How VLTs saved NY horse racing

2/17/17 – Democrat & Chronicle

ALBANY – In 2003, New York’s racetracks were paying out among the lowest prizes in the nation, and many of the tracks, particularly upstate harness facilities, were nearly set to be put out to pasture.

Then the racetracks started adding video-lottery terminals, VLTs.

Now, the purses — the amount paid out to winners in the races — are among the highest in the nation, and the revenue at the so-called racinos has also soared.

With three new upstate casinos opening in recent months, the state’s existing gaming halls face new competition after enjoying years of rising revenue for their casino-like facilities and horse-racing operations, a review of records by the USA Today Network’s Albany Bureau found.

Purses at New York’s seven harness tracks have tripled over the past 14 years, creating an unprecedented dynamic: There’s nearly no one in the stands, but the prize money is at levels not seen in decades.

“I’ve said to many people that if you want to make money in (harness) racing, this is the best opportunity you’ve had in many, many years,” said Bob Galterio, the COO at Yonkers Raceway, the state’s largest harness track.

Ninety-two percent of the money from gamblers at the state’s racetracks with the video-lottery terminals goes to pay the players as prizes.

The key figure is the 8 percent that’s left: It is split among the tracks, the horsemen and the state.

Without the piece that goes to purses and breeders, horse racing in New York would be nearly non-existent, track officials and experts said.

The industry is a major one in New York’s agricultural sector: It employs 32,000 people, according to its trade organizations.

“If the VLTs didn’t come in 2004, I really doubt racing would be here,” said Chris Riegle, the president of Finger Lakes Gaming and Racing, the only upstate thoroughbred track outside of the summer meet at Saratoga Race Course.

Also, “I don’t think there would be very many harness tracks in New York.”

Avoiding closures

Following the 9/11 terrorist attacks, then-Gov. George Pataki and state lawmakers sought to help the state’s economy by allowing the horse tracks to add video-lottery terminals — the slot-machine-like devices controlled by a central computer system in Schenectady.

The move was a way to boost the state’s coffers by designating about half of that coveted 8 percent to fund schools.

It also was a way to keep horse racing alive after decades of decline in the sport, which was once a major local draw.

Batavia Downs in western New York is the oldest nighttime harness track in the nation. Yonkers drew 40,000 people on weekend nights in the 1960s.

In 2004, the first VLT facilities opened. It has been a boon to all sides.

“It definitely saved racing; it saved the jobs,” said Jeff Gural, the owner of Tioga Downs in the Southern Tier and Vernon Downs in central New York.

Of the net win — the money left in the machines after payouts to winners — 8.75 percent goes to the horsemen and 1.25 percent to the breeders.

The rest is split between the state and racinos. The tracks also get 10 percent for marketing and 4 percent for facility improvements — including hotels that some are building.

The money has helped the state’s coffers: The racinos contributed nearly $1 billion in 2015 to the state designated for education— or 48 percent of the nearly $2 billion in net win.

Soaring purses

The purses at the state’s eight racetracks and the three tracks run by the New York Racing Association hit $301 million in 2015 — up 87 percent since 2003.

For just the seven harness tracks, purses went from $35 million to $118 million, records from the state Gaming Commission showed.

So the average purse per race went from about $4,000 to $11,000 over the 14 years — putting New York among the top five in the nation.

The figures have been extraordinary at some tracks: Batavia Downs’ purses grew from $1.8 million to $5.5 million; from $4 million to $18 million at Saratoga harness; and from $20 million to nearly $63 million to Yonkers.

Some tracks said they are dealing with a shortage of horses.

“If you and four friends had $20,000. The best thing to do is to get together, each kick in $4,000 and buy a $20,000 claimer and race it at Yonkers Racetrack,” Galterio said.

“The purses are so good. You race every week.”

Rising racinos

While the gambling money has thrown a life preserver to racing, it also boosted the tracks’ owners.

The money going to the racinos has skyrocketed since they opened. The tracks, after a sluggish start, negotiated lower payments to the state in 2007.

At Finger Lakes, the so-called agent commission — the tracks’ main revenue stream — doubled to $40 million in the 2015-16 fiscal year that ended March 31.

At Yonkers, it was up 50 percent to $177 million since 2008, while Tioga Downs’ commission grew 59 percent since 2007 to $22 million.

So while the purses are up, so too are the tracks’ fortunes, said Joe Faraldo, president of the state’s Standardbred Owners Association, which represents the harness horsemen.

“The horsemen, their purses have gone up dramatically — the same way track revenue has gone up with these VLTs,” Faraldo said.

Subsidizing racing

So the situation has created a scenario where purses are up despite fewer people betting on the races. Yonkers stopped publishing its attendance figures in the late 1980s.

VLT revenue provides an increasing percentage of the purses: In 2004, 50 percent of the purses came from the VLT revenue; in 2011, it was 71 percent, state records show.

At the same time, total handle at the harness tracks — the amount bet on the races — dropped 21 percent between 2003 and 2015, hurt in part by the closure of New York City Off-Track Betting in 2010.

The on-track betting on the races also fell: It was down 56 percent at Yonkers over that stretch and down from $3.4 million to $1.5 million at Batavia.

Most of the betting comes from simulcasting of races around the state, country and internationally, which is a growing business at Yonkers, in particular.

“I don’t want to say it’s become a television studio, but it more important to produce a good-looking television signal than to have tasty hot dogs in the stands,” Galterio said.

Growing competition

The reliance on VLT revenue has raised concerns within the racing industry, which fears the tracks will one day seek to drop racing or cut the amount that goes to it.

“A lot of these racinos kind of make it difficult to go to the track, because they would rather be a straight casino and not do racing at all,” Assembly Racing Committee Chairman Gary Pretlow, D-Mount Vernon, said.

Those fears have grown after the casinos opened in recent months in the Finger Lakes and Schenectady, with one set to open next year in the Catskills.

At Finger Lakes, it received a lower tax rate last year because of the competition from del Lago, which opened earlier this month in Tyre, Seneca County, 28 miles away.

Even with the competition, though, the horsemen will be held harmless.

The 2013 law that allowed for four upstate casinos included a provision that requires the new casinos to keep purses at the same level as 2013 — if the new casinos cut into the racinos’ bottom line.

Negotiating at Finger Lakes

That’s a current fight: The horsemen at Finger Lakes face a cut in purses if the racino’s revenue drops because of del Lago, which is not required to make the track whole.

The casinos have to help the racetracks in the zones established by the state: Finger Lakes, though, is outside the del Lago zone.

The sides — Finger Lakes, del Lago and the state — are now trying to find a solution to help the horsemen.

“I’m hopeful we’ll come to a conclusion very quickly,” Riegle said.

Pretlow said the Legislature has no plans to revisit the split of revenue between the tracks and the racing industry: “Part of this whole thing is to help racing.”

The tracks said they continue to invest in their racing, saying it is still a viable portion of their business.

Yonkers points to expansion in recent years of hosting major stakes races, including the $1 million International Trot each fall; tracks said they have upgraded their racing facilities.

But the tracks often seek fewer racing dates each year, despite protests from the industry, and Finger Lakes won’t disclose how many dates it wants this year as it negotiates a new contract with its horsemen.

“It really boils down to how much purse money you have to hand out and how many horses you have,” Riegle at Finger Lakes said. “If you have a respectable amount of both, you can run more.”

Gaming the future

Dave Brown, president of the Finger Lakes horsemen association, charged that the tracks would just as soon drop racing if they could, but they are bound by the state law.

“There is no question they’d love to not run. And they make it difficult for us,” he said.

Riegle rejected that idea, saying it is still “a pretty significant piece” of the business.

Gural, a horse owner who also owns the Meadowlands track in northern New Jersey, said he’s concerned about the future of racing in New York.

The tracks are not required to market the sport to new customers, and its fan base is dwindling.

In December, Tioga Downs received a gaming license to turn from a VLT facility to a full-scale casino.

“Without the slots or the VLTs, there would be no harness racing. It’s totally dependent on the revenue we receive from the slots,” Gural said.

He added, “The problem is that most of our customers are older and we have not successfully created an industry for the younger generation. So what happens when all those people die off?”