How slot machines have saved racetracks

It's not the horses that draw crowds; Erie racino to

open
Sunday, February 25, 2007
By Gary Rotstein, Pittsburgh Post-Gazette

Ray and Elayne Vasvari never saw a single horse

during their six hours at Mountaineer Race Track
& Gaming Resort on Thursday, one of the three
days a week the thoroughbreds don't even run in Greg Wohlford, Erie Times-News
Chester, W.Va. Patrons wait for the doors to open
on the first of two test dates at
But the couple from Struthers, Ohio, 50 miles Presque Isle Downs & Casino,
away, couldn't have cared less. They never play the yesterday, in Erie, Pa.
Pennsylvania's newest slots parlor
horses on their twice-weekly visits. They had their is set to officially open for business
fun on the slot machines, lost some money, had a next week.
meal and headed home content. Click photo for larger image.
Related Graphic
Presque Isle Down revenue
"I've got no faith in the horse racing system," projections
explained Ray Vasvari, 70. "I wouldn't have the
patience to figure it out. I don't have the knowledge."

The Vasvaris are representative of America's decades-long shift toward wagers with
immediate gratification, a trend that has been accelerated by the "racinos" that are
sweeping into Pennsylvania like so many thundering hooves across a finish line.

Three racetrack casinos in Eastern Pennsylvania that have added slots in recent months
all met or surpassed expectations in public interest and wagering on the machines.
Western Pennsylvania gets it first taste this week, with Wednesday's 9 a.m. debut of
Presque Isle Downs & Casino in Erie County. Another slots parlor is to follow at The
Meadows harness track in Washington County in May.

In most or all of these cases, racetrack operators will be getting at least 90 percent of their
revenue from slot machines. The appeal of the absolutely random, quick-win-or-lose slots
experience is propping up an industry that filled grandstands in the 20th century with
savvy, studious racing enthusiasts.

The conversion to racinos is credited with saving the horse- and dog-racing industries
over the past decade in West Virginia, which was among the first states to add casinos to
its tracks. Pennsylvania enters the field as a result of a 2004 law that was conceived with
help from the racing industry, whose operators long complained they were losing out to
the pioneer racino competitors.

Reasons for racinos

While Pennsylvania is unique in adding five large stand-alone parlors to the slots mix,
including the Majestic Star Casino to open on the North Side in 2008, a dozen states have
chosen racinos over Vegas-style casinos since the mid-1990s. Several factors help drive
the trend:

The gambling expansion takes place at locations with a history of wagering, minimizing
the opposition from local anti-gambling groups.

Buildings, parking and other infrastructure are already in place, usually on spacious
property, reducing development costs and enabling higher tax rates than is often the case
in casino states.

States can help areas around racinos with jobs and support for agricultural industries.
The new gambling revenue will not only flow to state and local governments and track
operators, but it will also increase racing purses to boost the livelihoods of horse owners,
breeders, jockeys and trainers. In many cases, industry representatives and analysts say,
the slots have been the only way to sustain tracks where public interest has sagged since
the 1980s.

"You could look at it as rewarding people for keeping racing going, but you can also look
at it as rewarding an industry that has essentially failed," said Bennett Liebman,
coordinator of the Albany Law School Racing and Gaming Law program. "The fact is
these really are casinos or slot parlors with a side interest in racing."

Thoroughbred racing won't even begin until around Sept. 1 at Presque Isle Downs, the
new facility a few hundred yards off Interstate 90 owned by MTR Gaming Group Inc.,
which also owns Mountaineer. The company had to set construction priorities, said
Presque Isle Chief Executive Officer Richard Knight, and the preparations for 2,000 slot
machines came ahead of those for the mile-long oval track. Projections from the racino's
consultant are that the slots will bring in more than $140 million annually, once fully
operating, and the horses less than $5 million.

Presque Isle is one of the few new racetracks in America in recent years, with another,
Harrah's Chester Casino and Racetrack outside Philadelphia, drawing as much as $6
million weekly in slots revenue since opening in January.

MTR President Edson "Ted" Arneault said he would have developed Presque Isle as a
track even without slots approval, but it would have been a much smaller investment --
about $18 million instead of $250 million -- and it would not have been the "home run"
he expects from the racino. He expects success even though it is not the full hotel-and-
activities resort that Mountaineer is, and projected revenues are among the smallest of
any of the Pennsylvania slots parlors.

West Virginia's legislature approved slots connected to its lottery system in 1994, a
decade ahead of Pennsylvania. If that hadn't happened, Mr. Arneault said, Mountaineer
today would probably still exist, "but it would have been limping along, much like other
tracks that don't have slots."
Delaware, Iowa, Louisiana, Maine, New Mexico, New York, Oklahoma and Rhode
Island also preceded Pennsylvania in providing slots at racetracks. The machines also
arrived at tracks in Florida late last year, just as in Pennsylvania.

West Virginia lawmakers are now debating adding table games at its four horse and dog
tracks to offset the competition of Pennsylvania's slots parlors. In almost all other cases,
however, operators are content to draw customers with only the slot machines, which
have lower overhead costs and draw the majority of people anyway.

Prairie Meadows Racetrack and Casino in Altoona, Iowa, outside Des Moines, began
offering table games in 2004 after receiving legislative authorization. Its revenue
breakdown in 2006 from its three types of gambling: $163.8 million from slots, $18.8
million from table games, and $4.6 million from pari-mutuel betting, or horse wagering.

In some cases, the addition of slot machines has revived racing attendance, making it
more of a destination center, but that's far from general. More commonly, increases in
wagering come from viewers in distant simulcast locations once the larger purses enabled
by slots begin attracting better horses. Veteran horse players generally prefer betting on
quality horses, as they have better odds of consistency.

Better purses help

Prairie Meadows spokesman Steve Berry said of on-site track attendance: "That's
something we've come to realize was not the point. ...There's not much crossover with
slot machine players and horse players."

The Meadows has seen a 37 percent decline in wagering over the past decade, and
attendance is about one-third of what it was, say track officials. The total purse handed
out in a day, typically shared in descending order among the top five finishers in each
race, has fallen to $45,000 or less from $60,000. At Mountaineer, daily purses averaging
$22,000 in the pre-slots days are now $160,000.

Pennsylvania purses will definitely change once the slots are installed. Twelve percent of
slots revenue in Pennsylvania will be used to boost the purses. If the slots at the
Washington County operation can gross $200 million a year, as officials hope, that would
be an extra $24 million annually divided among those connected to the horses.

Any surge of general interest in the sport of kings is less certain.

Bill Paulos, a partner in Cannery Casino Resorts, the new owner of The Meadows, said
the new facility being designed as a permanent racetrack-casino complex is intended to
highlight harness racing as a spectator sport, even for those coming for the slots. As at
Presque Isle Downs, restaurant diners will look out through large glass windows onto the
track.
"You'd like to get the popularity [of racing] back," said Mr. Paulos, whose background is
in casinos rather than racing. "Certainly there's things you can do to try to do that, but it
truly is difficult.

"If you look at the average age of a horse player, he's not a young fella. Slots will be a
much broader spectrum."

The data on the waning of racing's popularity is not all negative. Although the number of
thoroughbred races declined from 72,664 in 1990 to 52,257 by 2005, the amount wagered
increased from $9.4 billion to $14.6 billion, according to The Jockey Club, a racing
organization. Various forms of off-track betting represent all the growth in horse
wagering, and now make up nearly nine of every 10 dollars bet.

Even so, industry analysts say, simulcasting itself might not have sustained horse racing
in many locations without the slots to prop up both operators' profits and track purses.
Empire City at Yonkers Raceway, in New York's Westchester County, was on its death
bed, with no one interested in buying it from Pittsburgh's Rooney family until slots
arrived last fall.

Now it has 4,100 machines, with more planned, and it's on a six-day-a-week racing
schedule instead of the three or four days it had been running. It's one example of a
recently saved track, and probably the most notable.

"What [the addition of slots] has done is buy time for the horse racing part of the industry
to be viable, and to try to figure out new ways to attract customers," said Richard
Thalheimer, a Kentucky economic consultant on racing and gaming.

But as a night out for entertainment or as a gambling hobby, people have more
alternatives to enjoy themselves than during the tracks' heyday decades ago. Those
options, of course, include the machines right next door.

Newer forms of gambling, Mr. Liebman noted, "are simpler and more exciting and give
more immediate thrills. ... [Horse betting] takes a longer time, which requires a
significant involvement. It's just not the same as pulling a lever or hitting a button or
scratching off a lottery ticket."

There's one additional benefit to playing the slots instead of horses: The machines
generally return as prize money at least 90 percent of the amount risked, compared to 80
percent for pari-mutuel wagering.

That still averages out to a loss, as the Vasvaris were reminded last week at Mountaineer.
Elayne Vasvari stressed, however, she's also walked out hundreds of dollars ahead plenty
of times.

"She's more likely to come down here and think she's going to get rich," the white-
bearded Ray said with a smiling nod to his upbeat wife. "I come down to relax."
First published on February 25, 2007 at 12:00 am
Gary Rotstein can be reached at grotstein@post-gazette.com or 412-263-1255.
Read the PG's Casino Journal by Bill Toland

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