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Indiana Racing Dodges Bullet in State Budget

By Tom LaMarra

Indiana lawmakers have passed a two-year, $28 billion budget that largely spares the horse racing and breeding industry, which was targeted for major reductions in the amount of revenue it receives from racetrack slot machines.

There had been budget language that would have slashed industry funding by more than 50%, but a compromise resulted in total cuts of about $3 million. Republican Gov. Mitch Daniels is expected to sign the bill, according to published reports.

The Indiana Legislature ended its 2011 session April 29. Republican Senate Appropriations Committee Chairman Luke Kenley was a key lawmaker in the push to maintain racing and breeding’s share of slots revenue.

Ed Martin Jr., a racing and breeding industry consultant, said the Thoroughbred sector will lose about $1.38 million overall. With 120 days of racing at two tracks—Hoosier Park Racing & Casino and Indiana Downs—purses will earn about $6,900 less per day from slots, he said.

On the breed development side, the Thoroughbred industry will receive about $4,600 less per day in supplements, Martin said.

Various industry organizations lobbied against major reductions, arguing that racetrack slots have solidified racing and breeding—Thoroughbred, Standardbred, and Quarter Horse—and pushed total annual economic impact to more than $1 billion. They said the proposed revenue reduction from $60 million a year to about $27 million would have greatly damaged that growth.

The state’s two racetracks generated cumulative income of $319 million and paid $49 million in purses in 2009, according to an economic impact study. Breeders reported total income of $31.6 million in Indiana alone; many operate in multiple states.

Hoosier Park and Indiana Downs both filed for bankruptcy protection. They said Indiana’s initial $250 million slots license fee, the highest in the United States, contributed to their financial difficulties.

RACING IN THE HOOSIER STATE IS OFF & RUNNING

  By Kimberly A. Rinker

Since June 2008—when slot-generated dollars began pouring into the Indiana horse racing program—both Hoosier Park in Anderson and Indiana Downs in Shelbyville have garnered significant purse boosts, while the state’s breed development sector has flourished.

Seemingly overnight, the two ‘racinos’ have morphed the state into the Midwest’s hidden jewel, creating a jackpot for the horsemen who make their living there.

Backtrack to April 2007, when Indiana Governor Mitch Daniels signed House Bill 1835 into law. That act authorized the installation of nearly 2,000 slot machines at both tracks, and each quickly evolved: Hoosier Park into Hoosier Park Racing & Casino and Indiana Downs into “Indiana Live!” casino.

Although casino gambling is nothing new to the Hoosier State, where it has flourished for over 15 years in the form of 11 riverboats, the inception of slots finally provided the Indiana horse racing industry with the necessary funds needed for economic growth.

As well, it gave Hoosier horsemen and the state’s farmers the chance to expand agriculturally, and for the first time, its racetracks became viable and profitable alternatives for out-of-state trainers, jockeys and owners.

Joe Gorajec, Executive Director for the Indiana Horse Racing Commission, said his department projected that money generated from slots at Hoosier Park and Indiana Downs would contribute $200 million from 2008 to 2013.

“In the last fiscal year the racinos contributed about $56 million to purses and breed development,” Gorajec noted. “I would expect that to rise to $60 million for fiscal year 2011, which is consistent for the projections made when the racino passed.”

Gorajec, who has been at his post at 150 Market Street in Indianapolis for “nearly 20 years,” and is a graduate of the Racetrack Industry Program at the University of Arizona, has a genuine enthusiasm for the Indiana program that is clearly evident.

“The Indiana horsemen have a lot to be thankful for, and those who don’t participate in our program should give it a good solid look,” Gorajec said. “All of the individuals in this business that rely on horse racing for all or part of their livelihood should be very thankful to the state legislators for providing them with such a lucrative opportunity.

THE BREED DEVELOPMENT PROGRAM

The Hoosier State equine industry—which includes Thoroughbred, Standardbred and Quarter Horse racing—was given a 15% slice of the slot revenue pie allocated to Indiana agriculture, “making the Indiana Breed Development program second to none,” Gorajec acknowledged.

“Indiana has the most generous breed program in the nation by far,” he stated. “Forty percent of the monies dedicated to the Thoroughbred industry in our state go to breed development. Most racino states contribute less than half of that.

“Between our breeders awards, stallion owner awards and our lucrative racing program, it’s hard to find any reason why a horsemen wouldn’t want to foal a horse here, stand a stallion or buy an Indiana-bred,” Gorajec continued. “When you look at the level of purses we offer, the only tracks in the surrounding states that are higher than Indiana Downs and Hoosier Park are Churchill and Keeneland. In fact, in 2010, our purses have equaled and in some cases passed Arlington Park’s purses.”

According to IHRC statistics, in 2009 a total of $9.8 million was distributed in awards to Indiana Thoroughbreds. Of that, $1.7 million (17%) was paid in breeder awards and another $1.7 million (17%) was paid in owner awards; $364,249 (4%) was paid in stallion owner awards; and $12,500 (-1%) was paid for out-of-state awards. The remaining $6.1 million (62%) was paid in purse supplements.

“If you have a horse that can compete successfully at Churchill and Keeneland, than that’s where that horse should be racing,” Gorajec stressed. “However, if you have a mid-level horse that can’t be successful there, there’s no better place to race than Indiana.”

In July 2010, the IHRC approved a “quality of racing” initiative recommended by Gorajec that garnered full support from the Indiana HBPA, Indiana Downs and Hoosier Park. The initiative began with the opening of Hoosier Park’s 2010 meeting, and resulted with Indiana-bred Thoroughbred purses being equal to their open race counter parts.

“The Indiana Horse Racing Commission has done something very unusual for a regulatory body,” Gorajec explained. “They’ve taken an interest in the quality of racing. The IHRC felt that if the state was going to invest in racing, they needed to have two things. First, they wanted a very positive economic impact for the state, and second, they wanted to improve the quality of racing in Indiana—both in the open and the state-bred program.

“In the past year, we took a hard look at the structure of the program and determined what changes would be made, if any, to encourage the breeding of better quality horses in Indiana,” he continued. “We focused on incentives to produce those quality horses, and in order to encourage the breeding of quality horses, we wanted to reward horses who competed against better horses, so we shifted the emphasis of state-bred horses competing in open company. We’ve still retained our state-bred only events, but want to reward those state-bred horses who can compete successfully against open horses. We’ve provided them with a 40% purse supplement when they compete in open company.

“The commission’s emphasis on quality horse racing requires the breeders to upgrade their breeding stock,” Gorajec added.

The HRC’s 2010 initiative calls for a 40% purse supplement for any Indiana-bred finishing first, second or third in an open event with a claiming tag of $10,000 or greater. As well, the HRC also established four signature races for Indiana-breds with a $200,000 guaranteed purse, set to begin in 2012.

Previously, an Indiana-bred would earn more purse dollars competing in a state-bred restricted race rather than racing against open company, Gorajec explained. The new initiative changed that.

“For instance, our maiden opens go for $35,000, plus the 40% supplement, which means they’ll be racing for $47, 600,” he stated.

In 2011, the IHRC projects that those same maidens will be vying for $49,000. Broken down in segments, that equates to $29,400 (60%) to the winner; $9,800 in breeders’ awards; and $4,900 in stallion owner’s awards, making the winner’s earning potential $44,100. By comparison, the open maidens at Arlington go for $38,080.

“In addition to our breeders’ awards which are 20% of the gross purse and our stallion awards, which are 10% of the gross purse, we offer restrictive races twice the amount of the national average,” Gorajec stressed. “When you look at all of those variables, Indiana is a very attractive state to participate in.”

On the national scene, less than 16% of the Thoroughbred races are restricted to state-bred equines, while in Indiana, that number is 38%—more than double the national average.

“If you look at the purses earned in state-bred races, you’ll see the average nationally is 18% and in Indiana, it’s 47%—more than twice the national average,” Gorajec emphasized. “If you take Churchill and Keeneland out of the equation, Indiana really shines in comparison to the remaining Midwest tracks.”

Jessica Barnes, Director of Racing and Breed Development for the IHRC, said the trotters and pacers are also reaping the full benefits of slot dollars.

“In previous years, our Standardbred development fund operated on $3.8 million per year,” Barnes noted. “With slots, we’re now getting $700,000 to $1 million per month. That’s a huge difference.”

That’s likewise for the small but strong Indiana Quarter Horse program.

“Our Quarter Horse purses are some of the highest around,” Gorajec offered. “Not just in the region, but nationally.”

The Numbers

Initially, when the program began in June 2008, the new influx of money presented a plethora of questions for the IHRC.

“The challenge we were initially faced with was, what we do with this money we’ve been given?” admitted Barnes, who has worked for the IHRC since 1999. “How do we adjust our programs to allow for growth, and how do we set up this program so that in three years we don’t have to cut it down? Another question was, how do we ensure that a good portion of this money allocated to horse racing is returned to the Indiana economy?”

Of that 15% total of slot-generated monies allotted to the Indiana horse racing industry, .5% is allotted to equine promotion and welfare, while 2.5% goes to backside benevolence (3% total). The remaining 97% is divided again, with 46% to Thoroughbreds, 46% to Standardbreds and eight percent to the Quarter Horse industry. Each breed varies slightly in the distribution of funds within its respective group.

The Thoroughbred community utilizes 60% for racing, with 97% of that money for purses; 2.4% for HBPA and .6% for ITOBA. Forty percent is allotted for breed development.

Half (50%) of all of the money allotted to Standardbreds goes to breed development and half (50%) goes to racing, with 96.5% of the racing monies going to purses and 3.5% to the Indiana Standardbred Association.

Of the eight percent provided to the Indiana Quarter Horse industry, 70% goes to racing; 95% of that to purses and 5% to QHRA. The remaining 30% goes to breed development.

For 2008 and 2009 combined, a total of $89,934,538.74 in racino slot revenue was distributed among the three breed factions, with Thoroughbred racing receiving $41.3 million (46%). Of that, the purse account was boosted by $24.8 million, while $16.5 million went into breed development.

The Indiana Standardbred community received $41.3 million (46%), with $20.6 million going to purses and $20.6 million going to breed development. The Quarter Horse industry in the Hoosier State procured a total of $7.2 million (8%), with $5 million for purses and $2.1 million for breed development.

“I don’t know of any other state that has this kind of program,” Barnes declared. “It’s great for all horse people, all breeds, and offers excellent incentives to keep people investing in the Indiana economy.”

As expected, the amount of racing slot revenue allocated to each breed doubled from 2008 to 2009, without exception. In 2008 both the runners and harness horses garnered $13.4 million and in 2009 that figure jumped to $27.8 million, while the Quarter Horses saw an increase from 2008 of $2.3 million to $4.8 million in 2009.

The Creation

Barnes said that a three-member team studied options and listened to opinions from both in and out-of-state trainers, jockeys, drivers, breeders and owners. As well, this team spoke with horsemen association directors from other states.

“The Committee listened to people from Canada, Pennsylvania, and Kentucky,” Barnes recalled. “They looked at each program to see what was working and what wasn’t.”

After a series of eight meetings and countless hours of discussion, the committee made their recommendations to the IHRC, which were implemented once the “racinos” began operating in June 2008.

“One of the biggest struggles we had was trying to balance quality and economic impact to the state,” Barnes offered. “If our only challenge was the ‘quality’ issue, than that’s pretty simple, but to include the economic issue, and make it all work, is a delicate balance. That’s what we’ve tried to do with the breeding program.”

For a Thoroughbred foal to be defined ‘Indiana-bred,’ the dam must be registered with the IHRC and entered in Indiana by Nov. 1 of the year prior to foaling, and she must remain in Indiana continuously until foaling. If the mare entered Indiana and was registered after the Nov. 1 deadline, then the foal must be born in Indiana to be registered as an Indiana bred, and the mare must be bred back to a registered Indiana stallion in that same year of foaling.

For those wishing to stand a stallion in the Hoosier State, a stallion application must be on file with the IHRC on or before Oct. 15 of each year, and the stallion must remain in Indiana from Feb. 1 through July 1—considered to be the traditional breeding season.

While nationally the number of Thoroughbred mares and stallions has declined by 20 to 25 percent since 2007, those numbers have seen significant increases in the Hoosier State.

According to IHRC statistics, the number of registered mares has nearly doubled from 520 in 2007 to 1,038 in 2009, and the number of Indiana-registered stallions has increased steadily from 2007 (99 stallions), 2008 (123 stallions), 2009 (133 stallions) to 2010 (138 stallions). As well, the number of Indiana registered foals grew from 322 in 2007 to almost 600 in 2009.

The Impact

On July 27 of this year the IHRC approved an expansion of the Thoroughbred Breed Development program at Hoosier Park. The numbers of 2-year-old Indiana-bred races were increased by nearly 50% for the 2010 meets, allowing the racing secretary to program up to 39 state-bred events for freshmen maiden special weights.

As well, the IHRC approved the option for race secretaries to include an “other than” condition in the allowance portion of Indiana-bred races. For example, a race may now be amended from a “non-winners of two” to a “non-winners of a race other than a maiden, claiming or starter.”

“I think we’ve attracted a lot more folks who come here from Illinois and Kentucky to participate in our open program,” Gorjec noted. “Those people who have come here to race in our open program will now surely be looking to participate in our state-bred program since there’s money to be made here.”

One of those folks is trainer Thomas Amoss, 48, a New Orleans native who has been training since 1988, and though based at Churchill Downs, regularly competes at tracks north of the historic Kentucky oval. He was Hoosier Park’s 2010 leading trainer with $299,447 purses amassed from a 16-5-6 record from 34 starters.

“The purses were the lure,” Amoss stated. “Indiana and Hoosier are centrally located to Churchill, and during the month of August, the purses at Hoosier are better than any other spot in the Midwest. For that matter, Indiana Downs’ purses are only slightly less than Churchill when they’re racing head to head.

“The main thing that’s alluring to any stable is the purse structure,” Amoss stressed. “As a trainer, you have to have horses that fit the style of racing that the track offers, but ultimately, the purses are what lure top horses to compete at any racetrack.”

The Tracks

Hoosier Park opened its doors for the first time on Sept. 1, 1994, and a trio of Off Track Betting Parlors followed a year later in Fort Wayne, Indianapolis and Merrillville—all operated by Hoosier Park’s parent company of Churchill Downs.

Hoosier Park Racing & Casino opened on May 28, 2008 with a new, 92,000 square foot facility hosting 1,820 gaming devices that cost in excess of $100 million to complete. The casino provided nearly 600 new jobs for Anderson area workers, and generates about $18 million in revenue annually to the city.

Steve Cross, who makes the 120 mile, one-way trip to announce for both the Thoroughbreds and Standardbreds at Hoosier Park from his home in north-central Middlebury, IN, said watching the changes take place at Anderson facility have been rewarding.

“It’s a great time to be involved with racing in Indiana on all levels,” he noted. When asked if his long commute is worth it, Cross answered quickly with a definitive “absolutely.”

Indiana Downs opened initially on Dec. 6, 2002, and later added two OTBs, the first in Evansville (2003) and the second in Clarksville (2004).

Indiana Live opened on June 6, 2008 with a 83,100 square foot facility hosting 1,980 gaming machines, and has an Indiana-employed rate of 99 percent.

Both Hoosier Park and Indiana Downs initially had to fork over a whopping $250 million each in licensing fees for the right to operate their racinos.

This year, Indiana Downs scored a single day total handle record of $2,667,917 on closing day, July 14. That 13-race card record handle surpassed the previous record of $2,140,490 for ten races, set on June 30, 2010. The purses averaged $200,018 daily over the 60-day meeting, up 37.9% from 2009, when the track held a 62-day meeting that averaged $145,019 per race card. As well, noticeable influxes of out-of-state horses, particularly Kentucky-based runners, were a constant throughout the meeting.

According to the Indiana Gaming Commission, total gaming revenue in 2010 remained flat at $2.8 billion, representing a decline of less than one percent from fiscal year 2009.

The total in-state handle (money wagered by the betting public on pari-mutuel races) peaked in 2005 at $190 million, but has since seen a slight decline annually from 2006 ($182 million), 2007 ($176 million), 2008 (164 million) to $147 million in 2009. Further divided, in 2009 the total live handle in Indiana wagered on all breeds combined was $8.4 million, while the total simulcast handle on all breeds combined was $138.7 million.

Thoroughbreds at Hoosier Park in 2009 generated an average daily live handle of $31,534 for 63 days, while at Indiana Downs gamblers wagered an average of $33,129 a day on the live card.

Simulcasts handle figures provided by the IHRC show that out-of-state wagers placed on Indiana Thoroughbreds to be $164.5 million for 2009. Segmented further, Indiana Downs Thoroughbreds generated a total export handle of $55.6 million and a daily average of $897,371 in 2009, while Hoosier Park runners export handle figures were $615,593 for the daily average and $38.7 million for the total 2009 meet.

Hoosier Park produced wagering tax revenue of $55.4 million, while Indiana Downs amassed wagering tax revenue of $64.8 million in fiscal year 2009. Both Indiana racetracks generated combined gaming revenue of $429 million in 2010, with Indiana Downs achieving a 20.3% gain over fiscal year 2009.

Only Ameristar ($73.7 million), Hollywood ($142.2 million), Hammond Horseshoe ($174.4 million), and Horseshoe Southern Indiana ($83.3 million) casinos had higher wagering tax figures for the same time frame.

The Future

One question is whether Indiana’s slot-enhanced raceways will force the hand of legislators in the contiguous states of Ohio, Illinois, Michigan and Kentucky—where horse racing is facing serious financial woes. Michigan already has Indian casinos and Kentucky has been threatening to convert Louisville’s historic Churchill Downs into a racino for several years.

“Any surrounding state that’s allowed a racino would certainly have an impact on the Indiana program,” Gorajec noted. “Eventually, racinos in all the surrounding states are inevitable, so what we’re concentrating on in Indiana is having a strong, solid program that will be attractive regardless of nearby competition. That doesn’t mean we won’t be affected by competition, but we’ll have a lucrative program regardless of what other states do or don’t do with expanded gaming.”

IHRC’s Barnes said her challenge now is to continue to work at educating horsemen about Indiana’s expanding opportunities.

“Change, even if it’s good, is sometimes scary to people,” she explained. “We mailed a brochure explaining the program to horsemen in Indiana and in nearby states. I think a lot of people are taking the ‘I’ll wait and see’ attitude. The first foals of the new program race in 2012, as 2-year-olds, and once they start hitting the tracks; a lot of folks will see that this is a great program for Indiana.”

“The changes in the program (this year) brought about mixed reactions by some of the horsemen,” Gorajec acknowledged. “However, the commission is always looking at the big picture and the overall program, while horsemen sometimes look at how something affects them individually.

“We really are holding the horsemen to the point of upgrading their horses,” Gorajec continued. “I don’t know of any major modifications in the works right now, but there may be minor ones here and there. Right now I believe the commission is satisfied with the program, and the future is very, very bright here for everyone.

“The one and only significant concern I have is that Indiana, like other states, is going through some serious budgetary difficulties,” he admitted. “Any state with racinos has had the state legislature look at that (racino) industry as a potential source of revenue. As we know, in Pennsylvania, West Virginia and Delaware, they’ve actually taken money from the horsemen in order to attempt to help fix the state finances. I would assume the horsemen here would try to protect their interests on that front.

“The horsemen should basically convey appreciation for the program the state has provided for them to compete in right now,” he concluded. “I do believe most horsemen here are happy and gracious to be racing here.” 

For information on the Thoroughbred Breed Development Program, please contact the Indiana Horse Racing Commission at (317) 233-3119, or visit the IHRC Web site at www.in.gov/hrc (see related links).

(From Midwest Thoroughbred, October 2010)

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