By Ted Grevelis
With the
passage of legislation in Maryland to allow either slots at the race tracks or,
at the very least, slot parlors contributing revenue to the racetracks, it got
me thinking about what I would do if I could build a racino. And not only build a racino, but design the
structure around the racino including slot machines, table games and even state
tax rates.
Before I get
started, I'm no economist and admittedly these are rough calculations. While there is need for polishing this up by
an expert, I hope that doesn't detract from my point: that slots, horses and
government can coexist if everyone would stop being so greedy and work together
so that everyone makes money
To start, you
look at the Maryland
legislation and you see that the state will get about 67% of the take. In contrast, Nevada casinos are taxed at a rate around
8%. Both are ridiculous. You need to be able to build a business on
the high end and, as the sorry state of Nevada schools (especially southern
Nevada) attests, you need a bit more on the low end to make it worth it to
government. You need to be able to
reinvest in the infrastructure of the physical plant; turn over your slot floor
to keep offerings fresh; continuous track maintenance. Forcing a racino operator to try and operate
on only 33% of revenue does only two things: discourage operators from
maximizing the property and prevents the property from being the best it can
be.
So first off,
let's tackle this issue first. I would
propose a state take of 20 - 25%. It's a
pretty hearty tax, sure, but to compensate a bit for gaming, it should be a
decent bite. This would also help stuff
the state's coffers, but not make the tax so onerous that it stifles business
creativity. Another 3% or so should go
to the local government where the property is located. This would be perk of
hosting the property, if you will. Now
instead of forcing a racino operator to try and operate on 33% of the revenue,
they have about 70% to work with.
A friend of
mine who builds and operates casinos once said that if slot vendors would lease
slot machines on an 85/15 revenue split, he probably wouldn't buy another slot
machine again. This should be interpreted
to mean that his operating cost for a slot floor runs about 15% of
revenue. He has many years of experience
doing this so I have no reason to doubt him.
That being said, I would push that to 20% to account for inflation and perhaps
some additional expenses that escape me right now. This is just to run a slot floor and not the
racetrack, but those numbers would be part of an enterprise wide calculation
and this is just on the slot end.
So now our
slot floor is taken care of, our expenses are set and the state and
municipality are taken care of. What
about table games? I say the heck with
them. They are labor intensive and don't
generate the same type of ‘win' numbers as slots. If you want to add an automated roulette machine
and some digital tables, go right ahead, but don't burden yourself with a table
games department. It's no sin to be
ambitious, but know who you are and what you are about. A racino shouldn't be a slot parlor with a
racetrack attached; it should be an added amenity to the racetrack. I don't see it as a 3,000 slot behemoth. I see it more as a 1,000 - 1500 slot addenda
to the race track. Don't add the
headcount, chips and stacks of cards and stay with a lean operation.
Let's run
some numbers before we get to the horsemen and purses. Let's assume that we're in an urban/suburban
area like Prince George's County, Maryland. With that demographic, I think we're safe in
assuming a $300 win per unit per day (actually, I think it may be considerably
more, but let's go with that number).
1,000 Slot
machines x $300 per day x 365 days = $109,500,000 a year
State tax
(25%) = $27,375,000
Local tax (3%)
= $3,285,000
Expenses
(20%) = $21,900,000
What's left?
= $56,940,000
Let's compare
for a second the current model. I will
not show the 3,000 machines that the law allows for - no one in their right
mind would commit that kind of capital investment with a 67% rake.
Revenue =
$109,500,000
State Tax =
$73,365,000
Local Tax =
$0
Expenses
(20%) = $21,900,000
What's left?
= $14,235,000
How do you
reinvest, make a profit and increase purses on that? The government folks will complain that it's
not enough dough for them, but where else can they get $27 million per location
while still PROMOTING business development?
(That goes to show you that liberal Democrat and devout capitalist are
NOT mutually exclusive!)
If you
dedicate 30% of ‘what's left' under the first example to augment current
purses, horse rescue and disabled jockey funds that leaves the operator
$39,858,000 a year. Keep in mind, I am
not taking into account any revenue from food and beverage, gift shop or even
horse wagering into these totals. If
there is an infrastructure investment of $100,000,000 the ROI is less than
three years! What business would not love
that kind of return? And you're not
going crazy building gaming palaces but building entertainment value for your
patrons.
I truly think
in my scenario you could dedicate even more money to purses and still not faze
an operator. You could take that money
and use it to promote the racing product and do things like free programs and
parking that should be standard anyhow. Sure
you'll need a smaller operator who would be happy with that kind of steady
return as well as one that values the sport of horse racing. But you could do it.
Truth be
told, the tracks could run it without an outside operator. Seriously.
A General Manager would need to understand that he needs to do two
things: hire someone with good, solid, slot experience to be Director of Slots;
and take some time himself and take some casino management courses at the University
of Nevada at Las Vegas or University of Nevada at Reno. They even offer intensive two week courses
from time to time. Know what you don't
know, admit it and then learn it. This way you have the racing folks running
the entire entertainment product. Kind
of like civilian control of the military, if you will.
This is my
ideal; a scenario that for various reasons will probably never happen - the
greed of all parties involved springs immediately to mind. But hell, I'm a horseman and I care about our
product and what's in it for us. We're
always on the short end and I'm tired of being the afterthought.
