Giving WV Racetrack-Casinos Power over their Business

By WV Watchdog on March 26, 2013
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By Amy Purpura | West Virginia Watchdog

Ever since Ohio, Pennsylvania, and Maryland passed laws legalizing slot machines and table gaming, racetrack-casinos in WV worried that this increased competition would attract fewer customers to the state. While this worry has proven accurate, especially for the two racetrack-casinos in the northern panhandle, state regulations from Charleston have also hampered business practices at all four casinos operating in West Virginia.

State law requires that any casino in the state must host dog or horse races. This law has prompted many casinos to locate where racetracks were previously operating in the state. In fact, in 1994, the legalization of slot machines at the state’s four racetracks was pursued as a way to subsidize decreasing revenue from racing. Of the four casinos currently in business here, two have greyhound races and the other two horse races.

From this history of racing, the operation of casinos with video gambling and table gaming is tied to the operation of racetracks. As a result, the owners and breeders of racing animals are an entrenched interest in the state, receiving subsidies in the form of two separate funds. The money put into these funds is collected from a small portion of the slot machine and table gaming revenue that the state receives, not direct taxes. So, these subsidies are not connected to revenue raised from races, but from casinos.

The Greyhound Development Fund and the Thoroughbred Development Fund are used to help keep WV breeders and owners in business. Awards from these funds in 2011 totaled about $19 million, with $12.6 million going to the horse fund and $6 million to the greyhounds. Those lump sums aren’t simply divided equally among all breeders and owners, but instead, those whose horses or greyhounds win receive more, with some losers not receiving any.

In addition, “purse funds” are collected from the same casino revenue and awarded to winning animals at the racetrack each year. In 2011, winning horses were rewarded with $53 million and greyhounds with $19 million, totaling about $72 million in “purse funds.”

The problem of declining revenue from slot machines and table games affects both of these funds because that revenue is their source. In 2007, the Greyhound Development Fund paid out $7.5 million to owners and breeders, about $1.5 million more than it did in 2011. However, declining revenue has not seemed to affect the Thoroughbred Development Fund, since it paid about $5 million in 2007 yet $12.6 million in 2011.

Recently, Jim Simms, President and General Manager of the Wheeling Island Racetrack and Gaming Center, petitioned legislators in the state Racing Commission to cut down the number of races a track must host in a given week. In 2012, 115 races were required to be held each week, but to keep his racetrack-casino profitable, he wanted to cut down that number to 101.

However, Phil Reale, a lobbyist and Counsel for the WV Kennel Owners Association, explained at the meeting with the Racing Commission that this reduction would not allow all of the dogs to race each week, which is necessary for the animals to maintain conditioning and for the owners to maintain profit. The Racing Commission came to a compromise between the two parties this month, requiring that the racetracks host 107 races each week.

The dog breeders and owners support these funds and the state racing regulation because it helps them stay in business, and it is argued that it keeps their business in the state, since those receiving development funds must have some ties to WV. They also point out that the funds do not come from direct tax payer dollars, but revenue the state receives from gambling.

On the other hand, this revenue is being used to support what Simms calls “a declining industry,” and the reasoning for its support begs the question of whether or not this state revenue could be put to better use. Other states have a similar model of subsidizing racing with casino revenue, including New York, Iowa, and Florida, the state with the majority of US racetracks. However, racetrack-casino owners in those states are also pushing for less races or their elimination.

On March 6, the state Senate introduced a bill that would help the state’s racetrack-casinos maintain profitability by reducing the taxes and fees levied on them and allowing the businesses to set the number of racing days held each year. The provisions include a reduction in table gaming taxes to 25% from 35% and a reduction in the annual license fee from $2.5 million to $1 million. Compared to Ohio where the state tax on table games is 33% and Pennsylvania where it is 16%, the lower tax is designed to make the WV industry competitive with neighboring states.

In support of the bill, John Cavacini, President of the West Virginia Racing Association, has said that this legislation will help keep casinos in the state profitable, particularly the Wheeling Island Racetrack and Gaming Center. Currently, racetracks are required to hold a minimum of 200 race days each year, but this new bill will lower that minimum to 150. While the racetracks will then have the power to set their number of race days, the state Racing Commission will set a range that denotes the minimum and maximum number of races that must be held each year.

Opposing this bill are those connected with the state’s greyhound and thoroughbred racing. Carol Fulks, a lobbyist for the state’s Thoroughbred Breeder’s Association, stated that they are,”100 percent against reducing racing days down to 150.” In addition, a provision in the bill will reduce the amount of money going into the ‘purse funds’ for racing as a way to offset the state’s loss of revenue from reducing the taxes and fees on table gaming.

It’s not clear whether there is a comparable industry in the state where legislators force a private business to continue providing a service that isn’t profitable. As John Cavacini explains, the current method for determining race days is “self-serving” for the breeders, since they have so much power in determining the number of races and the racetrack-casino has virtually none. The choice for racetrack-casino owners is either to host the regulated number of races each week or cease operation.

The state then takes revenue from the profitable side of their business, the casino, and uses it to subsidize the unprofitable side, the racetrack. From an economic standpoint, this regulation further inhibits casinos in WV from competing with the newly opened ones in Ohio, Pennsylvania, and Maryland.

The state government welcomed the increased budgetary revenue from slot machines and table gaming when each was first legalized. Now, interstate competition has brought that number down. Their choice is simple. If they want to see continued revenue in their budget from our four racetrack-casinos, they must empower casino owners to run a profitable business.

Posted under Featured, Legislation, Lobbying, News, Regulations, Spending, Waste, West Virginia.

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