Rise of the Racino - By Richard Thalheimer

(Originally published in the June 26, 2010 issue of The Blood-Horse magazine. Feel free to share your own thoughts and opinions at the bottom of the column.)  

It has been my good fortune to have been associated with the racehorse industry for more than 30 years. I have been a breeder, an academic, a research economist, and an industry consultant, and have analyzed the industry as it has gone through many changes. I would like to share some results of my research, particularly on racino gaming, in the hope that they may contribute to a better understanding of current issues.

To understand the rise of racino gaming in the United States, consider that, adjusted for inflation, handle on horse racing as reported by the Association of Racing Commissioners International has fallen 52% from its 1977 peak through 2006. This has occurred even with the introduction of market-expanding measures such as simulcast wagering. Reasons for the decline have been analyzed and include the growth of casino and lottery gaming.

Concern for the decline in handle and revenue for the pari-mutuel racing industry has prompted a number of states to permit casino gaming at racetracks (racinos). The number of states that permit racino gaming has grown from one in 1990, West Virginia, to 15 in 2010. To be eligible for racino gaming, a state must already have pari-mutuel wagering. Currently, 43 states are eligible.

The initial premise behind permitting casino gaming at racetracks was to preserve and promote pari-mutuel racing recognizing the loss of purses and handle due to other forms of gaming. Racino legislation provided for a percent of slot machine revenue to be allocated to purses. Purses are the lifeblood of the racing industry, providing revenue to horse owners and breeders. For the wagering customer, purses measure racing quality.

Since the introduction of slot machines at racetracks, sufficient time has passed to draw conclusions as to their impact on the racing industry. The effect of a large increase in purses can be illustrated using the Charles Town, W.Va., racino. From 1995 through 2005, average daily purses at Charles Town increased dramatically from $27,000 to $166,000 largely as a result of the contribution from slot machine revenue. My firm estimated the pari-mutuel side of the racino had, as of 2005, produced $173 million in spending and 3,700 full-time, year-round jobs in the Charles Town economy. The number of breeding farms had increased from 55 to 140 between 2000 and 2005 due to increased purses, preserving green space in the region.

Statistical analysis of racino betting has shown that when slot machines are introduced at a racetrack, pari-mutuel wagering decreases 20% to 40%. On the other hand, betting on export simulcasts increases as purses funded largely by slot machine revenue are increased. Statistical analysis has also shown that betting on slot machines increases significantly in the presence of live or import simulcast horse racing. In fact, slot machine betting may increase enough to pay for purses at the racetrack. Still, pari-mutuel revenue from all sources generally accounts for only a small percent of total racino revenue.

A current racino trend is table games at racinos. Table games were first permitted at Iowa racinos in 2004, followed by West Virginia, Delaware, and Pennsylvania. Statistical analysis shows that slot machine wagering decreases on the order of 8% to 13% with table games while total (slot plus table) revenue may increase. If the respective shares of slot machine revenue to government, the racetrack, and purses from table games are no different than those from slot machines, then each stakeholder’s revenue will change by the same percentage as total revenue. This is the case for the Iowa racinos and all state-regulated casinos in the U.S.

Adding table games to a slot machine racino only becomes an issue when the revenue shares to stakeholders from table games and slot machines differ. In the extreme, take Pennsylvania, where the original 12% share to purses from racino and casino slot machine revenue was set to 0% for newly permitted table games. If slot machine revenue decreases with the introduction of table games, as expected, revenue to purses will decrease with no offsetting increase from table game revenue. The difference accrues to the racetrack operator. Different stakeholder shares of slot and table game revenues may create “winners and losers” when table games are added.

In the long-run, both racing industry entities and racino operators must find ways to increase pari-mutuel wagering in order for racing to survive. Potential growth areas such as Internet wagering venues hold promise for racing’s future, depending on the share of revenue going back to the industry. Also, because live racing benefits the racehorse industry and also increases racino gaming revenues, attracting more customers to the racino using live racing as a marketing tool has multiple benefits. 

Richard Thalheimer, Ph.D. is an economist and president of Thalheimer Research Associates in Lexington.


Leave a Comment:

Fran Loszynski

The first time I went to Gulfstream Park with all the new malls and potential housing inside the city of Gulfstream Park ; all I could say was "You can virtually live here!" A racino is awesome. Upstairs live horseracing, downstairs casino, outside restaurants, overlooking future condo suites, and all along the complex, shopping malls. You could get up in the morning with your coffee and watch live horseracing, then shop all day and go out to eat. I made the statement as a bettor on horseracing "I was in heaven!" That's exactly what we need at every casino and racetrack. You don't have to travel anywhere-You can live there! Love it, just wish and hope the condo suites are not too expensive, maybe someday alot of us can look forward to retiring not to a village but to a "racetrack!" Can you imagine the money draw from seniors and young bettors also, not to mention the jet set! Wow.

22 Jun 2010 2:36 PM
Brian Russell


I live about a mile from Gulfstream and agree with your post.  Interestingly, the crowds at the mall/restraunts/bars has slowed to a trickle after the live meet ended.  Granted, this area is seasonal but this drop off is way more than that.  At least in this part of the country, the live racing is obviously the biggest draw of people to the facility.  As I doubt Calder would care so long as it is done at the end of the meet, It will be interesting to see if Gulfstream considers extending their meet (with lower purses for post FL Derby days) to benefit the other ventures.

22 Jun 2010 4:04 PM
Lady Slew

Oh Fran, what a dream concept!  Take it a step further and put in senior care amenities that retirement/assisted living gives and retiring to a racino complex like you describe would be heavenly!

23 Jun 2010 1:03 AM

Slots are a cancer on racing.  It is really sad that people greedy for higher purses don't see this.  

The problem with slots, is they make more money than racing.  Then racing becomes a sideshow.  Racing is the loser, something that you just have to do.  It becomes the thing you don't want to do, don't want to invest in, and don't care about.  

Eventually, all the racing executives get replaced by casino people.  The only racing people left are low-level people that are just told what to do.  

Then, racing is left to do nothing but decline indefinitely.

This will happen everywhere the casino makes more money than racing, and it is happening at Churchill Downs Inc.  The only place it hasn't happened yet is Gulfstream Park, which has strong racing but a weak casino.  

23 Jun 2010 11:43 AM

When Delaware crossed the line and racinos became part of racing vocabulary, I honestly felt increased traffic from alternative gaming would serve to boost facility handle.  The basis was (subconsciously) a belief that horse racing was a time-tested, better product.  Nearly 20 years later, I could not have been more wrong.  When sold side-by-side with the more popular offering, racing not only failed to accrue any benefit (in terms of sales volume), handle actually decreased.  That fact and many failed attempts at reform have no positive spin.  I’ll throw in with you Richard, if revenue trend continues with a decreasing disproportioned share coming from the racing side of the house, they’ll soon be no reason for the endless debate here in Kentucky.  The sentiment will shift to “tell me again why was it we need those guys”.  Not very pretty.

23 Jun 2010 6:19 PM

Racing can survive on it's own.  Race tracks that offer just horse racing make money but they just don't make that much money and in this day and age that doesn't meet the expectations of business people.  The only reason casino owners need the horse racing is to get the casino up and running. Now that the horse racing is a drain on them and doesn't make that much they will in the future try to get ride of the racetracks or cut what they have to pay to the purses down to almost nothing.  Race track ownership was never a very big money making venture for the owners of the race-tracks even when things were really good.  They did it because they loved the game.  But look at this way.  Unlike other sports, race track owners don't have to pay for players or coaches salaries so their expenses in relation to a NFL or an NBA teams is not even close.  The whole attitude of horse racing executives over the last 15 years has been how bad everything is and without a casino we cannot survive.  But one thing reporters never seem to do is ask a race track such as Churchill or Arlington that have no alternative wagering to open their books and prove that these tracks lose money year and year out.  If that is the case, they would have my sympathy.  But, if they don't and they aren't that interested in racing then sell Arlington to a group or person who loves racing and let them run it and they will be happy making one million a year.

24 Jun 2010 3:03 PM

Bob- You are absoutely correct, "They did it because they loved the game."  

That's the difference between now and then.  Until racing is again filled with people who LOVE the game instead of people who are simply trying to make a lot of money, it is going to continue to be the mess that it is.  

25 Jun 2010 9:12 AM

You mean thoroughbred racing should simply lower expectations, accept reality (of declining demand) and quietly trend the way of harness racing?   Resignation is a tough pill to sallow but a scaled-down, boutique landscape is no doubt where we’re headed.

25 Jun 2010 10:16 AM

Interesting.  Yesterday’s business model, you know the one with the outdated pricing system et al, once allowed a bottom line worthy of investment.  It still would with increasing sales, something now only a memory.  At the end of the day, racing is like any business . . . all about growth.  Bob may be correct; tracks in the future may look like the Oak Tree and Keeneland versions, existing solely to promote related endeavors.  Surely such a scenario makes sense to (former) shareholders of a certain corporation that comes to mind.  

25 Jun 2010 1:37 PM
Fran Loszynski

Casinos don't affect horseracing. Some of my friends play the slots while the rest of us play the horses. You know when it comes right down to it, it's all betting. Racehorses can hold their own. Not all people like horseracing and not all people like the slots. I think it works out fine.

28 Jun 2010 3:24 PM

Recent Posts

More Blogs