Impact of Gaming Machines on the Race Track:
The United States Perspective

(A look at their initial success, the competitive state of the industry, and challenges for the future)

Remarks delivered by

Fred J. Noe

Executive Vice President of the
The U.S. Trotting Association


Delivered on November 26th, 1999 before the

16th Biennial World Trotting Conference, convened at Sydney, NSW, Australia

We Americans like to think we are clever when it comes to introducing new words to our particular version of the English language. One which has entered common usage in the last couple of years in horseracing is "Racino"—a combination racetrack and casino.

It’s a bit strange, however, that this word has come into use, since its roots come from two industries that mix like oil and water.

The gambling industry including casinos, has grown on a number of fronts—in Nevada, expansion into Atlantic City, the rise of Native American gambling, riverboats, state lotteries, and now on the Internet. Over the same span of time, racing has not prospered. In fact by most measures it has declined.

So it’s a bit strange, that the jingle of coins into slot machines—once thought to be the death knell for Harness Racing—just might actually be the sound of a savior.

Though not a wide-spread phenomenon yet, since the various states have been slow to embrace the marriage of racing and slot machines, the few tracks who have been permitted to expand their gaming to include slot machines, have made others in the sport sit up and take notice—and in the case of some drivers, trainers, and horses, get up and move to these new fountains of purse money.

Where are these individuals heading in this newest gold rush? They are headed to one of the two states where Racinos have been built—Delaware and Iowa, at least in the US with Ontario in Canada soon to be added.

Growth in the State of Delaware

Delaware is home to two Harness Racing tracks—Dover Downs and Harrington Raceway—once the among the smallest and poorest outposts of Harness Racing, but now among the most attractive.

Iowa is not yet home to a major Harness racetrack, but a six-day meet this year at Prairie Meadows near Des Moines will lead to a longer, richer Harness meet in that state next year and beyond.

I wish I could stand here and tell you that when people rush to Dover Downs or Harrington Raceway in Delaware or to Prairie Meadows they are rushing there to see the horses. Mostly they do not, at least not yet. They first rush to an employee who can change their dollar bills into coins—and then they rush to the slot machines.

The gambling laws in Delaware, which introduced casino operations at Delaware’s three horse racing tracks (two Harness and one Thoroughbred), were particularly favorable for racing, mandating that casinos can only be operated at live racing facilities and that a share of the revenues from the machines be put into purses.

The revenue sharing has led to new riches for the three tracks.

In 1993, for example, before slots, the total purses paid at the two Harness tracks totaled less than $1 million dollars—an average of $1,318 dollars per race.

In 1998, five years later, those numbers had grown to $25.3 million— or $9,061 per race.

It is difficult to determine attendance figures at the track itself, since the track and the casino are located in the same facility.

One thing is for certain, the new Dover and Harrington are packed daily with people, probably not new racing fans, but people nevertheless.

Where Harness Racing is benefiting is in the big financial incentive for new owners and breeders, which in turn benefits trainers and drivers, and the many others involved in the sport.

Most importantly, it has allowed Racing to stop the decline and begin to reestablish itself as a mass sport, at least in the state of Delaware

There have been few "down sides" to the financial success in Delaware, although a couple have surfaced. The new wealth in Harness Racing in Delaware has obviously become an attraction for others to move there, leaving less fortunate tracks and states even worse off.

The long-time Delaware owners and trainers have not found this an attractive by-product. They have tried to make sure, races favoring Delaware-owned and Delaware-bred horses are offered at their tracks, to keep at least some part of the purse money "at home."

Too, the cost of acquiring or breeding horses sufficiently good to win these higher purses against stiff "outside" competition have meant increases in stud fees, training bills, and other such costs—making it costlier for the "old guard" to compete.

That, however, is clearly a much better scenario, than in the past. Today, Dover and Harrington, offer top notch Harness Racing, requiring good horses, drivers, trainers, breeders and owners.

To date, Delaware and Iowa are the only US states offering Harness Racing and casinos. West Virginia is a third State which has slot machines at its tracks—although no Harness Racing. If the laws in these states have resulted in such a success, why haven’t others adopted it?

America seems to view the growth of gaming in our country with a bit more conservative attitude.

Where many of our 50 states in the 1980’s moved to legalize state lotteries, signed agreements with Indian tribes to conduct casino gaming, and added riverboat casinos, the political atmosphere seemingly has changed since then.

Laws to permit slots or other forms of casinos at racetracks or as stand-alone are currently being considered in several states, but their outlook for success in the near future is uncertain at best.

In order to explore and analyze what happened between the "roaring 1980’s" and today, I’d like to step somewhat outside of the specific topic assigned to me. This seems necessary to give you a better understanding of what’s going on.

I would like to view racing as it co-exists today with other forms of gambling and look at the current atmosphere among lawmakers on the federal level. Action by Washington has a potentially great impact on our sport in the US.

The competition

Harness Racing during its period of expansion in North America, starting with the opening of Roosevelt Raceway in 1940 and continuing through the opening of the Meadowlands in 1976, was relatively free from competition from other forms of gambling.

The first modern US state lottery was begun in New Hampshire in 1964—although not spreading across the nation to other states until a decade had passed.

Off-track betting in New York State began in 1971, and although it did not spread nationally for nearly 15 years, it took millions of dollars and millions of fans from the tracks in that state.

Atlantic City opened its casinos in 1978—just a couple of hours from the tracks and off-track parlors of New York City.

In 1988 the first Indian casinos were opened, and although not near any major cities or racetracks they were certainly a lot closer to most Americans than were Las Vegas and Atlantic City.

Indian casinos, by the way, present one of the major competitive challenges to racing since they operate without the same oversight from the states that regulate racing quite closely.

They also present the greatest threat through possible expansion as more tribes note the success of the Foxwoods casino in Connecticut, which is, I believe the most successful casino in North America—if not the world.

Casinos such as these may be opened without submitting the question to voters—unlike any other action regarding possible expansion of gaming. When tracks wish to change laws or regulations, in the US the respective state governments must be lobbied to change its laws and, in many cases, the voters in a state or locality must vote in the affirmative—a requirement that does not exist for any Indiana-based gaming.

In the early 1980’s, telephone wagering opened in Kentucky and spread a few years later to Pennsylvania and then to other states. Coupled with legal opinions that persons in one state might open accounts in other states, it meant competition between tracks, once separated by great distances were now a matter of a simple phone call, instead of a trip of several hours.

Finally, about 1990 the first riverboat casinos were launched, particularly in mid-west states, where Harness Racing had long been a staple entertainment.

Now, though not legal in the United States, casinos and sports wagering have come to the American public on the Internet, and while no actual figures are available it is thought, that tens of millions of dollars may be wagered in this way each year. Some estimates say that as much as $2 billion will be wagered through Internet-based casinos by the year 2001.

As each of these competitors came into being, Harness Racing—and all of horse racing—declined. Attendance at U.S. harness tracks in 1976, the year the Meadowlands opened, was 27.7 million. In 1998 it was less than eight million.

In the same span of time, horse racing’s share of the U.S. gambling market, in terms of the amount of total money spent, was about 40 percent, but now stands at less than three percent— $15 billion wagered in all forms of horseracing, with $3 billion being wagered on Harness Racing.

Counteracting the competition

Of course, horseracing has simply not gone away and racetracks are not closing in the face of competition. In fact, horseracing has started to show signs of life again, including Harness Racing.

The Meadowlands is a good example. It, like other tracks, had been suffering through a decline, but the meet which ended this August was its largest in recent years. The track posted increases in total and average wagering, as well as increases in total and average attendance—both of which reversed a run of a number of years of decline.

Asking what the Meadowlands did to counteract the losses of years past is, as you can imagine, not a simple question to answer. The track has always presented the best racing and offered the biggest purses. It has always been an aggressive advertiser and promoter. It has always worked hard to obtain coverage in the press.

It did these things in 1999—just as it had in 1998, 1997, 1996, and before.

I believe the reason they are so successful is the presence of good management, who have faith in their plan towards success. They had the belief in their conviction, the stamina and money to come back every year with basically the same aggressive marketing plan or a close variation of it and that approach is paying off handsomely for them.

There is no magic here, but a good understanding of you market, your product and your competition. There is nothing inherent in the Meadowlands’ success that couldn’t be applied to any other Harness track in the US and, fortunately, a growing number are moving in the same direction.

Tom Meeker, the president of Churchill Downs, home of the Kentucky Derby, said this in an article in Hoof Beats magazine, in which he talks about how to meet and beat lotteries and in the US lotteries are strong competition for the wagering dollar:

"We have to distinguish ourselves from the lottery," he said. "Racing is more than just a gambling product. I don’t subscribe to the notion that we have an inferior product."

With this statement Meeker expresses his belief, and mine, that each form of gambling is a different product, each with its own strengths and liabilities.

In no casino or on any lottery machine is there the beauty, pageantry, or history racing has to offer. No lottery ticket, deck of cards, or pair of dice by themselves thrill like a trip to The Red Mile in Kentucky with all of its unmatched history.

The Meadowlands knows that and makes sure their fans know it too…and the fans are reacting favorably.

In America everyone knows the TV and radio commercial that says "Be all that you can be." It was written by a Harness horse owner, Dennis Doyle, whose horse Supergrit won last year’s Breeders Crown Trot and Montreal’s Trot Mondial.

If refers to young people preparing for later life and striving to do their best by joining the United States Army, of all things, where they can receive training, education, and leadership skills.

Perhaps when dreaming up those words, Doyle was thinking of what we need to do in Harness Racing—"Do the best job we can do, by doing what Racing can do best."

"Marketing" is the keyword in any business, and it’s one that’s used, abused, and misunderstood in our sport. It can really be a sophisticated activity and one that may be lost on some tracks, during these times of decreasing revenues—and as a result, they spend less and less on advertising and marketing and promotions.

Gene Christiansen is a racing analyst, who has been prominent in North American for quite a few years. In speaking about Marketing to track operators, he said racing’s competition is quite sophisticated:

"Today’s marketing techniques are database driven," he said. "Your competitors, at least the ones who are taking market share away from you, are learning to maintain on-line customer activity accounts numbering in the hundreds of thousands."

"In contrast," he said, "many racetracks are basing their marketing efforts on databases not much more sophisticated than lists of season pass holders and a very short list of heavy players."

To come back to The Meadowlands, Mr. Christiansens’ warning clearly does not apply to them.

The Meadowlands does sophisticated marketing—with a popular Internet site; a local TV show highlighting racing action; making sure they have the best system for transmitting pictures and sound to other tracks and OTB parlors; and doing sophisticated tracking of the response to advertising materials sent to fans.

The fact that they are virtually unique among U.S. Harness tracks in this respect only underscores, how much more all tracks need to do.

The new threat

I mentioned earlier that the political atmosphere has changed a great deal in America in recent years, and that has been apparent in two recent happenings involving the racing industry: the threatened prohibition of Internet gambling, and a recently-completed national study of the gaming industry.

Jon Kyl, a United States Senator from Arizona, has proposed a federal law that would prohibit anyone in the United States from offering the opportunity to place or accept any sort of wager on the Internet. The motivation behind Senator Kyl’s law is that children might have access to gambling via the Internet and that adults might become easily addicted to the activity.

The law, in its original form, would also have potentially prohibited the long-standing process whereby bettors on horses in one state can place a bet on a race in another state—known in North America as simulcasting.

Senator Kyl’s proposal included all bets placed on computer networks—and America’s simulcast industry is really a computer network.

The result would have been devastating, as fully three-quarters of all horserace wagers in America are placed away from the track via simulcast, inter-track, or off-track systems.

The horseracing industry, fortunately, was able to work through its representatives in Washington, the American Horse Council, to change wording in the bill and it now at least protects current wagering technology. As I am drafting these remarks, the proposed law, S.692, still has to be voted on by the US Senate and our House of Representatives, where its fate is quite uncertain. At the same time, however, it will be difficult for any elected representative in the US to stand up in our Congress and speak publicly on behalf of unrestricted gambling on the Internet.

Some, however, feel that even if the law is passed, it will have a relatively short life.

Tom Bell, a law professor, wrote in a recent magazine article, predicting that it would have a life of at most five or ten years, before being repealed or replaced by other legislation. Bell says:

"Gambling has long been a part of the American culture. The people who first sailed across the ocean to live here took a big gamble, and that they regarded gambling as "part of their inalienable right to the pursuit of happiness."

It’s interesting to note, that many of the people who first "sailed across the ocean" to the New World were Puritans, seeking a place to practice their beliefs. "Puritanism," defined by some as a slavish devotion to righteousness and morality, seems to perfectly describe how some in the US, probably a minority, but a very vocal minority feel about the expansion of gambling in our country today.

In some corners of our globe gambling is treated as a matter-of-fact part of life. I hear that there is a bookmaker’s shop on every corner in Britain—where even the Queen takes an occasional "flutter" on a horserace.

In America, however, being part of the gaming industry carries a certain stigma, and very few politicians would come right out and say that gambling should be treated like any other legitimate business, should be allowed to grow like any other business---they basically just want to regulate and, yes, tax all forms of gambling.

Professor Bell, on the other hand, offers three reasons why Internet gambling will someday be legalized:

At a recent international lottery conference, a Microsoft official noted:

"Internet traffic doubles every 100 days. There are now 50 million consumers on the Internet. It took radio 38 years to have 50 million listeners; it took television 13 years to have that many viewers; and it took the Internet only four years to reach that number."

The U.S. Trotting Association believes that the Internet and its fabulous marketing and retail potential is clearly a tool the racing industry should have at its unrestricted disposal as it seeks to grow.

A look at America’s gambling habits

Another example of the US’s currently strange political climate is the National Gambling Impact Study Commission.

The Commission was a creation of anti-gambling legislators in our Congress, although it was touted as unbiased and bipartisan, meaning that it was supported by Democrats and Republicans alike.

It was the goal of this study to analyze the gambling habits of Americans and make recommendations about the future of gambling in the US.

The US racing industry did not look favorably on the creation of this federal commission.

With little or no regulation at the federal level, the United States horseracing industry has always felt, they were far better off being regulated at the state level, than living under federal regulation—We never know how the political wind blows in Washington, with the Administration or Congress finding it politically expedient to go after major industries. Just in this Administration drug makers, the tobacco industry and now gun manufacturers have been targeted.

The Commission’s voluminous report of findings and recommendations was released this past June after two years and, so far, has been received with a collective yawn.

Strangely or maybe not so strangely, one of Commission’s key recommendations came in an area, where our federal government has absolutely no say-so: expansion of gambling opportunities.

It said that the industry should not be permitted to grow and that the federal government should place a moratorium on the legalization of any new gambling. This is a hollow recommendation, since gambling, as I indicated before, has traditionally been the business of the individual state governments and Indian tribes.

To complicate things further for the Commission’s findings, the US Treasury Department announced that one reason for the suggested moratorium—a higher incidence of bankruptcies where gambling is legal—was simply not true. The Treasury said:

"Using state-level data, we find no connection between state bankruptcy rates and either the extent of or introduction of casino gambling,"

For example, Tennessee, one of three of the United States that has no legal gambling in operation, has the nations highest rates of personal bankruptcy.

The National Gambling Impact Study Commission has done little to shed light on the industry—but has had the effect of causing other investigative committees to be formed.

For example, the lawmakers in states with legal gambling have formed a panel to do their own study, and the State of Kentucky has commissioned a study to see what the effects of the Commissions recommendations may be in that state.

What the future might hold

In short, while the opportunity for other tracks to join those in Delaware to reap rewards from slot machines, maybe doubtful in the very near future, due to continued restrictive thinking at the state and federal level, I believe that the growth of gambling in the US will continue—and that Racing in general, including Harness Racing, will grow with it.

As computerization and the World Wide Web continue to grow at an amazing speed, the sport of Harness Racing and in particular our Harness tracks have the opportunity and the obligation to be active participants in this development.

Beyond that and as the success of the Meadowlands shows, all indications are there that Harness Racing has bright prospects for growing its share of the entertainment market by trying to be the best by doing what it does best, and using the available technology to do so in an unrestricted manner.

I believe that the overall growth of gambling in the US will slow down from its fast pace of the recent past, just because it has grown too fast in the mind of many Americans…but it will continue to grow nevertheless.

As today’s technology is replaced by better and faster technology, Harness Racing absolutely needs to be alert to change and inevitable improvements, and it needs to participate in them. We are trying our best to set that tone for Harness Racing in the US at the USTA.

I am convinced that our best years are still to come, if we resolve to take advantage of today’s tools and knowledge. We are blessed to live in such an exciting era, where we can clearly mold our own destiny.

Thank you for your kind attention.


 

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