Commission report makes recommendations for PA racing

By: Tom LaMarra

Posted: March 30, 2017

An expansion of gaming and its potential impact on the Pennsylvania horseracing and breeding industry is a prominent theme of a lengthy Joint State Government Commission study discussed at the March 29 Pennsylvania Horse Racing Commission meeting.

The roughly 140-page study, released in February, was mandated under a 2016 horseracing reform law that, among other things, combined the Thoroughbred and Standardbred racing commissions into one regulatory body and set aside 1% of revenue from the gaming-funded Race Horse Development Fund for marketing and promotion.

Yvonne Hursh, counsel for the JSGC and project manager for the racing industry analysis that began last year, outlined the purpose of the study and its primary findings for the PHRC, which falls under the state Department of Agriculture. She noted the study is designed to provide guidance, not mandates, for the industry going forward.

“Our job with the General Assembly is to look at a topic in-depth and provide analysis and advice,” Hursh said. “We did not make legislative directives; a lot of what we recommend is not something you must do or not do, but whether you should be looking at this or not.”

The 2016 reform law listed 11 directives for the JSGC to examine, including combining racing and gaming regulation; best regulatory practices in other jurisdictions; the cost effectiveness of the Pennsylvania Equine Toxicology Research Laboratory; return on investment from the 2004 law that granted a percentage of slot machine revenue to the racing and breeding industry; and how the industry can position itself for future success.

On the regulatory side, Hursh said because horse racing involves gambling but also agriculture and farming, “trying to staff that under gaming oversight is not a good match.” Casino gambling is regulated by the Pennsylvania Gaming Control Board, which each year issues a benchmark report on the Race Horse Development Fund and its impact.

Hursh noted “there will always be that tension” when it comes to neighboring states competing for gaming dollars. The biggest concern in the report, she said, is an expansion of gambling in Pennsylvania and whether horse racing is included.

“Anything that doesn’t tie into horse racing will take dollars away from horse racing,” Hursh told the PHRC. “This is something the legislature needs to keep in mind as it considers alternative gaming.”

Pennsylvania lawmakers currently are considering legislation authorizing Internet gaming, and a new bill would permit tens of thousands of video gaming terminals in bars, restaurants and social clubs. Neither bill gives a cut of revenue to racing.

PHRC member Sal DeBunda, president of the Pennsylvania Thoroughbred Horsemen’s Association, said the VGT bill is being touted as a means to produce more revenue for Pennsylvania while protecting the state’s casinos from the competition through tax reductions.

“One group they did not take care of is the horsemen,” he said. “It is possible slots revenue (at casinos) would go down 30% with VGTs. It’s an important point for the (PHRC) to stand up for, not just sit by and let this happen.”

It was noted during the March 29 meeting that the General Assembly was notified of release of the JSGC report but, unlike the PHRC, hasn’t yet asked for a presentation on its findings.

Hursh said that overall, the study shows a positive economic return from the RHDF in terms of spending, though the document notes that quantifying the economic return of the about $240 million a year horse racing and breeding receive from slots revenue “is complicated and requires the use of many assumptions, and some assumptions are supported by data that are ambiguous.”

On the topic of pari-mutuel takeout rates, the report suggests Pennsylvania puts itself at a disadvantage with some of the highest rates in North America. It says racing can capitalize on its position and compete with other gambling propositions by offering value.

“Pennsylvania tracks can afford to lower takeout to attract more on-track and off-track wagering,” the report states. “The historic justification for high takeout was the cost of providing (purse money). However, 87% of purses are now funded by slots revenue. As for overhead, all tracks are now attached to profitable casinos, and it would seem dubious that they would be unable to run the basic functions of the track or make capital expenditures.”

Pennsylvania Agriculture Secretary Russell Redding, who directs PHRC meetings, called the JSGC report “a great resource document” for industry planning.

“This isn’t going to be a static discussion,” he said.

The complete report is available for review here.

(Parx Racing photo by Tom LaMarra)