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Gambling drives passion for ponies

By Daniel Michaels, May 20th 2005
Galloping in the face of a soft economy, the horse-racing industry is coming off its best year ever with a record $15.9 billion in bets placed. This year was expected to be better even before Funny Cide notched Kentucky Derby and Preakness victories and made this arguably the most important weekend for horse racing in a quarter century.

Emotional tides are running high, too. A book about an unlikely Depression-era racehorse named Seabiscuit raced to the top of the best-seller list and Hollywood is abuzz about a movie, based on the book, due out this summer.

So why are faces so long around the nation's horse tracks?

"Our sport needs a little boost," says famed jockey Gary Stevens, who in the movie plays George Woolf, who rode Seabiscuit past War Admiral at California's Santa Anita track 65 years ago.

Interest is up, but track attendance is not. It has been falling since horse racing's heyday in the 1940s. Ballooning betting levels aren't a sign of an appreciation of the smell of manure, the post parade of horses and the pounding of hooves around a dirt track. The boom is more about the USA's obsession with gambling than any newfound passion for ponies.

In fact, the two main developments driving the boom would have been considered blasphemy among die-hard racing purists 10 years ago:

•Racinos. This odd-sounding word sums up perhaps the most dramatic change to sweep the industry. Racetracks in several states are morphing into full-fledged gambling Meccas complete with row upon row of slot machines.

Every dollar that gets dropped into a racetrack slot machine serves several purposes. About a quarter goes to the racino operator, and another quarter goes to the costs of operating the machines — including the occasional payoffs to lucky gamblers. Another quarter goes to the state in the form of taxes.

The fourth quarter is what is making the difference for some racetracks. It gets added to the purses offered to the jockeys and horse owners — which can almost overnight turn a third-rate track teetering on bankruptcy into a magnet for the nation's best jockeys and horses.

Already, six states — Delaware, West Virginia, Iowa, Louisiana, New Mexico and Rhode Island — have slots up and running at racetracks. New York has approved them but still hasn't had them installed. And Minnesota has a bill pending to legalize slots.

Expect more to follow, experts say, largely because taxes collected from slot machines can help states relieve huge budget crunches. The lure of that tax revenue is helping fuel the growth of racinos. Lawmakers, who wouldn't have considered it before, are now taking a close look at legalizing slots because allowing them is more popular than raising income taxes.

At first, horse-racing insiders loathed the development, saying it degraded the Sport of Kings. But seeing the benefits, the industry is embracing the change. "It's the future," says renowned trainer Bob Baffert, walking ahead of one of his horses coming off a race at Santa Anita. "We need to take advantage of it."

•Expanded simulcasting. The ability to transmit races to cable TV channels, off-track gambling parlors and even the Internet has brought in a whole new remote-control audience for horse racing.

Rather than braving the traffic to go to racetracks, spectators can go to off-track racing centers, often found in strip malls or in the middle of major cities. And new rules allow companies, such as XpressBet and Youbet.com, to maintain accounts for bettors so they can wager over the phone or on the Internet.

Churchill Downs, operator of some of the most elite horse tracks in five states, launched Churchill Downs Simulcast Network, or CDSN, in 2000 to capitalize on the rise in simulcasting. Off-track betting parlors pay Churchill to access the feed — which broadcasts races from all its tracks. In addition, Churchill takes a cut of the betting handle.

What started as a novelty is now the industry's bread-and-butter: Nine of every 10 gambling dollars now come from spectators not at the track. Meanwhile, betting at the tracks is shrinking.

Horse-racing revolution

These two phenomena — slot machines and the surge in off-track wagering — are working together to reinvent the industry.

Racetracks in states that have slot machines are suddenly able to pay the biggest purses to winners. For instance, just a few years ago, Mountaineer Race Track near Chester, W. Va., hosted horses just a few steps from the glue factory. But now, thanks to the installation of slots, the track is luring some of the best horses from Kentucky and the East Coast. Winners of Mountaineer races get $160,000 on average, up dramatically from the $22,000 purses they used to pay — and easily double the payouts at other tracks.

The purses in Maryland used to dwarf West Virginia's because of the larger base of gamblers in the Washington, D.C., area. "There's always been a significant difference between purses in Maryland vs. West Virginia, it just used to be the other way around," says Chris Scherf, executive vice president at the Thoroughbred Racing Association.

Racetracks even thousands of miles away can't ignore what's going on in the racinos of West Virginia. Tracks as far away as California find they're competing directly with West Virginia for audiences. Some gamblers, such as Pasadena, Calif., mechanic Reve Dento, will go to Santa Anita Park so they can use the simulcasting facilities there and bet on races in other states.

Jockey Cory Nakatani thinks states such as California must move quickly to install slot machines so it can continue to compete. "Use the money (from slots) to help the industry or put toward schools for kids — not let the bookies get all the money," Nakatani says.

Learning to compete

Facing the reality of racinos and simulcasting, the sport is undergoing radical changes. Tracks that don't adapt are threatened with obsolescence.

More than 12 states have either approved or are seriously considering allowing the tracks to install slot machines. Maryland Gov. Robert Ehrlich made racetrack slot machines part of his winning campaign platform and still hopes to get approval from the legislature. Ehrlich hopes slot machine revenue could bring in up to $800 million a year to the state and help close the $1.1 billion expected revenue shortfall, spokesman Paul Schurick says.

At first, the biggest opponents of slots at racetracks were racing fans, horse owners and trainers. They feared the din of the slots would detract from the intensity and excitement of a day at the track.

But most have come around after seeing how slots can actually save a racetrack, says Lonny Powell, CEO of the Association of Racing Commissioners International.

"Sure, everyone wishes for the good old days when we were the only game in town," he says. "But we'd rather see racing going on than see a shopping mall in the place of where the racetrack was."

It remains to be seen how long the industry can take advantage of the hype and excitement surrounding Funny Cide's attempt to become the first horse to take the Triple Crown since Affirmed did it in 1978. But as has become clear, the ultimate success of the horse-racing business will likely depend on a lot more than thoroughbreds circling an oval track.

"The industry is potentially standing at the beginning of a staircase to heights not seen before," Powell says. "But some (tracks) may not make the climb."

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May 20th 2005 A Unanimous Supreme Court Decision in The Iowa Gambling Case

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