Racetracks need slots to stay relevant

Racetracks need slots to stay relevant

Published Sep. 2, 2011 1:00 a.m. ET

As he completes his first year on the new job after almost a quarter of a century in the business, Tony Petrillo has pulled out all the stops.

He's honored the Chicago Blackhawks and Northwestern athletics to get people inside the gates. He's brought in a fresh marketing team full of passionate and knowledgeable racing experts. He's offered monetary incentives to trainers in order to attract more horses.

Last month, he even worked out a deal to showcase his track's signature event — the Arlington Million — on WGN, a station that grew to national prominence through the voice of Harry Caray.

"We are very passionate about racing here," Petrillo said. "We're trying our darndest to keep it going."


Despite all those efforts, the general manager of Arlington Park continues to see his bottom line bottom out — to the tune of a $2 million revenue drop in a July 2010 to July 2011 month-to-month comparison. And his track isn't the only one flailing.

The reasons are plentiful, from a struggling economy to a string of exceptionally warm days that had people more interested in spectating from a Chicago beachfront rather than a suburban grandstand. But the weather wasn't the only thing bringing the heat this summer.

On July 18, Rivers Casino opened in nearby Des Plaines, Ill., a mere 13 miles from Arlington and minutes from O'Hare Airport. On its inaugural night, gamblers were turned away as the parking garage quickly filled to capacity and traffic backed up for miles. In its first two weeks, Rivers took in $17.4 million and had more than 270,000 people walk through its doors.

It's that steady stream of people to the blackjack table and away from the finish line that has the horse racing industry on life support in some states. Instead of fighting the trend, however, most tracks are trying to get in on the action by evolving into "racinos" — race tracks combined with other forms of gaming.

"We're not looking for handouts," Petrillo said. "We're looking to invest in our industry."

But its more than a multimillion dollar price tag — Petrillo is willing to spend $60 million just to get slot machines installed — that's standing in his way. Nine mayors from around the state, all of whom have casinos in their towns, have formed a coalition called Cities Against Slots at the Tracks.

Gary Palmer, the president and CEO at Prairie Meadows in Iowa, saw similar resistance during an attempt to save his then-bankrupt track. In 1994, the state approved the addition of slots there by one vote. If the measure had failed, Prairie Meadows would have been boarded up. Instead, it became one of the first racinos.

Arlington Park is hoping to become the next, with a bill that's currently in legislative limbo in Illinois. The measure calls for slot machines not only at the state's thoroughbred and harness tracks, but also at O'Hare, Midway and the state fairgrounds in Springfield, the capital. In addition, it would allow five more casinos to open around the state, including one in downtown Chicago.

The fate of the bill, however, is still uncertain. Senate president John Cullerton has held it up as he and other legislators try to figure out what needs to be modified before sending it to Gov. Pat Quinn for review.

Arlington Park isn't alone in this pursuit. Kentucky, the de facto home of the sport in the United States, is also waiting for help. Without that additional money, the state's tracks are experiencing competition from ones in less-heralded areas like Pennsylvania and Indiana.

According to the Jockey Club, Kentucky's purses went from $103.5 million in 2006 to $89.3 million in 2010, due in part to the fact that the number of races decreased from 2,660 to 2,020 over that same period. Pennsylvania, on the other hand, increased its total purses from $42.9 million to $116.3 during that span and saw its number of races jump from 3,374 to 4,519.

Further downstream, the issue could strike the state at its breeding core. About one-third of all foals in the country were born there in 2009, with Florida the next closest at almost 10 percent. But Kentucky's reign is no longer a given, because states that have additional money can offer more incentives for home-bred horses in their purses.

Kentucky saw the number of mares bred in its state decrease from 21,594 in 2007 to 17,109 in 2010. The number of stallions also dropped from 368 to 284. Indiana's broodmares, meanwhile, went from 482 in 2006 to 1,143 last year and the number of stallions increased from 86 to 117 over that same period.

Brett Hale, senior vice president at Churchill Downs, hopes Kentucky's numbers start to reverse themselves, but admits changes need to be made for that to happen.

"We are the traditional horse racing capital. Who's to say that's always going to be the case?" Hale said. "I hope it doesn't happen on my watch. We're looking for the tools to compete."

Even if tracks in Illinois and Kentucky do ultimately get what they want, it could come at a price steeper than simply start-up investment costs.

The parent companies of Indiana's two race tracks, Hoosier Park and Indiana Downs, each filed for bankruptcy in the past two years. Both had to borrow heavily to pay the state's $250 million licensing fee and spent even more to upgrade their facilities. Then, earlier this year, Gov. Mitch Daniels said he wanted to make substantial cuts in the size of purses and the amount of money going to the breeding fund, which would have decreased the state's advantage over other tracks.

He later relented and made smaller cuts, but Maryland and Texas might not be so lucky. Penn National, the owner of race tracks in those states, has made it clear that it plans to decrease the number of racing dates and purse size. The company's CEO, Peter Carlino, indicated that he's essentially given up on the sport, saying in a February conference call, "there aren't a sufficient number of racing customers in the world anymore because they died."

Instead, Carlino plans to use the tracks as a way to profit from other forms of gaming.

"Look, we are the proud owner of many money-losing race tracks, but there are obvious strategies to that. These tracks do end up with slot machines and that's obviously a long-term play," he said. "Operating these tracks at a loss is not in our long-term plans."

Alex Waldrop, the CEO of the National Thoroughbred Racing Association, thinks the reliance on others to save the industry could prove to be its downfall.

"That's where racing is vulnerable going down the road," he said, pointing out that with third-party aid comes third-party influence.

While the future remains clouded, Petrillo and his staff are still hard at work coming up with ideas. Arlington Park recently asked the Illinois Racing Board for the chance to hold three nights of racing in 2012, a move that was successful for its parent track, Churchill Downs, which drew 38,142 fans April 30 and averaged 25,000 during three nights this summer. Currently, night races are reserved for harness racing in Illinois.

And there's been one bit of good news. Arlington and other harness tracks in the state will each get a piece of $141.8 million from a fund that Illinois' four highest-earning casinos have been paying into since 2006. The casinos had fought to strike down the measure, but lost in the Illinois Supreme Court and federal appeals court. The Illinois Racing Board started distributing the money in August.

That influx is expected to provide Arlington with enough liquidity to fund purses for another two years or so, but not enough to sustain it well into the future. There's also a hope that the track might get part of the 15 percent of the adjusted gross receipts from Rivers Casino — as promised in 1999 law — but that measure contains a flaw that provides no automatic means of transferring the money into horse racing's coffers. Instead, the state must appropriate it, which appears unlikely given its current financial situation.

Even with that money, Petrillo and his staff have plenty of work left to keep a track going that's seen horses the likes of Seabiscuit and Secretariat race on its ground.

"Our goal is to keep fighting as hard as we can," he said.