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Cleveland
Plain Dealer...
Casino gambling at
Ohio’s race tracks a matter of survival, horse racing industry
officials say
By Dave Davis, The Plain Dealer
Saturday, April 02, 2011
CLEVELAND, Ohio--The future of Ohio’s emerging gambling industry is in
the hands of a man who doesn’t seem to care much for games of chance.
As a resident, John Kasich voted in 2009 against a state constitutional
amendment allowing casinos to be built in Toledo, Cleveland, Columbus
and Cincinnati.
Today, 18 months later, he leads a state with four casinos under
construction and soon must decide whether Ohio will become one of the
nation’s major gambling centers with thousands of slot machines at its
seven horse-racing tracks.
Turning the state’s tracks into racinos is a matter of survival, say
those who work in the horse-racing industry, which has seen betting
fall almost 60 percent in the last 10 years, from $596 million to $253
million.
But the developers of the state’s four casinos -- which have promised
to invest at least $1.4 billion in our cities -- would stand to lose
hundreds of millions of dollars a year.
A spokesman said the governor has “mixed feelings” about gambling,
adding that Kasich doesn’t believe it’s the panacea some people paint
it as but that he understands its potential for economic development.
Expanding gambling could mean tens of millions of dollars a year in new
tax revenue.
Kasich is expected to hire a consultant within days to analyze the
state’s gambling market, looking at ways it might be expanded beyond
casinos and the lottery, and what fees and taxes might be generated,
according to spokesman Rob Nichols.
Nichols said the racino question could be the consultant’s first order
of business, with the firm making recommendations on that issue before
finishing its final report, which could take months.
“He wants to consult with someone who has expertise,” said Nichols.
“You only get one chance to do this. You have to do it right. So that’s
sort of the guiding principle here.”
Neighboring states already
have slots
Horse-racing officials say they need the slot machines to generate the
extra revenue and larger purses that the devices have brought
neighboring Indiana, Pennsylvania and West Virginia.
“It will help big time,” said Lou Carlo, who operates Lebanon Raceway,
a harness-racing track, at the Warren County fairgrounds. “We’re at a
very critical point.”
“We’ve lost a few thousand jobs in the horse-racing industry over the
last few years,” added Tom Fries Jr., who was the longtime executive
director of the Ohio Racing Commission until Friday, when the new
governor asked him to resign. “To put it in plain English, we would
love to be on a level playing field with the surrounding states.”
The idea of permitting other types of gambling at Ohio’s horse-racing
tracks has been discussed for at least 30 years.
But the state, which approved betting at horse tracks in 1933, just
never followed through to allow it.
Nationwide, there are 44 racino tracks in 12 states, including both
horse and dog racing. They brought in $6.4 billion in revenue, with
$2.6 billion being returned in gambling taxes to state and local
governments, according to the American Gaming Association’s 2010 report.
Figuring out what Ohio’s seven horse tracks could bring in with slot
machines is what the state’s soon-to-be-named consultant will do. But
Pennsylvania’s six racinos brought in about $1.6 billion in 2009 -- and
about half of that went to the state and local governments and the
horse industry.
Financial analysts and the state’s casino developers said last week
that Ohio is a large enough market for both casinos and racinos to
thrive, if the state doesn’t overtax them and developers are careful
not to overbuild.
The slot machines installed at horse tracks would probably be regulated
through the state Lottery Commission, and officials commonly call them
video lottery terminals, or VLTs for short.
On the outside, these video lottery terminals look and sound like
casino slot machines. The difference is on the inside: a slot machine
is self-contained with a chip inside that generates random numbers for
each play, whereas a VLT machine is usually connected to a computer
server in the back of the facility. That allows lottery officials to
monitor each spin.
“The new machines are really close to video games,” said Mike Trask, a
spokesman for one of the large manufacturers, Bally Technologies Inc.
He said they have touch screens and can be made to show TV, order a
drink or call the valet.
Even though the four casinos would make less money with racinos in the
state, the developers indicated last week they support the proposal.
Both of them -- Penn National Gaming Inc. and Rock Ohio Caesars LLC --
have bought horse tracks near their casinos and will add slot machines
if the state gives the go-ahead.
“I think there’s no question that the tracks in Ohio could use a boost
and that all of them could use the VLTs to help drive new customers to
the tracks,” said John Payne, Caesars Entertainment’s central division
president. “We’ve contemplated and planned for this to come at some
point.”
Caesars has joined with Rock Gaming LLC, Cavaliers majority owner Dan
Gilbert’s company, to build Horseshoe brand casinos in Cleveland and
Cincinnati. The first phase of the Cleveland casino is expected to open
in the historic Higbee Building early next year.
Officials with Rock Ohio Caesars say they eventually will build the
larger phase II Cleveland casino on Huron Road overlooking the Cuyahoga
River regardless of what the governor decides about slots at horse
tracks.
Caesars recently bought Thistledown, a thoroughbred track just a few
miles away.
But if slot machines are approved for tracks, the Horseshoe casinos
would find themselves vying for customers with their own racinos, as
well as competitors.
That means that the Horseshoe casinos will bump up against Northfield
Park, a harness-racing track owned by Brock Milstein about 18 miles
from downtown Cleveland, and River Downs, a thoroughbred and quarter
horse track a few miles from the casino in downtown Cincinnati. The
Cincinnati track is owned by Pinnacle Entertainment, a Las Vegas
gambling company whose officials have promised an extensive renovation
if slot machines are approved.
Payne said that Cleveland and Cincinnati will have unique urban
casinos, something that ought to attract attention from out of state.
He added that Caesars would use its Total Rewards program, with 40
million members, to entice visitors from outside the area.
“We compete in every market that we operate in,” he added.
Proximity is major
predictor of visitors
David Katz, a gambling analyst with Jefferies & Co. in New York,
indicated that Ohio is smart to get into the gambling market, even if
its entry is after neighboring states.
“In this economic environment, states can’t afford to sit back and
allow their tax dollars to pile in the car every weekend and drive
across the border and drop the money somewhere else,” Katz said.
Katz couldn’t think of another state that had gone from a standstill
lottery to both casinos and racinos in one fell swoop.
But he added that it shouldn’t be a problem as long as the state
doesn’t overtax the operations and developers don’t overbuild.
“A lot of what the more thoughtful companies do is they look at what
the adult population is within a certain drive time of the location,
and that shows what the opportunity really is.”
The analysis Katz refers to is known as the gravity model, loosely
based on Newton’s law of gravity.
The idea is that the closer people live to a casino or racino, the more
likely they will be to visit.
Experts say that roughly 90 percent of the visitors to Ohio’s casinos
are expected to live within 50 miles, about an hour’s drive away, while
racinos are expected to have their strongest pull on residents who live
within 25 miles, about 30 minutes away.
Nearly three-quarters of Ohio’s residents 21 and older live within 50
miles of one of the four casinos now under construction, a Plain Dealer
analysis of 2010 census data shows. That’s an estimated 6.3 million
potential customers.
But all seven of the state’s horse-racing tracks also are situated
within 50 miles of one of the four casinos. And five are within 10
miles.
A report by the state department of taxation in 2009 estimated that
this overlap in customer base could cost the casinos nearly half a
billion dollars in lost revenue a year.
And while some experts believe the estimate to be high, concern by Penn
National that the casinos it’s building in Toledo and Columbus would be
hurt by the race tracks it owns nearby prompted the company to announce
last month that it would ask to move its two tracks if the state OK’d
slot machines at them.
Developers look to
untapped markets
Penn National and at least two other developers are eyeing Ohio’s last
untapped gambling markets -- the metro areas of Dayton and Youngstown
-- both of which offer hundreds of thousands of potential customers and
little nearby competition. But the state is expected to OK only one
track in each area, if it allows any at all.
In Columbus, Penn National was forced to move the site of its casino
from the downtown arena district to suburban Franklin Township after
complaints. The new location for the casino is just a couple of miles
from Beulah Park, a thoroughbred and quarter horse track also owned by
Penn National.
The company informed the Ohio Racing Commission on Feb. 10 that it
wants to move Beulah Park to Dayton and Raceway Park in Toledo, a
harness track, to the Youngstown area.
Whether it’s a slot machine or video lottery terminal, players on Bally
Technologies’ popular Quick Hit Platinum can’t tell the difference.
“We are willing to invest $400 million into these two new locations to
have two fully integrated racing and gaming facilities that would
feature restaurants, sports lounges, entertainment lounges and other
amenities,” Tim Wilmott, the company’s president and chief operating
officer, told commissioners.
“We think we’ve got a good case for moving the tracks,” said company
spokesman Bob Tenenbaum.
Don’t try telling that to Carlo, whose Lebanon Raceway is about 25
miles from Dayton. Carlo started working in the local horse-racing
industry in 1953 at the age of 19.
“If they didn’t have the casino in Columbus, they wouldn’t even be
talking about this,” said Carlo, who said he plans to apply to build
another track in Dayton. “Their reason for wanting to move the track is
that it’s too close to their casino.”
The Mahoning Valley Development Group LLC is filing an application for
the state’s eighth horse-racing track, in Vienna Township near
Youngstown.
Rick Lertzman, one of the developers, believes the area can support the
$300 million project, which could include slot machines, a hotel,
stores, restaurants, a water park and a golf course.
“Within 50 miles you’ve got a million people,” he said. “The only thing
that matters now is what the governor wants to do.”
Read it with photos and graphs at the Cleveland Plain Dealer
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