Racinos come on Strong as Challenge to Casinos
PHILADELPHIA - The biggest economic challenge to tribal casinos right now
is coming from a racehorse named Smarty Jones.
Although the previously undefeated three-year-old fell short of winning the
Triple Crown, losing narrowly in an upset in the Belmont Stakes, he so
captured the public imagination that he is credited with giving the racino
movement its biggest win in a banner year. Riding on the russet
thoroughbred's popularity, a bill vastly expanding the slot machine market
in the Northeast zipped through the Pennsylvania Legislature. Gov. Ed
Rendell, who campaigned for the measure to reduce state property taxes,
took the signing ceremony on July 5 to Philadelphia Park, the racetrack
that is Smarty Jones' home base.
The bill will bring up to 61,000 slot machines to the state of the Quakers,
the Amish and William Penn, a number second only to Nevada. It would append
slot parlors to seven racetracks, both thoroughbred and harness. Since the
state has only four now in operation, three more will be built or
re-opened. Ostensibly part of an agricultural movement that claims the
revenue is needed to revitalize horse breeding and racing, the bill
excluded an earlier provision that would have given the Oklahoma-exiled
Delaware Indians a tribal casino. The horseracing press describes the bill
as a dramatic upheaval in the Northeast racetrack landscape. It is sure to
speed up development of racinos in New York state and possibly to prod
Maryland to end the impasse over its own slots legislation.
This surge in racino openings presents the most serious new competition
facing the still burgeoning Indian gaming scene, but it also presents an
opportunity that some tribes are examining with intense interest. Even
before Gov. Rendell's bill became law, the Mashantucket Pequots were
exploring a partnership with a group of Pennsylvania horse-breeders to bid
for a racino license. The economics made good sense. The horsemen would run
the racetrack and the Mashantuckets, working through a private business
entity Foxwoods Development Corp., would bring the expertise in managing
slot machines that has made their Foxwoods Casino Resort in southeastern
Connecticut one of the richest in the world.
The Foxwoods business team is still mulling over the project, but they
aren't the only ones to see the possibilities of racinos. The Mohegan
Indian Tribe, their near neighbor and owner of the other richest casino in
the world, the Mohegan Sun, has been looking at horse and dog track
investments for several years now. Earlier this year, it found a match with
its other economic goal of helping build the Indian country economic base
and joined with the Menominee Tribe of Wisconsin in a bid for the Dairyland
greyhound track in Kenosha, Wis.
The resilient Penobscot and Passamaquoddy tribes of Maine rebounded from
the defeat of their Two Tribes casino referendum in November by trying to
join the bidding for a racino at Bangor's historic Bass Park, which did win
voter approval. Foxwoods Development offered financial backing, but it
failed to penetrate Maine's harness racing establishment.
Other tribes, however, have managed to co-opt the establishment. In March,
Cherokee Nation Enterprises acquired the moribund Will Rogers Downs in
Claremore, Okla., which has not run live races since 2001. It plans to
invest $2 million in renovations and eventually apply for racing dates. The
purchase followed the Choctaw Nation's acquisition of Blue Ribbon Downs in
Sallisaw 90 miles to the south the previous November, a track the Cherokees
were also looking to acquire.
A number of tribal casinos also have a stake in racing through off-track
betting rooms featuring live satellite simulcasts from most major tracks.
Simulcasting, in fact, has been the economic mainstay of racing for the
past decade. By far the larger portion of the betting handle comes off
track, to the point where some critics say that racetracks now exist mainly
as "content providers" for the broadcasts. The Race Books or Derby Rooms at
tribal casinos are turning a steady profit that is still exempt from state
Where racinos have opened, they seem to have made little dent so far in
tribal casino business. The New York state legislation that authorized six
new Indian casinos, including three Seneca Nation casinos in the west, also
provided for Video Lottery Terminals (VLTs) at several racetracks. The Erie
County Fairground near Buffalo has taken full advantage, with rooms of
slot-like terminals in a new facility under its stands. But Seneca Nation
President Rickey Armstrong Sr. reports that aside from a temporary dip in
the Nation's Class II facility in Irving, on the Cattaraugus territory, it
had no-permanent impact, and the two Class III casinos in Niagara Falls and
Salamanca are running ahead of expectations.
But the new facilities don't have to set up what the economists call a
"zero-sum game," where if someone wins, someone else loses. With a wise
investment strategy and cross marketing, they could become a win-win,
increasing the attraction of nearby tribal casinos as a destination resort.
It's fascinating to watch the racing industry face this brave new world.
Steven Crist, publisher of the horseplayer's bible, the Daily Racing Form,
warned in a recent column that the Pennsylvania bonanza could be
short-lived. Sounding themes very familiar to the gaming tribes, he said
the state would be looking "to loot" the racetracks' share of slots revenue
whenever it needed more money. He also gave the wise warning, "What the
racing industry needs to do is use some of the current bounty to plan for a
future when the gold rush may be over."
Gaming tribes have been there, and they could be useful to the racinos not
only as potential investors but also as partners interested in the
long-term health of both industries. Many tribes after all have a very
strong horse culture, and we'll wager that Smarty Jones has plenty of fans
in Indian country.