Indiana’s two pari-mutuel horse-racing tracks have joined forces to lobby lawmakers for additional gambling revenue even as they race each other down the stretch to survival.

Horsemen statewide are cheered by the alliance between Hoosier Park and Indiana Downs meant to bring electronic pull-tabs, which closely resemble casino slot machines, to the tracks and off-track-betting parlors.

“If we don’t get this done, this industry will absolutely die in Indiana,” said Jerry Walker, Indiana Indiana’s two pari-mutuel horse racing tracks have joined forces to lobby lawmakers for additional gambling revenue even as they race each other down the stretch to survival.

Horsemen statewide are cheered by the alliance Horse Racing and Breeding Coalition chairman. “We’re talking about thousands of jobs and millions of dollars every year in economic impact, gone.” On Oct. 19, the coalition convinced a House-Senate agriculture study committee to endorse between Hoosier Park and Indiana Downs meant to bring electronic pull-tabs, which closely resemble proposed legislation that would allow the machines and the revenue they’d likely generate.

“I’m telling you now, if we don’t get this bill passed, I think one or both of these tracks will close by the end of 2005,” Walker said. “I can’t see any other way.”

A pull-tab bill has failed in each of the last three General Assemblies. This is the first time, however, it has received endorsement from a bipartisan study committee before the session started.

Although many powerful legislators and lobbying groups remain aligned against the initiative, “We think this gives it a leg up,” Walker said of the endorsement.

The proposal would phase out over two years the state subsidy to horse racing from riverboat revenue. Projections prepared for legislators show pull-tabs could generate more than 10 times the racing industry’s riverboat subsidy, which is capped at $27 million a year.

Officials for both tracks said a future without pull-tabs is bleak. Locally owned Indiana Downs in Shelbyville lost $4 million in its first full season in 2003 and is projecting a loss of more than $1.5 million this year.

“The ownership of this operation is committed, but you can’t continue indefinitely losing $1 [million] or $2 million a year,” said Indiana Downs General Manager John Schuster. “If something with alternative gaming doesn’t get done soon, I think we’ll have to take a serious look at our future.”

Hoosier Park in Anderson, despite being owned by horse-racing powerhouse Louisville-based Churchill Downs Inc., isn’t faring any better.

Churchill Downs CEO Thomas Meeker said despite his company’s gains in other categories, the Indiana horse racing situation turned a Churchill Downs fourthquarter profit of $274,000 in 2002 into a $2 million loss during the same period in 2003. Hoosier Park revenue plummeted from $41.2 million during the first three quarters of 2002, just before Indiana Downs opened, to $30.7 million during the same period this year.

“This is exactly as we predicted. The industry is struggling now that there are two tracks in the market,” said Hoosier Park General Manager Rick Moore. “Now we need a plan to go forward.”

After more than two years of fighting over the location of off-track-betting facilities, satellite signal distribution and the allocation of the state’s riverboat subsidy, track operators realize they need to find common ground.

“We thought a second track would help mature the industry,” Schuster said. “Now we’re all in a survival mode. We’ve all realized if we don’t stand united, we will fall divided.”

The tracks’ need for a financial boost is so dire, their owners even agreed to jointly operate off-track-betting facilities in Fort Wayne and Indianapolis if pull-tabs are allowed there. Those facilities are currently owned by Hoosier Park.

There is reason for hope, industry sources said, that with a revenue booster—and increased purses, or prize money—the state equine industry can again flourish as it did throughout the 1990s.

“This industry grew by leaps and bounds for nine years,” said Pete Beck, Indiana Horse Racing Commission board member. “It grew a lot faster than anybody anticipated. With the number of Indiana-bred horses and horsemen we had growing in Indiana, we really needed another track.”

Indiana Downs has helped give horsemen more racing dates, increasing from 175 in 2002 to 250 this year. Indiana Downs also has a longer track than Hoosier Park’s and the state’s only turf track.

Indiana Downs has increased the total in-state handle, or betting proceeds, from $147.6 million in 2002 to $165.7 million last year. This year’s handle should be $180 million, according to projections from the racing commission. Betting, industry sources said, was primarily increased through Indiana Downs’ new off-track facilities in Clarksville and Evansville.

“When you look at the numbers on the two-track scenario, it’s a mixed bag of results,” said Joe Gorajec, executive director of the racing commission. “I don’t think it’s fair to say the opening of Indiana Downs has been all bad news.”

But increases in betting and other revenue haven’t been enough to cover the increase in race dates. And the riverboat subsidy that has been used to bolster purses is now being split between two tracks.

So while the total purse has grown from $27.1 million in 2002 to $30.4 million this year, average daily purses have shrunk from $153,271 to $121,457. The decrease has breeding operations scaling back or going out of state to race.

“Because there are more races and more race dates … that means there’s a lot more work and a lot more expense for the horsemen for essentially the same or only a slightly larger piece of pie,” Walker said.

Beck points out that despite problems, the equine industry is still the fastest-growing agricultural business in Indiana. It has an annual economic impact near $500 million, which will grow to $1 billion in the next decade, according to studies by Purdue University and various state equine associations. But only if the racing segment survives.

“I think the economic impact could well be underestimated,” said Mark Russell, Purdue University professor of animal sciences and extension horse specialists. The racing industry “touches the equine industry at many levels, from farriers to veterinarians to supply manufacturers. And the horses that don’t become race horses are sold as riding horses and cart horses to a variety of users.”

Pull-tabs, Walker said, are a way for the racing industry to help itself and end state subsidization. While pull-tabs look much like slot machines, they operate in a parimutuel manner, which means gamblers bet against odds determined by other bettors, not the house. Pull-tabs dispense paper receipts to winners that are cashed in instead of the clanging coin prizes spit out by casino slot machines.

A study commissioned by the Indiana Horse Racing and Breeding Coalition figured $490 million could be generated annually from a total 5,000 pull-tab machines at the two tracks and two offtrack-betting facilities, likely in Fort Wayne and Indianapolis.

The allure of pull-tabs is so strong, the two tracks are willing to give up their licenses allowing them to open any more OTB facilities.

A formula in a proposed bill endorsed by Sen. Robert Jackman, R-Milroy, would split the revenue from pull-tabs three ways: 15 percent to horsemen for purses and breed development, 33 percent to the state, and 52 percent to Hoosier Park and Indiana Downs for capital expenditures and operations.

But the initiative still has many opponents. Many conservatives are against the expansion of gambling, including Senate President Pro Tem Robert Garton, R-Columbus, who determines the course of Senate bills. Most other opponents come from regions where the state’s riverboats are floating.

“Twenty percent of the riverboat customers come from the Indianapolis area,” said Rep. Bob Bischoff, D-Lawrenceburg. “We think this measure would have very negative effects on the riverboats here and all of southeastern Indiana.”

Thank you for your consideration of this issue. This remains a vital issue for horsemen throughout the state, as well as hundreds of local businesses and their employees we deal with every day.

Riverboat subsidy
The horse industry wants to be able to survive and thrive now and in the future. The Indiana General Assembly showed great foresight in designing a funding mechanism to nurture the horse racing industry in its infancy.

Nevertheless, we don't believe that the riverboat subsidy, which was a great way to get this industry going early on, is the best way to make sure we can grow on an ongoing basis. Also, we would like to build up and maintain an important segment of Indiana's agribusiness so that we can exist and contribute to the state without a state subsidy.

Because of that, the effort to increase the state subsidy last year, though much-appreciated, would not have truly met our long-term needs. We want to be able to stand on our own, like any other Indiana industry.

How much revenue is needed by the horse industry?
Many people ask how much financial support is needed by the horse industry, but that is the wrong question. We don't want to be supported.

We believe that 15% of the adjusted gross revenue from pull tabs, dedicated to horsemen, would produce approximately $65million.

That would mean that our thoroughbred purses would be 4th and fifth in the region, and 23rd and 24th, nationally.

Our standardbred purses would be 2nd and 3rd in the region, and 5th and 6th, nationally.

And our quarterhorse purses would be 1st and 2nd regionally, and 6th and 7th nationally.

The Indiana horse industry needs alternative gaming
Based on the bill that was proposed last year, we believe that electronic pull tabs would generate the kind of steady revenue that this industry needs now, and into the future, to allow us to mature. We have seen the example of other states, successfully using alternative gaming as a means of supporting the horse industry. In fact, we are losing breeding opportunities already to states that have alternative gaming. That will continue, and get worse.

We live in an age of economic and fiscal competition. Indiana’s horse industry must compete with established horse industries in other neighboring states. The state’s valuable simulcast racing market vies with regional and national competitors. Caught in the wake of this fierce competition are Indiana’s horse owners, breeders, and the many local businesses dependent on them.

Competition, regionally and nationally
States faced with budget deficits and declining horse industries are increasingly looking to alternative gaming as a means of generating much-needed revenue and supporting an important home-grown agribusiness.

That's why Kentucky, confronting a $500 million deficit, may be going back into a special budget session that will include deliberations on slots at the track. That's why Michigan has an initiative on its November ballot that addresses the mechanism for localities to add gaming opportunities. And that's why Illinois and Ohio are considering similar legislation that would add VLTs or other alternative gaming devices at a variety of venues, including horse tracks.

Pennsylvania just enacted a law that could create new horse tracks and up to 61,000 new slot machines at 14 locations, including seven horse racing tracks. The resulting revenue — 12 percent of the overall proceeds — vaults the Pennsylvania horse industry to the top of the heap. Owners and breeders have already begun to relocate to the state — at the expense of other states like Indiana. If and when our neighbors take similar action, this state will be left in the dust.

This is the harsh new reality of the horse industry — and state revenues and jobs, for that matter. Tracks do not succeed or fail strictly on the basis of their own merits. A healthy horse industry does not begin a downhill slide, taking with it thousands of jobs and hundreds of thousands of dollars of local economic activity, on its own. An important sector of agribusiness does not wither from within.

We live in an age of economic and fiscal competition. Indiana’s horse industry must compete with established horse industries in other neighboring states. The state’s valuable simulcast racing market vies with regional and national competitors. Caught in the wake of this fierce competition are Indiana’s horse owners, breeders, and the many local businesses dependent on them.

Once the Indiana horse industry led the field. Our breed development funds gave us a head start. The riverboat subsidy helped nurture a fledgling horse racing industry.

But now the state is lagging behind its competitors. Now the steady revenue streams generated by alternative gaming in West Virginia, Delaware and, soon, Pennsylvania, are producing strong purse structures, breeding incentives and great racing outside our borders.

Nearby, the states of Ohio and Kentucky are considering alternative gaming as a means of generating state revenue and support for their horse industries, further threatening Indiana. On the ballot in Michigan is a measure that would allow slots at tracks in the state. Though it is not expected to pass, it is more evidence that Indiana cannot wait around, allowing other states to control our economic destiny. We must compete aggressively, as we would in other industries and economic sectors.