An icon of the Commonwealth, the thoroughbred racing industry faces tough competition in the high-stakes race for gambling dollars. As riverboat casinos and slot machine gaming in neighboring states threaten to siphon off a significant number of patrons from horse race wagering, Kentucky's racetracks must take action to increase demand for horse racing and offset losses through expansion into other forms of gambling.
Until the late 1980s, casino gambling in the United States was largely con- fined to Las Vegas and Atlantic City. From that base, some form of casino, card room, or slot machine gaming has spread to 31 additional states. When lottery, bingo, and pari-mutuel wagering are added, legalized gambling is available in 47 states and the District of Columbia.
This rapid expansion of casino gambling in the United States in recent years has posed a serious threat to the economic health of the horse racing industry. As a consequence, the Equine Industry Program at the University of Louisville has conducted studies to investigate the effect of this competition on the industry.
Legalized gambling in Kentucky includes pari-mutuel horse racing, a state lottery, and charitable gaming. Although casino and slot machine gambling are not available, Kentucky thoroughbred racing faces competition from riverboat gambling in Illinois, Indiana, and Missouri, and from slot machines at racetracks in West Virginia.
From an economic standpoint, the expansion of gambling competition is an important issue for Kentucky. The thoroughbred racing industry is composed of three interrelated sectors: racetracks, owners of race horses, and breeders of race horses. A 1994 study by U of L's Equine Industry Program estimated that 14,500 direct full-time-equivalent jobs were created by the Kentucky racing industry. When additional indirect jobs are included, total employment connected to horse racing is estimated to be 30,000!
When it has been introduced into existing pari-mutuel horse racing markets, casino gambling has resulted in a significant decline in wagering. For example, in New Jersey, which has had casinos since 1978, their presence has resulted in an estimated 34 percent reduction in horse race wagering, holding constant other factors affecting the demand for horse race wagering. A decline of this magnitude has also been observed in other areas where casino gaming has been introduced into an existing horse-racing market. This result is not surprising because all evidence suggests that casino gaming is a strong substitute for wagering on horse races when it is made available.
Beginning in 1993, Ellis Park and Bluegrass Downs racetracks in western Kentucky faced competition from Illinois riverboats on the Ohio River and, later, from Missouri riverboats on the Mississippi River. Indiana riverboat gambling was introduced in the latter part of 1996 to the northern Kentucky market. Racetracks in these markets have been affected by this new competition but no statistical measures of the impact have been conducted. Yet to come is the world's largest riverboat, Caesar's Glory of Rome, to be located in Corydon, Indiana, approximately 15 minutes from downtown Louisville and in the market area of Churchill Downs. In addition, the Indiana Gaming Commission granted a fifth and final license for a riverboat on the Ohio River, near Cincinnati, in September 1998. The impact on wagering at racetracks in Kentucky will be dramatic once the full complement of riverboats on the Ohio River has been phased in.
To put the size of the two gambling markets in perspective, consider that Indiana riverboats generated $958 million in revenues in 1997. This was almost eight times the approximately $120 million in revenues resulting from horse race wagering in Kentucky. The addition of Caesar's and the fifth Indiana riverboat will only compound the difference between the two markets.
What, then, is the outlook for the horse race wagering industry in Kentucky? One thing is certain: If the industry does not act-if other factors affecting the demand for horse race wagering are allowed to remain constant-it will absorb significant losses in employment and revenue.
A number of options are being considered, tested, or are in place to offset losses because of riverboat gambling competition. One is the expansion of pari-mutuel wagering through distribution outlets such as in-home betting. Churchill Downs has been a leader in this effort and has been testing this technology for some time. Increased visibility of racing through marketing efforts such as those initiated by the recently formed National Thoroughbred Racing Association (NTRA) should also help offset the increased level of casino competition.
Another possibility-at least in competing with surrounding states-is to allow some form of casino gambling at Kentucky's racetracks. Other forms of gambling such as slot machines and card rooms are available at pari-mutuel racetracks in eleven states. In four of those states, these forms of gaming are restricted to racetracks. In order for any additional form of gambling to be allowed at Kentucky racetracks, it must be approved by the Kentucky General Assembly. Although not currently legal in the United States, wagering on Kentucky races over the Internet is another possibility for market expansion.
None of these alternatives is exclusionary, and the revenue-generating potential of each should be considered when determining which options to pursue. But we must move quickly. Given the rapid growth of riverboat gambling competition in neighboring states, it is imperative that Kentucky's leaders begin framing a policy now to preserve the future of our horse racing industry and stabilize this vital sector of our economy.
Robert Lawrence is a professor in and director of the Equine Industry Program in the College of Business and Public Administration at U of L. Richard Thalheimer is an associate professor in the program. The two men have been involved, together and separately, in a number of major studies of the economic impact of casino gaming and other types of gambling competition on the horse racing industry.
"Front and Center" is a collaborative effort between U of L Magazine and the Kentucky Center for Public Issues (KCPI). KCPI is an independent, nonpartisan, nonprofit public-policy organization partnering with U of L to offer opportunities for public discussion of issues affecting Kentuckians. The opinions presented here do not necessarily reflect those of the university or KCPI.