Some question use of slots profits for racing

DES MOINES, Iowa – Day and night, gamblers crowd into the casino east of here and sit at thousands of slot machines and gaming tables – but the stands are largely empty at the complex’s horse racing track.

The scene at the Prairie Meadows Racetrack and Casino is repeated at many of the three dozen racetrack casinos – or racinos – across the country, and the disparity in crowds and other factors have led some people to ask a question:

Why do laws allowing these state-sanctioned casinos to operate require them to divert so much of their profits to subsidize money-losing horse tracks instead of the public programs they’re also supposed to support?

“Slot machines prop up their industry,” said Dr. Guy Clark, a New Mexico dentist who is chairman of the National Coalition Against Legalized Gambling. “Why should the racetrack industry need bailing out by the government any more than any other industry? If it were some other industry that had outlived its usefulness, we generally would let it die.”

People in the horse industry argue that lawmakers never would have allowed these casinos without the promise that they would keep horse tracks alive and protect thousands of jobs – from bet-takers to breeders.

In Maine, Penn National Gaming Inc. pays a 1 percent tax on the gross slot machine income, or total wager, from its Hollywood Slots facility in Bangor. By state law, 89 percent of the total wager must be paid back to players in the form of winnings.

Of the amount left after the tax and payback are taken out – net slot machine income – 39 percent must go to the state for distribution to 10 beneficiaries, ranging from scholarship programs to Maine’s harness racing industry to agricultural fairs.

In Iowa, Prairie Meadows, a nonprofit corporation, became the nation’s first horse track to allow casino gambling in 1995 – four years after it went bankrupt from trying to rely on races alone.

Gambling at Prairie Meadows in 2006 generated more than $180 million, and $57 million in profits. More than $20 million went to public programs and $4 million was given to charity, but nearly $30 million went to horse race purses and overhead.

Other states also use casinos to prop up the horse industry:

. Pennsylvania: More than $124 million in track casino gambling revenue went to a racehorse development fund. The state also spent gaming profits on tax relief, local governments, tourism and economic development.

. Louisiana: Racinos paid about 18 percent of their $370 million gross revenue to support horse racing in 2007, or about $66 million. Additional profits went toward local government agencies and the state general fund.

. New York: Lawmakers recently sent a bill to Gov. Eliot Spitzer to provide $105 million to help the New York Racing Association emerge from bankruptcy. It also requires slot machine vendors at most of the state’s eight tracks to direct a portion of profits toward horse purses and breeding. Spitzer has indicated he would sign the bill, saying thoroughbred horse racing provides thousands of jobs in the state.

Nationally, 36 racinos in 11 states generated about $3.6 billion in gross gaming revenue in 2006, according to the American Gaming Association. Most of that money was generated by slot machines. Racinos paid out $1.4 billion in tax revenue to state and local governments in 2006, a 12.5 percent increase over 2005.

Forms filed with the Internal Revenue Service confirm that Prairie Meadows lost money on its racing. In 2005, the most recent year for which information was available, revenue from slot machines and table games was reported at $2.7 billion. Revenue from pari-mutuel betting was just $63.5 million, but racing cost Prairie Meadows $77.7 million.

“I just feel that the money is not being spent properly or appropriately right now,” said Bill Knapp, a prominent Des Moines real estate developer who is involved in a variety of community projects.

Knapp proposes diverting more money to charitable causes, support of rural economic development efforts and public projects. He also said the track should shorten its calendar to cut expenses and redirect some of its profits.

Tom Coates, a gambling opponent who runs a Des Moines area credit counseling agency, also criticized such subsidies.

“It’s an industry that has shown for decades it can’t stand on its own and make it,” he said.

But others argue that opponents of subsidies ignore the history of how the casinos were approved and the economic benefits of the horse industry, which they acknowledge wouldn’t be viable in much of the country without subsidized race purses to support horse breeding farms.