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Slots at Tracks Would Produce Unknown Payoffs

Gambit shows promise elsewhere, but some worry it will detract from horse races.

November 22, 2003|David Wharton | Times Staff Writer

Even on good days, Prairie Meadows Racetrack was struggling to draw a few hundred fans to watch the horses.

Like other tracks around the nation, this one near Des Moines faced a steady decline in thoroughbred racing's popularity and was about to become "the largest flea market or used car lot in the state," a spokesman said.

Then Prairie Meadows found a way out. In 1995, it won approval to become the first U.S. track with slot machines and, according to management, business increased tenfold.

"That was our salvation," said the spokesman, Steve Berry. "Slots made the difference."

Now, the corporations that own Hollywood Park, Santa Anita and other major California tracks are hoping to follow a similar strategy as they prepare an initiative aimed at the November 2004 ballot.

The theory is simple: Since the late 1970s, the "sport of kings" has lost almost half its business to a proliferation of gambling options, including Indian casinos, state lotteries and Internet sites. Slot machines are meant to lure customers back to the track.

The gambit has shown promising results in six states where so-called racinos combine racing with Nevada-style gaming. But not everyone thinks it is a good idea.

"When race tracks add slot machines, they really turn into casinos," said William Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada at Reno.

"This is not helping the horse racing industry in the long term," Eadington said. "The American public has not embraced the industry since the early part of the 20th century ... and it's still in very bad shape."

A Sacramento lobbyist for racing recently acknowledged that slot machines might not help create new fans.

"If you put slots in tracks, how do we know that people won't spend their money on slots instead" of horses, asked Bob Fox, who represents California trainers' and breeders' associations.

The issue also pits the racing industry against a long-time political rival, the Indian tribes that have a monopoly on Nevada-style gaming in California.

In recent months, industry executives have said privately they were emboldened by Gov. Arnold Schwarzenegger's willingness to confront tribes about increasing payments to the state.

On Friday, a Schwarzenegger aide said the governor is "not supporting" the proposed initiative but stopped short of saying he would oppose it.

Corporations that own Santa Anita, Hollywood Park, Los Alamitos and two San Francisco Bay Area tracks are expected to help finance the initiative. The state-owned Del Mar Racetrack is not part of the effort.

Owners of 11 card rooms are expected to join in.

The measure would be a constitutional amendment requiring as many as 1 million signatures to qualify for the ballot. If it were to go before voters and be approved, it would trigger a two-step process.

First, it would give tribes 90 days to negotiate with the governor. Tribes would be expected to pay 25% of their net revenue to the state and comply with laws such as the California Environmental Quality Act and Political Reform Act, from which they are currently exempt.

"I would think it's impossible for all the tribes to agree," said Allen Kim, a gaming analyst for McDonald Investments in Los Angeles.

If no agreement were reached, tracks and card rooms would share up to 30,000 slot machines and pay 35% of their net winnings to cities and counties.

An additional percentage would go to purses that horses earn in races, a cash influx that owners and trainers would welcome.

Many of them remember when Southern California grandstands were packed during racing season. Even more important to the industry is the handle -- the total wagers placed each day.

Since 1978, the daily handle at U.S. tracks has decreased by an inflation-adjusted 44%, said Richard Thalheimer, an economics professor in the University of Louisville's equine business department.

"We know the reason," Thalheimer said. "It's state lotteries, casinos and other forms of competition. When customers are given the opportunity to play these additional games, they do. Horse racing loses customers."

Racing in California has also suffered from rising costs associated with workers' compensation.

"It would definitely help if the purses were higher," said Jerry Hollendorfer, a veteran Northern California trainer. "If there's a chance to do something like that, we should try."

Prairie Meadows took in a daily handle of $77,000 at its low point in 1994, Berry said. That translated into daily purses of only $20,000.

The track, which had filed for bankruptcy, convinced state legislators and county voters to approve slot machines.

Executives said the turnaround worked like this: Slot machine revenue was added to purses, which attracted more horses. Bigger fields made for exciting races and gamblers were more likely to place more bets, including exotic wagers such as trifectas, in which bettors try to pick the top three finishers in a race.

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