PA Racing 2013: Budget Conflicts, New Competition, Fewer Horses

by Suzanne Bush-Pennsylvania Equine  February 2013

By almost any measure, 2012 was a successful year in Pennsylvania racing. The state’s breeding fund program, created in 1974, gave out more than $20 million to Pennsylvania breeders in 2012, and leads virtually every other state-bred program in distributions. There were some challenges, though, most notably when Governor Tom Corbett announced a year ago that his 2012-2013 budget would rely on $72 million from the Pennsylvania Race Horse Development Fund (PRHDF) to pay for other agricultural needs in the state. The state’s breeding and racing communities, shocked by the governor’s announcement, responded with a flurry of lobbying and outreach efforts aimed at protecting the PRHDF from what was variously described as a “raid,” and “slashing the throat” of the racing industry.

Corbett eventually agreed to a smaller cut, which provided a measure of comfort to the coalition of industry groups that had lined up against the governor. But the controversy served as a wake-up call for the state’s racing industry. The prospect of Corbett’s attempt to use the PRHDF to avert tax increases in the future has left the industry wary and doubly cautious.

John B. “Jeb” Hannum, III, Executive Secretary of Pennsylvania Horse Breeders Association (PHBA) says that the state’s budget is one of the many challenges facing the industry in 2013. Looking ahead at the preliminary budget for 2013-2014, which the Governor will release in February, Hannum says the racing industry is prepared this time. “The big part of the year will be dictated by that. We may have another fight on our hands. We’ll work with our colleagues the horsemen and fight any raid on the funds.” Even if he doesn’t propose taking any money out of the racing fund, Hannum says “we have to remain pretty vigilant.”

Privatization of Pennsylvania’s Lottery

The Corbett Administration recently signed preliminary documents that would privatize the lottery, and although the deal is far from complete, the prospect does create a new challenge to Pennsylvania’s racing industry. The vendor that will likely run the lottery for the state, Camelot, has described a business plan that would include video gambling terminals in bars and restaurants. Hannum says that would erode racing’s share of gambling revenue.

“Racing only gets a percentage of gross terminal revenue from slot machines,” he says. “Expansion of other forms of gambling in the state will be a challenge to racing, which gets to the issue of marketing.” He says
that the racing industry has taken its eye off the ball. “The way to generate revenue is through the handle (the total amount wagered).” And the way to increase the handle is to attract more bettors to the tracks. With the prospect of new competition from video gambling and Kino games in bars and taverns, racetracks may decide that more aggressive marketing would be a good investment.

Competing for Gamblers and Railbirds

Slots revenue from Pennsylvania’s casinos, while still robust, is leveling off, Hannum says. And that is a trend that is likely to continue, especially if Camelot’s plans for video gambling in taverns and bars are realized. The Pennsylvania Breeding Fund relies on a percentage of each racetrack’s pari-mutuel handle and the slots revenue from the casinos. Hannum says that “Presque Isle is going to see their slots revenue go down due to competition from Ohio.” He thinks one factor affecting slots revenue is the saturation of the market, and points out that there is yet another casino likely to be licensed in Philadelphia. “Another facility in Philadelphia is probably one more than we need in the region.”

The trends in slots revenue and wagering are not immutable, though. Hannum says that the racetracks should be marketing the races more aggressively. “Since slots and table games came on board racetrack operators have not made an effort to promote racing.” As in other industries, competition for consumer dollars is fierce, and the gaming industry is always looking for ways to maximize revenue. “The tax rate is very high on slot machines, but relatively low on table games. When you see table games expanding, that doesn’t help racing. The facilities are putting a lot more emphasis on table games,” where they can keep a bigger share of the proceeds, he explains.

When Pennsylvania’s casinos opened, Atlantic City’s gambling industry suffered significant declines. According to a study by the University of Nevada/Las Vegas Center for Gaming Research, Atlantic City casino revenue has fallen by 36 per cent since 2006. Losses have been across the board, both in table games and in slots revenue. The study, conducted in March, 2012, relied on data from the Casino Control Commission. New Jersey’s losses translated to gains for Pennsylvania’s growing gambling industry.

Since Pennsylvania legalized gambling, and neighboring states recognized the benefits, slots and table games have popped up elsewhere, adding more competition which will continue to affect Pennsylvania’s receipts. Maryland legalized slots casinos in 2008 and their first casino opened in 2010. Delaware has been aggressively promoting casinos and racing, offering gamblers from Maryland and the Washington, DC area convenient options to New Jersey casinos.

“Ultimately the racetracks are responsible for marketing, but the horsemen out of sheer desperation have been doing a lot of it,” Hannum says. “I personally find it very frustrating to hear ads on the radio for Parx and they don’t even mention racing. Tracks could do a lot more in that regard.”

Declining Foal Crop

As he looks ahead to 2013 and beyond, Hannum says that one troubling issue is the number of foals that will be available for competition. “The foal crop has been declining over the last few years, and so there are a lot fewer horses at the races,” he says. In 2011 there were 851 PA breds registered with PHBA. In 2010 there were 1,348 and in 2009 there were 1400. Fewer foals will affect the number of races, and a diminished racing schedule reduces payouts. It’s not complicated. “Philadelphia Park and Penn National which have traditionally had year round racing won’t be able to card the races because there won’t be enough horses.” He says the obvious way to fix that is to reduce the number of race days, but Pennsylvania has been reluctant to take that step. He pointed to Delaware, where racing days have been reduced over the past several years.

Delaware Park had 100 racing days in 2012, down from 106 in 2011 and 113 in 2010. In 2011, several races had to be cancelled because there were not enough entries. Slots revenue in Delaware has declined since 2007, when Harrah’s Casino and Racetrack opened in Chester, PA. After a protracted and often contentious negotiation with the Delaware Thoroughbred Horsemen’s Association (DTHA), a new contract was signed just two weeks before the start of the 2012 race season. DTHA represents owners and trainers, and advocates on their behalf with the state Legislature, Delaware Park and the state’s Racing Commission. The contract established purse levels and race days for the season. Both sides in the contract dispute have vowed to work together to market racing in Delaware more aggressively.

Despite Challenges, Optimism Prevails

One might think, in the face of all these obstacles, optimism would be in short supply. But it’s not. Hannum looks ahead to great opportunities for the state’s Thoroughbred racing industry. “I think there are a lot of challenges, but Pennsylvania has a really good program,” he says. “There has been a lot of investment at all three tracks. Philadelphia Park is on track to complete all new barns. Racetracks are much nicer places to go to enjoy racing than they were five or 10 years ago.” He points to Presque Isle as a beautiful racetrack with lots of potential.

He says that the product—horse racing—is a package that leans heavily on ambience. And the many ways Pennsylvania’s racetracks are improving add value to the product. “People look to Pennsylvania racing, and they like it and it’s competitive, that just bodes well and attracts more people and more horses.”