Say goodbye to slots gravy train?

The sport has had a nice run with slot machines, those gizmos that have fattened purses, made a lot of owners a lot of money and kept a dozen or so racetracks from closing. But the good times are about to end, and a lot sooner than you might have thought.

A system — broke state governments allowing tens of millions in slots revenue to go to horse racing — that could never last is starting to crumble. The first few weeks of 2011 have included some very ominous news for the slots-racing relationship and the future of horse racing.

It started in Indiana, where Governor Mitch Daniels blindsided the Thoroughbred and Standardbred industries last month when issuing a budget proposal that called for 43 percent of the slots money that was going to racing to instead go to the state’s general fund. The budget must still go through several channels before being enacted and it can be changed after other state lawmakers are heard from, but industry sources said they were not confident there would be major changes forthcoming when it came to racing. With the vast majority of purse monies in Indiana coming from slots, Daniels’ proposal could devastate the industry in the Hoosier State.

Indiana has long been the envy of other states, particularly slots-free Kentucky. Hoosier Park and Indiana Downs grew from minor-league racetracks to places offering top purses and stakes races that could attract the likes of Thoroughbred champion Lookin at Lucky. Once Daniels’ axe is wielded, Indiana racing will likely be back to where it started and people who invested heavily in farms and breeding operations there will take a huge financial hit.

In Iowa, the target is dog racing. The casino company Harrah’s, which owns a kennel club in Council Bluffs, is leading the fight to end dog racing in the state. In order to do so, it is offering what amounts to a bribe to the state, offering to pay it $10 million a year to let them pull the plug on the dogs.

“Dog racing is simply dead,” Harrah’s lobbyist Jim Carney told Iowa politicians. “I mean, that’s a fact.”

Prairie Meadwows, the lone horse track in the state, looks OK, at least for now. But should dog racing go in Iowa that is sure to embolden others to try the same trick in other states and with horse racing. Harrah’s owns three horse tracks, Thistledown, Louisiana Downs and Chester and is a part owner of Turfway Park. Might some of those tracks be next in line when it comes to Harrah’s scheme to pay states to let them close racetracks? And what about other gaming companies that own racetracks? There’s no doubt they are carefully monitoring the Iowa situation and plotting plans of their own to pay to close some tracks.

You can be sure that Penn National is paying attention to what is going on in Iowa and Indiana. Penn National is the largest racetrack operator in the U.S., but has never been shy about its corporate attitude. They love slot machines. They don’t love horse racing.

Penn National President and CEO Peter Carlino drove that point home last week when, during a teleconference on fourth-quarter and year-end earnings, he said his company is going to find ways to lessen the financial drain that is horse racing.

“Racetracks tend to end up with slots-that’s our long-term play,” Carlino said. “Operating tracks at a loss is not in our long-term plan. We will continue to ratchet down costs. We’ll be tough and brutal about that. We’re not running a public charity.”

If governments would let them, Penn National wouldn’t hesitate to cease racing at some of the tracks it owns, and who could blame them? Carlino isn’t paid to worry about racing or its future or the trainer with three bad horses in his barn, but to make money for his company and its shareholders. He’s right. He shouldn’t be running a “public charity.”

And in many places, where the grandstands are empty and racing has lost whatever relevance it once had, that is what the sport has become. Smart businessmen like Carlino and the people who run Harrah’s want that to end. So do Governors like Daniels. They are far more concerned with budget deficits and providing the children of their constituents with a decent education than they are with whether or not $5,000 claimers should be running for $20,000.

Meanwhile, racing has done nothing to help itself, particularly when it comes to getting the dynamics of supply and demand to work again. Greatly reduce the total number of racing dates out there and the sport’s financial outlook wouldn’t look quite so bleak. But no one seems to want to do that, not when it’s so easy to run bad horses for good money at Racinos.

And shouldn’t some of the slots money have been used for something other than purses? Why not huge marketing campaigns or massive reductions in takeout? Have any Racinos invested in capital improvements for the racetracks and not just the slots parlors?

And now things are starting to change. Where will the sport be when the slots money starts to go away? Whatever the answer is, it’s not a good one.

Originally Posted on ESPN