Cannibalization or Bigger Purses: what will racetrack casinos mean for Kentucky?

Posting has been light since I've been a bit under the weather, but I'm starting to get back into the grind, just in time for the weekend.

Greg Hall has two excellent stories today in the Courier-Journal about the race track casino expansion debate that is going to be going on through the Kentucky Legislature this session, the 60-day session opened on Tuesday.

The first story is a a front-page piece that covers the pro and con casino expansion arguments, and is summed up by the story lede: "If Kentucky approves casino gambling at its racetracks, will the crowds be at the slot machines or the betting windows?"

Hall really did a great job with this story, extensively covering both sides of the debate in a fair way, and the only real way for me to do this story justice is to copy/paste the entire thing (which I'm not going to do, go read the story), but I'll touch on some of the high points.

In a nutshell the proponent argument is based on the "need" for casino dollars; monies that will boost track purses and keep horsemen from fleeing to other states with higher purses thanks to race track gambling. While the opponents argue that the plan for expanded gaming will "cannibalize" the industry as dollars that would usually be bet on horses will instead go to the slot machines, blackjack and other gaming that may be approved.

From The Courier-Journal

It's only natural that when you're putting a new form of gambling right in amongst existing horse players and gamblers that there's going to be cannibalization, and there has been virtually everywhere that the machines have been put in," said David Willmot, the chairman and CEO of Woodbine Entertainment Group, which operates two Toronto-area tracks with slot machines.

Retired University of Louisville professor Richard Thalheimer, of the Lexington-based Thalheimer Research Associates, said his study of Mountaineer Casino Racetrack and Resort showed the on-track handle has fallen about 39 percent since the Chester, W.Va., track added a casino.

Though he hasn't seen an industrywide study, he said, "in terms of the cannibalization, I think that is pretty common knowledge."

Proponents, including Gov. Steve Beshear, argue casinos can provide revenue to the state for a variety of budget needs like education and health care, while helping the state's signature industry compete against tracks in other states that have used gambling revenue to supplement purses.

 

Hall's story details more of the cannibalization vs. horsemen exodus to states with bigger purses as well as addresses the "problems" with the racino business models (which tend to ignore racing and do little to integrate the two).

More From The Courier-Journal

"I think it's fair to argue that a lot of those places (tracks with casino-style gambling) didn't expend a great deal of effort to try to promote the on-track business, because I don't know that any of them really believed that they could do so successfully," said Tim Capps, the executive in residence at the University of Louisville's Equine Industry Program.

 

Hall's other story reports on the racetrack presidents of Churchill Downs, Keeneland, Turfway and Ellis Park who all testified before a House task force considering how Casinos will effect racing and breeding in the Commonwealth. This story is interesting because it reveals that the presidents of Ellis, Churchill and Keeneland, would at least consider a gambling facility that would be located off track.

From the second Courier-Journal story:

Issues of location dominated much of the hearing.

"I'm not going to vote for anything unless I know where they're going to be," said Rep. Harry Moberly, the Richmond Democrat who heads the House budget committee and is a task force member. "I don't want somebody else like some commission deciding where they're going to be."

Moberly said decisions need to be made soon, as the legislature moves through its 60-day session that began Tuesday.

Keeneland Association President Nick Nicholson said the Lexington track, known for its pastoral setting, is open to sharing a license with the nearby Red Mile harness and quarter-horse track at a site to be determined.

"Whatever we do, the specialness of Keeneland will be the first concern," he said.
Nicholson and Churchill's Sexton said their companies are willing to accept locations where state officials believe revenues could be maximized.
Ellis Park owner Ron Geary said he is open to having a casino at his Henderson track or operated at another site.

Turfway's Elliston said he believes the Florence track -- visible from Interstate 71 -- is ideally located for a casino.

Elliston is right that Turfway's setting is an ideal one, and the idea of an off-track casino locations in downtown Lexington and Louisville, operated by the race tracks, could make this issue more palatable for racing traditionalists (like me) who don't want to have to fight their way through crowds of blue-haired slot players on the way to the windows.

In the end, I'm not sure if it is going to matter much. While I think this will pass the House, the real struggle will be in the Senate where I suspect the debate will begin to fall apart as the Senators who don't have have a racetrack in their constituency, ask for various pet projects and favors in return for their support. I think this will die in the Senate without ever even coming to a vote.