More empty promises for racing

Our view: Stronach's announcement that he'll keep Laurel open looks premature and doesn't erase the thoroughbred industry's problems

November 09, 2010

Let's hope that by now Maryland horsemen have learned not to get their hopes up when Frank Stronach makes big promises.

A day after the owner of Maryland's thoroughbred tracks promised to keep Laurel Park open, Penn National, his partner in the Maryland Jockey Club, is throwing cold water on it. A Penn National spokesman says the company was not consulted before Mr. Stronach reversed course on the Laurel closing and disagrees with him. Penn National has equal say over big decisions like this one, so it seems reports of Laurel's resurrection may have been greatly exaggerated.

In the absence of slots revenue, Penn National, which must answer to shareholders, has no rational reason to continue investing money in a business that's losing millions a year, and its stance is that the only way forward is substantial cost-cutting, including closing Laurel.

The crux of the issue is that we learn, in the aftermath of voters' decision to allow the Anne Arundel slots parlor to be built at Arundel Mills, that the line we've been fed for years about the symbiosis between slots and horse racing isn't exactly true.

When Maryland was debating slots, the horse racing industry insisted that it needed purse supplements and breeder incentive funds to compete with racetrack casinos in Delaware, West Virginia and Pennsylvania. Those states had funneled a portion of their casino revenue into such funds, and as a result, purses were higher there and better horses raced there. Bred funds multiplied the effect by providing an incentive for horse farms to relocate there as well. The racing industry argued that if Maryland established generous purse subsidies and bred funds, then it could attract those better horses to Maryland tracks again. Better horses meant better races, and better races meant more people going to the track and placing wagers.

The Maryland legislature bought the theory and allocated as much as $100 million a year to purse subsidies and bred funds, plus as much as $40 million a year in matching funds to spruce up the tracks.

The trouble is, the theory about better purses leading to more interest in racing is not true. It's not true in West Virginia, and it's not true in Delaware. Fewer people go to those states' tracks to bet on races than ever, no matter how good the horses are. The big purses just put more money in the pockets of horse owners and jockeys. It could also boost simulcasting revenues, but that wouldn't take a track like Laurel, which loses millions a year, and make it suddenly profitable. The Maryland Jockey Club had been counting on somehow getting slots to cover its losses on racing, not because slots would suddenly reverse those losses. Slots might make Sparrows Point profitable, too, but not because they would improve the global market for steel.

Penn National knows that as well as anyone — it runs racinos in West Virginia and Pennsylvania, among other places — and company spokesman Eric Schippers says that without the revenue from slots, purse incentives, bred funds and capital improvement matching funds won't turn the business around. He says the company is very much looking forward to a meeting with Mr. Stronach as soon as possible. Penn National has two seats on the Jockey Club's five-member board, but on major decisions like this, it has an equal say. That doesn't bode well for Laurel, and it would hardly be the first time that Mr. Stronach's promises exceeded his ability to deliver.

Perhaps the only way out is for the tracks, the horsemen and other constituencies in the industry to sit down and determine a new split for the state's slots revenue. The distribution of the $140 million is specified in legislation, not the constitutional amendment to authorize slots, so it can be changed by a simple act of the General Assembly. There are signs that this is the next step in the debate. Mr. Stronach told The Sun's Jay Hancock that he will likely travel to Maryland in the next few weeks to meet with state officials and breeders, and some horsemen have hinted recently that renegotiating the slots revenue splits might be necessary.

Legislators and Gov. Martin O'Malley should be open to that, with some caveats. The state is already being incredibly generous to the horse racing industry — the equivalent of $15,500 a year for every job racing supposedly supports — and it should not commit a dime more than it already has. Talk of moving Pimlico to a Maryland Stadium Authority-sponsored downtown Baltimore supertrack with slots — an idea that's been floating around for years — is a non-starter.

And Maryland's leaders need some sort of assurance that if the state does decide to directly subsidize the operation of the tracks that it isn't just propping up the same moribund management that has presided over the industry's long demise. When Penn National came on board as a partner in the Jockey Club this spring, company officials said they wanted to "continue delivering a high-quality racing experience" at Pimlico and Laurel, but so far, they have invested millions in defeating slots at the mall, not on saving racing. Their attitude now seems to be that doing so would be throwing good money after bad. If so, maybe it's time Maryland taxpayers come to the same conclusion.

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