After revisiting a lot of published analyses, here is my final two cents on the New York VLT situation.
OVERVIEW
In
every horseracing state where slots/VLTs and casino games have been considered and/or approved, the lion's share of either taxes or takeout always goes to the state (usually for education). As of September 2003, New York State is scheduled to receive 61% of takeout (a.k.a., drop) from VLTs. Since a 10% takeout is targeted, this is equivalent to 6.1% of VLT handle. The NY Lottery Division is scheduled to receive 10% of takeout (1.0% of handle). VLT operators are scheduled to receive 29% of takeout (2.9% of handle).
In
every horseracing state, the foundation argument for subsidizing both racing purses and breeding is that competitive forms of gambling will erode the revenue stream derived from pari-mutuel takeout and thereby dilute the agribusiness infrastructure associated with horses. The New York State horse industry annually supports 12,800 FTE jobs while producing goods and services valued at $1.7-billion. The aggregate annual impact of the horses on the NY economy has been estimated at $4.8-billion. As elsewhere, the concept of subsidizing racing purses and breeding from slot/VLT revenues gained support in the NY legislature.
THE DEVIL IS IN THE DETAILS
The Governor of New York proposes that breeders and racing purses will
not receive one penny until the third year of VLT operations at each track. Thus, the horse industry would miss out on subsidies during the very period when VLT popularity and handle usually peak at new slot/VLT locations. Such a moratorium would certainly set New York apart from other states.
When horsemen (owners and trainers) negotiate with racetrack managements, the bargaining power of horsemen is founded on two extreme options:
(1) Horsemen can elect to boycott local racing at the host track (i.e., refuse to race).
(2) Horsemen can elect to block the host track from accepting simulcast wagers on out-of-state races.
Obviously, both of these options negatively impact horsemen because their livelihood depends on receiving a share of pari-mutuel takeout from wagering pools for both local and simulcast races.
If the projected impact of VLTs is realized, VLTs will become the major source of racetrack revenue. At each track, this can be expected to happen during the first two years of VLT operation. The consequences of this will be:
(1) Horsemen may receive no benefit from VLTs during the first two years.
(2) By the third year, horsemen will have essentially lost their bargaining powers. Local boycotts and simulcast blockages will no longer provide horsemen with sufficient leverage to effectively negotiate with racetracks.
Evolutionary changes in VLT legislation have made it abundantly clear that racetracks are pressing for a position of extreme advantage over horsemen. NYRA and other racetrack interests have succeeded in lobbying to dilute subsidy provisions for NY horsemen. Here is a summary history of these legislative revisions:
(1) Originally, racetracks were scheduled to receive 25% of VLT takeout, and both breeders and horsemen were scheduled to benefit immediately. Paid from the 25% takeout share allotted to tracks, breeders were to receive 1.25% and horsemen were to receive 8.75% in the first year, then 11.25% thereafter.
(2) In 2002 legislation, provisions for breeders were unchanged, but tracks were authorized to negotiate with horsemen such that the percentage received by horsemen could decrease to a floor level of 6.25%
(3) The Comptroller cites amendments included in the 2003-4 enacted budget:
Code:
Takeout from VLTs is targeted at 10% with VLT handle to be
divided as follows:
90.0% to Payouts (machines will return $.90 on the dollar)
06.1% to NY State (education fund)
01.0% to NY Lottery Division
02.9% to Track Operators (NYRA and others)
Effectively, breeders would receive 0.003625% of VLT handle,
and horsemen could potentially receive 0.032625% of
VLT handle (compared to a national average of over 5.0% from
combined pari-mutuel handle).
The worst case scenario for horsemen is:
(1) Horsemen will receive no benefit from VLTs during the first two years.
(2) Horsemen will be forced to repeatedly negotiate subsidy percentages
while their bargaining power is evaporating. This is truly ominous. whether or not horsemen are initially excluded from benefits, because racetracks have been given statute authority to re-negotiate subsidies at any time.
It would seem that the current crisis is a window of opportunity for breeders and horsemen to unite. Since breeder subsidies are guaranteed, horsemen should insist on legislation that
guarantees a fair subsidy. Breeders and horsemen should both insist on receiving immediate benefits when VLTs go into operation. Indeed, the current crisis has temporarily elevated the bargaining power of horsemen to its zenith because they can "threaten" to bankrupt NYRA by emptying their accounts before VLT revenues commence.
