 total U.S. Thoroughbred purses were $1.678 billion. Goldberg’s assertion is that these subsidies simply are not sustainable.
Goldberg again:
“Today, horseracing’s financial picture is grim if you remove the public support.
“Handle and purses, linked together for many decades, began diverging in 2005 as slot subsidies flooded the market. That year, there were 52,257 Thoroughbred races with purses close to $1.1 billion, according to the Jockey Club. In 2019, there were 30 percent fewer races, and handle had declined almost 25 percent, yet purses had actually increased to almost $1.17 billion.”
“The truth is, despite so many billions of dollars, horseracing in America has little to show for state assistance. Chris Rossi, an independent data analyst who works for several Thoroughbred racing groups, sees a reckoning coming. “The level of subsidy does not match the level of support the public has for racing,” he says. “There are fewer races and fewer horses being bred, fewer owners and fewer fans in the stands. Dozens of racetracks now depend almost exclusively on state dollars for their existence.”
Uncertainty in Pennsylvania
Goldberg goes on to discuss Pennsylvania, perhaps the most extreme example of state subsidies.
On an inflation-adjusted basis, in Pennsylvania in 2007, when the subsidy program started, purses from racing handle was $63.7 million and the slot subsidy was $123.4 million - the PA state subsidy almost twice the amount of purses from wagering handle.
In 2018, the subsidy had grown to $155.6 million from slots, and purse contribution from handle had declined to $20.9 million.
Slot subsidy in 2018 was seven times greater than handle contribution to purses. No wonder Pennsylvania Governor Tom Wolf for the second year in a row was recently calling for $200 million in racing subsidies to be taken from racing and put into a scholarship fund for Pennsylvania residents. It would seem that a major reduction in this racing subsidy is coming.
‘Unprecedented bailout’
Goldberg continues on to New York:
“In November 2006, NYRA filed for bankruptcy, with a cumulative operating deficit of more than $135 million and debts to the state of $54 million. Two years later, the state granted it a new 25-year franchise and pulled it out of bankruptcy by canceling the majority of that debt and giving it another $105 million to pay off about $80 million in private debt. NYRA turned over the rights and titles on its three tracks to the state, but the state agreed to pay the property taxes, while declining to charge NYRA rent.”
Goldberg says, “But even NYRA’s only standing today because of a bailout unprecedented in the sport’s history, and a deal that looks worse all the time.”
Here, I must choose to disagree with his assessment, which I encourage you to read in his article.
In June 2016, I wrote this detailed article for TRC on the issues that necessitated NYRA declaring bankruptcy in 2006.
In 2008, NYRA negotiated a contract and legislation that resulted in the transfer of almost 1,000 acres of land worth $1 billion at Aqueduct Racetrack, Saratoga Race Course and Belmont Park from NYRA to New York State. Furthermore, NYRA and New York State agreed on a 25-year contract and legislation that would guarantee NYRA the purse account and the breeders’ VLT (Video Lottery Terminal) payments from the casino at Aqueduct for the term of the contract.
NYRA’s protracted process
In late 1955, a number of businessmen and racing owners bought the stock of Belmont, Aqueduct, Saratoga, Jamaica Race Course and Empire City. They immediately sold off Jamaica and Empire City and secured bank financing from 13 banks to a long-term franchise with the state. NYRA owned the three tracks and paid local real estate taxes from 1955 until the new franchise agreement of November 2008.
Then NYRA went through a protracted process in securing the new 25-year franchise.
The Senate Majority Leader at that time was Joseph Bruno, and he was critical of the Memorandum of Understanding about this from then New York Governor Eliot Spitzer. Bruno announced three State Senate public hearings to be held in September and October 2007 to review a number of aspects of the plan.
The hearings and discussions went forward, and on February 13, 2008, the New York legislature approved legislation awarding NYRA a new 25-year franchise to operate its three tracks, allowing installation of a VLT facility at Aqueduct and conveying ownership of the three racetracks to New York State.
Agreements to be negotiated
The payments to NYRA and the racing industry were set as a percentage of the net win of the Aqueduct gaming facility. Under the legislation, NYRA would receive four percent for capital expenses, three percent for operating expenses, 6½ percent, increasing to 7½ percent in the third year, for NYRA purses and one percent, increasing to 1½ percent in the third year, for breeder awards. No caps or limits were set on these payments.
A Federal Bankruptcy Court hearing to seek approval of the NYRA reorganization plan was set for that March.
The final approval by the Bankruptcy Court of the NYRA reorganization plan was contingent upon NYRA negotiating a series of agreements with the State. These agreements included:
- A settlement agreement with the State regarding the transfer of the NYRA land to the State and other outstanding disputes.
- A franchise agreement that would contractually bind NYRA and the State to the terms in the franchise legislation.
- Individual lease agreements for each track regarding financial terms and approved uses of the properties. Each of these agreements that was subsequently negotiated included the specific percentages that NYRA would receive from the Aqueduct VLT operation for capital expenses, operating expenses, purses and breeder awards, as noted in the legislation for the term of the franchise.
It was essential that NYRA secure the terms of the legislation with contractual obligations on behalf of the State of New York both to conform to the bankruptcy reorganization plan and to have secure legal protection for the Aqueduct VLT payments.
There were additional issues that contributed to this deal.
Despite folklore in Albany, there was no legal question that NYRA owned the land. If NY State owned the land, it simply could not have renewed the NYRA franchise and gotten Stronach or Churchill etc. to run the racing. Therefore, NY State got a billion dollars worth of land in the franchise renewal.
Also, NYRA agreed to allow the State to secure a hockey team to build a new ice arena and hotel in the backyard and parking lot at Belmont with no further compensation to NYRA. The New York Islanders will be playing the NHL 2021-2022 season at Belmont Park.
Finally, the State went forward with a deal with Genting to erect 75 percent of the NYRA/Aqueduct building and parking for the casino, which went operational in October 2011, over five years after the seven harness tracks had built their VLT operations. New York State agencies were entirely responsible for this delay, which resulted in financial losses for NYRA.
On September 12, 2008, NYRA emerged from Chapter 11 bankruptcy under a plan of reorganization reliant upon a new 25-year state franchise and secure revenue streams from VLTs at Aqueduct for capital improvements, operating expenses, purses and breeder awards.
Goldberg closes his article with some chilling conclusions for racing.
Most states have either introduced sports betting or plan to. And the pandemic has accelerated casino companies’ push into mobile gaming. Horseracing has never faced this much competition for the betting dollar. Twenty five years after racing went down the road of government dependence, it could be that racinos were a poisoned chalice to begin with.
“The subsidy will decline and the racing interests will go with their hat in hand, and say, ‘We’re the whole reason why you’re able to have this. We were the ones who allowed you to have gaming licenses. We allowed you into our facilities to begin with,’” Rossi predicts. “And it remains to be seen what will happen, but I would say it’s 1-to-5 that the government will say, ‘Go pound sand.’”
Fallout in Ontario
There is a real-life example of how a racing organization, Woodbine Entertainment Group (WEG) in Toronto, built one of the very first ‘Slots at Racetracks’ programs.
In 1996, the Progressive Conservative (PC) government was in the second year of its mandate under Premier Mike Harris. His plan to improve the government’s balance sheet was driven by aggressive government cutbacks and the development of new revenue streams — of which expanded gaming was key.
The terms of the deal were relatively simple. The Ontario Lottery and Gaming corporation (OLG) would be in charge of running the slots program across the province. Racetrack owners were required to pay hefty costs to bring their buildings up to OLG standards, while OLG would pay for the installation and operation of the slot machines.
At the time, TRC Editor Ashley Herriman explained, “As racing and gaming have become intertwined in the U.S., we felt that it was important to publish a story deeply exploring the cancellation of the Slots at Racetracks Program and the ensuing fallout.”
At TRC, we were especially pleased to have award-winning journalist Dave Briggs write a brilliant six-part article, which went on to win the Canadian 2014 Media Sovereign Award - the equivalent to the U.S. Eclipse Award.
Increasingly choppy waters
Brigg’s Sovereign Award-winning story (here is the first part, which links to the subsequent articles) covered the collapse of the Ontario racetrack slots program. The government’s sudden decision to cancel the program abruptly in 2012 dealt a nearly fatal blow to racing and breeding in Ontario. Briggs explored the ill-fated slots era with an eye towards lessons for racing jurisdictions in America that derive revenue from other forms of gaming.
This is more relevant for racing industry executives, participants and customers today because of the dependency that racing has developed on slots and gaming.
The serious dependency that U.S. racing has developed at the expense of maximizing wagering on our races could be fatal for racetracks, big and small. For those racetrack companies that own and operate gaming businesses, there are business risks for pure racing companies, especially if these other businesses are also in the ADW (Advance Deposit Wagering) business, where the economics greatly favor the ADWs.
If I was a racing executive, I would seek like-minded racing companies to work within what will increasingly become choppy and/or muddy waters.