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Purses Decrease Under New State Budget, But Breeding Skyrockets

December 2009
By Terry Conway

The goose that laid the golden egg has gotten goosed.

Less than three years into slot machine gambling at the state's racetracks, Pennsylvania lawmakers are using part of the horseracing industry's windfall to help close a $3.2 billion deficit.

When Gov. Ed Rendell signed into law a budget for Pennsylvania in October, the legislation whacked the share of revenue horse racing gets from slot machines by about 17% over four years. The Pennsylvania Horse Breeders Association (PBHA) reported that reduction in slots revenue means purses will be trimmed from 12 percent to 10 percent of gross gaming revenue under the Pennsylvania Race Horse Development and Gaming Act. The PHBA projected the thoroughbred breeding fund will lose about $2.7 million a year for four years.

Horsemen fear there could be a reduction in racing dates and cuts in stakes purses.

"We are going to have to make some difficult choices and cuts to make up that cut in funding," said Pennsylvania Thoroughbred Horsemen Association (PTHA) executive director Mike Ballezzi. PTHA is a statewide organization representing owners and trainers at Philadelphia Park Racetrack in Bensalem, Pa..

"Purse cuts and breeders award reductions will slow or stop the growth in Pennsylvania racing and breeding by eliminating the major incentives for horsemen to race in our state or for breeders to bring their mares to the state."

There also could be 17%-20% cuts in benefits for horsemen's pension and health-care plans at Philadelphia Park, according to Ballezzi. On the racing side, he said the purse for the grade II Pennsylvania Derby could plummet from $1 million to $250,000, and the $750,000 Cotillion Stakes (gr. II) could be dropped from the schedule.

"Let's face it our industry is an easy target," he said. "It's such a short sighted plan of action by the state legislature. There has been tremendous growth in the purchases of horse farms in the state and buying PA-breds at auction, and now we could see it dissipate."

Breeding fund

Since the first casino opened in November 2006 at Philadelphia Park, more than $500 million has flowed into the racing industry, and that number increases at a rate of more than $4 million a week. In fiscal 2008-09 alone, more than $210 million was pumped into the Pennsylvania Race Horse Development Fund. That subsidy dwarfs New York ($96.5 million last year) that was second among states that subsidize the horseracing industry.

As for the Pennsylvania Breeding Fund, its total revenue in 2009 is estimated at $18 million.

"With the budget crisis there has been a lot of uncertainty and things keep changing," noted Mark McDermott, executive director of the PA Horse Breeders Association. "The good news is that the breeding and stallions awards should be okay. We should have still have $15 million a year in the Breeders Fund over the next four years or so. The bad news is the PA-bred racing program is going to be affected. Still, it plays out like this: we took 15 steps forward, now we're taking a couple back."

Former Pennsylvania racing commissioner Rick Abbott also sees things in a more positive light.

"The budget crisis is extremely serious but through the hard work of horsemen, horse breeders and the leadership in the legislature we're fortunate the horse industry didn't take more of a hit," said Abbott, a longtime bloodstock agent and owner of Charlton Farm near Cochranville, Pa.

Charlton Farm could be snapshot of the success of the slots legislation. Its employees have grown from three in 2004 to 11 this year. Capital improvements in excess of $500,000 are reflected in new fencing, construction of four sheds and improvements to all of the barns of the property and a feed bill to local hay suppliers that has tripled. Abbott has also been very active at horse sales over the past three years.

"With the new casinos that have come on line and others that will in the near future, I don't think we'll see a net loss. What this crisis demonstrates is the horse industry has to continually remind the legislature what the thoroughbred and Standardbred farms achieve in terms of job creation and economic development. What the legislature giveth, they can take away."

Big jump in mares bred

The old saying goes: all roads in thoroughbred racing lead to the Kentucky Derby the first week in May. The new twist: all roads for thoroughbred mares lead to Pernnsylvania in September.

A Jockey Club report in late October shows that Pennsylvania breeding is on the rise while the industry is in decline in every other major breeding state. Pennsylvania managed to buck the national trend for a second year, picking up mares instead of losing them. The Keystone State jumped from tenth to fifth in number of mares bred in 2009. The number of mares bred in Pennsylvania rose 25.3% to 1,550, compared with the 1,237 that had been bred through the same period in 2008.

"For people in the industry paying to board their horses and looking to get a nice return, there is no better place than Pennsylvania," McDermott insisted. "Five years ago we looked at our breeding programs and realized we needed stronger commercial stallions. Now we've got Fairbanks (at PA Northview Stallion Station) going at a big number-- $8,500-- attracting mares from many other areas."

Jumpstart, who stood this year at the legendary W. T. Young family's Overbrook Farm near Lexington, will stand in 2010 at Ghost Ridge Farms near Brogue, Pa. A 10-year old son of A. P. Indy, Jumpstart will stand for $10,000.

"People need whatever edge they can get in these tough economic times and our breeding program offers lot of strong benefits," McDermott stated.

For the foreseeable future, Pennsylvania seems to be in the driver's seat as far as mares being bred. Even all the uncertainty about how the budget deficit would affect the industry didn't impact Charlton Farm's clients?

"I can tell you I didn't have one call where the breeder said they were leaving their mare at home, sitting it out to see how it all played out," Abbott related. "All of my people are still enthusiastic."

In 2010 Charlton Farm expects to foal 62 mares. That's up from 52 mares foaled this year. Eight of those were bred back in Pennsylvania when perhaps only one or two would have been in past years. Five were bred to Fairbanks, three to Partners Hero and a couple to Real Quiet.

"Fairbanks had a book of 110 mares and he hasn't had any hit the track yet," Abbott noted. "That is remarkable when you consider the stallion quality level of the past."

Table Games Coming

Roulette, blackjack, craps, poker and other games played with cards, dice, tile or dominoes— it's not a question of if, but when. Table games have jumped ahead of slot machines as the latest, greatest short-term fix to fill the budget black-hole Pennsylvania's politicians have dug.

So much for Gov. Ed Rendell's declaration that all 14 of the planned slots parlors would be in operation before the state would consider table games.

A study commissioned by the Pennsylvania Equine Coalition contends that the introduction of table games at Pennsylvania casinos and racinos will result in a decline of slot machine wagering of between 8% and 13%, potentially resulting in a decline in state revenues.

The study pointed out that different tax structures for slot machines and table games could adversely impact overall state revenues as well as funds designated for the Pennsylvania equine industry.

"The entire impetus of table games is to raise funds for the General Fund, everyone knows they are serious deficits," McDermott noted. "Listen, the legislation has already taken care of racing with slots. They never said racing would get a piece of every form of gambling. Most people see little slots crossover with racing, and I think that's true between slots and table games. It's two different groups of people. How will the revenues pan out? We need to wait a while and see."

Philly Park Expansion

Philadelphia Park is scheduled to open a new $350 million stand-alone casino in December and fully relocate all its slot machines to the new building by spring. The 250,000 square facility feet allows the original Philadelphia Park structure to return to being a racetrack facility once the slot machines are transferred. The racetrack's grandstand and clubhouse was transformed into a racino in December 2006.

Pending legislation for table games would allow Philadelphia Park ‘s owner Greenwood Gaming to house some table games in the grandstands. The grandstands have been used as a temporary casino facility as Greenwood Gaming continues construction of a standalone casino also located on Street Road.

The casino said it has also applied to the state for as many as 4,000 slot machines in its new building. Philadelphia Park is now licensed for about 2,900 slot machines. Philadelphia Park's slots machines have generated nearly $500 million in revenues for the state and the horse racing industry. Gaming revenue at Philadelphia Park totaled $29.56 million in October, up 8.8 percent, according to the Pennsylvania Gaming Control Board.

To contact horseracing writer Terry Conway, email conway@dol.net


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