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Texas Racing Commission

Filling the void

I’ve heard a number of reasons why we “need” video lottery terminals at horse racing tracks, but this one, espoused by Texas Racing Commission Chair Rolando Pablos, may be the most entertaining.

Though he does not gamble, Pablos studied gaming models during postgraduate studies at UH. He continues to study them. He perceives one disconnect with many horse race spectators — idle time between races. He understands that some spectators enjoy partying between races. Others bury themselves in handicapping the next race. Still, he contends, there’s “a void.”

“Horse racing needs to get more creative,” he said. “We see examples of creativity, like at Sam Houston Race Park with its programs and concerts. But revenue from horse racing is still declining. We need even more creativity.”

At Louisiana, Oklahoma and New Mexico tracks, Pablos noted, “People run to the slot machines between races. That (electronic gaming) model works well for our neighboring states. We don’t know if it will work here.”

Well, that is creative. Maybe they can adapt a line from the Weird Al Yankovic song “Horoscope” as their motto: “Fill that void in your pathetic life by playing VLTs seventeen hours a day”. I’ve not been to a horse racing track in years, so I can’t say if this “void” of which he speaks really exists. I do know that many other sports seem to manage their breaks in the action without the need for VLTs, so I trust you’ll pardon my skepticism here. The real question is whether or not allowing VLTs actually would be a net plus for Texas’ bottom line. Remember, the racetracks themselves were once supposed to be a financial windfall for Texas. Filling voids isn’t really a concern to me.

More on the special session

Governor Perry speaks about the upcoming special session.

All were left unaddressed when the Legislature adjourned June 1. Perry told reporters he expects lawmakers to finish their work in “72 to 96 hours. I think that’s three to four days, right? My Aggie math — y’all kind of check me on that.”

Perry said he won’t place the contentious issue of voter identification before lawmakers, even though the call for stricter voter identification is a priority for GOP leaders and lawmakers.

A fight over the issue stalled action in the regular session and undoubtedly would tie up the special session, which can last up to 30 days. The governor sets the agenda for special sessions and determines when they start.

“Look, we clearly believe that the issues that we’re going to address are the ones that have to be taken care of,” Perry told reporters after a separate speech. “We’re talking about people’s lives and livelihoods here when you talk about the Department of Insurance, when you’re talking about TxDOT (the Texas Department of Transportation) … I want those employees to understand that we’re going to get this bill passed and we’re not going to take a chance on … any legislative mischief from some other piece of legislation.”

Agencies that need legislation to continue also include the Texas Racing Commission, Office of Public Insurance Counsel and Texas State Affordable Housing Corp.

When I first read this, I felt a twinge of paranoia, because there was nothing in here to indicate that voter ID would not be taken up after these issues have been dealt with. I know I’ve opined that if Perry were going to do this, he’d be telegraphing his position, but that doesn’t mean I’m feeling at ease. However, someone must have asked about this, because Perry did address it:

Perry said even if the issues he specifically listed are wrapped up, he won’t expand the scope of the special session to include voter ID.

Well okay then. I doubt I’ll completely shake that nagging feeling, at least until sine die, but that does help. Now how likely is it that this thing really will last only 3 or 4 days?

“To get this done in three days is very ambitious and requires the cooperation of a lot of people,” says rules expert Hugh Brady. “You’re really going to have to bust a hump if you’re going to get this done by Friday afternoon.”

More contested legislation like the Voter ID Bill and CHIP expansion have been kept off the agenda, and Perry says he doesn’t anticipate adding anything new while the session’s underway. But even with such a narrow set of issues on the call, lawmakers have a lot of leeway about what amendments they can add to bills.

True, the House Parliamentarian could always adopt a very strict interpretation of what amendments are germane to certain bills, but that would be going against several judicial and legislative precedents, Brady says. “If the House or the Senate really wants to, they could take a narrow bill and try to expand it to add consumer protection or whatever they’d like to add onto it.” So lawmakers could still add amendments that substantially reform TxDoT and the insurance department, and it may take more than a few days to do so: just passing a bill in a three-day period would require suspending certain rules, he added.

But will they really want to? In that sense, at least, Perry timed his session well. As Brady points out, “it’s the middle of the summer and nobody really wants to be here.”

Sounds about right to me. We’ll see how it plays out. Rep. Pena has more.

Response from the racetracks

When I wrote my earlier post about how much revenue expanded gambling would generate for Texas, I said I’d be more than happy to do a similar exercise for someone on the pro-gambling side of things. Sure enough, I got an email from Mike Lavigne on behalf of Texans for Economic Development, who sent me a copy of a study done by TXP that examined the question for the horse racing interests. I’ve uploaded it here (PDF) for your perusal. The main thrust of the argument is as follows:

Texans are already gaming at a high level. Based on data from a variety of sources, including state gaming commissions, convention and visitors bureaus (CVBs), and other academic studies, TXP has estimated the current gaming revenue in a seven-state region that is attributable to Texans at approximately $2.3 billion during 2007, the equivalent of about 3.8 percent of the national total. This is the assumed universe of current Texan gaming; while there undoubtedly are individual instances of Texans gaming elsewhere in the country, it does not appear to be significant.

The Innovation Group was engaged by Texans for Economic Development to estimate the size of Texas’ gaming market. A summary of their results follows. As the table indicates, the total Texas market approaches $4.2 billion in gaming revenue at full implementation. However, there is still leakage out of state, as some Texans will continue to game elsewhere.

A significant share of the revenue that would occur in Texas with the implementation of racinos would be recaptured from other states where Texans currently game. Measurement of the volume of this spending is done through subtracting the leakage out-of-state ($840.2 million) from the $2.4 billion figure, yielding recaptured spending of approximately $1.8 billion.

They estimate a total of about $3.4 billion in gambling revenue, which when taxed at 30% (the rate for racetracks is higher than what has been proposed for casinos) yields about $1 billion a year for the state. They make other claims as well about related economic activity and employment, which I’ll leave to you to examine.

I remain basically skeptical of the claims made here – I think some of these projections are optimistic, especially the ones made separately about the economic benefits for other businesses that flow from expanded gambling. I also think it’s foolish to rely on gambling revenue for anything other than “found money” – the Texas Lottery should be an object lesson there. Finally, there is a moral case to be made against expanded gambling, and I think we greatly underestimate the social costs associated with it, which the state does precious little to mitigate. I’ve got a future post planned for that, since it’s outside the scope of this one. Having said all that, I can at least see where the racetracks’ numbers are coming from, and while I think they’re sunny, they’re comprehensible and reasonable. We can argue over these numbers because they’re here to be argued over, which remains more than I can say for the casino interests, whose claim that they would generate $3 billion for the state looks even more ludicrous to me based on this.

I also asked Lavigne in an email exchange after he sent this to me about the bleak picture the racetracks have painted for their industry today, and why they would be a better vehicle for capturing the “leakage” than regular casinos. Here’s what he said, reproduced with permission:

The Racing Commission did indeed paint a glum picture. There is no denying the shape the industry is in right now. The primary reason is that purses in Texas are so low, there is no incentive for breeders to breed in Texas. If they take the same horse and breed it in Louisiana, NM or OK they will be eligible for much larger prizes. A large chunk of the money made in this bill will go toward growing purses here that will be competitive with not only with our neighbors, but with the eastern seaboard, where racing has had a lot more success. This model is the reason our industry in Texas has fared so poorly. When parimutuel wagering was legalized in Texas, there were very few (if any) racinos in our bordering states.

We don’t oppose the proposal for regular casinos on its face, but we do object to the disparate tax rates. That would surely kill any chance racinos would have to be successful.

As to why we think racinos would better capture the money than casinos? I think that is the wrong question. Both would be able to get at that money. We do have to look at political reality though. What is more palatable to the legislature? Full on casino gambling overnight? Or a smaller expansion at existing sites with legal wagering already taking place.

The Governor and many Republicans have repeatedly said that they do not want to expand the footprint of gambling. We believe our proposal is a more modest one.

The most important thing to remember about these figures is that the Comptroller will ultimately make the decision as to how much money these proposals would raise. She will do her own math.

So there you have it, the case for racinos. My thanks to Mike Lavigne for engaging me on this. If someone with the casino interests wants to show me their numbers, I’ll be more than happy to do this for them as well.

Finally, on a related note, whatever reservations I have about casino and/or racetrack gambling, I do support an expansion of legalized poker in Texas. HB222, introduced by Rep. Jose Menendez as the Poker Gaming Act of 2009, would establish poker as a “game of skill and not a lottery or gift enterprise prohibited by the Texas Constitution” and would thus allow for the creation and regulation of legalized games. In particular, it would allow establishments that hold a license to serve alcoholic beverages issued by TABC or a license issued by the Racing Commission to have the ability to host the game of poker. There was a hearing for this bill yesterday in the House before the Licensing and Administrative Procedures committee. I have no issues with this bill and support its passage.

Reason #437 why I’m skeptical of the gambling industry

The regulatory agency that oversees horse and dog tracks in Texas is begging for a handout to make it through the end of the fiscal year.

Faced with a 14 percent, nearly $678,000 shortfall, the commission that oversees horse and dog racing in Texas has asked Gov. Rick Perry for a $250,000 emergency grant to finish the fiscal year ending Aug. 31 in the black.

In case that strategy fails, members of the Texas Racing Commission Wednesday signed off on a letter to Perry, Lt. Gov. David Dewhurst and House Speaker Joe Straus requesting a $250,000 supplemental budget appropriation.

Members acted shortly before representatives of horse and greyhound interests painted a desperate picture of the racing industry’s health at Wednesday’s commission meeting.

“Time is clearly running out,” said Bryan Brown, CEO of the Retama Park, a horse track north of San Antonio. “We can’t continue on as an industry and face all these issues.”

The agency attributes $70,000 of the shortfall to the impact of last year’s hurricanes on track revenues. It blames the rest on a factor likely reflecting decreased betting.

[…]

Brown told the commission that from 2007 to 2008, the number of Texans involved in horse racing dropped by more than 1,200 to 3,325. He also noted drop-offs in horses bred and raced in the state, live racing days at tracks and in total revenue. He said tracks also continue losing customers to online alternatives and illegal gambling parlors.

Earlier this week, Rolando Pablos, the commission chairman, told the budget-drafting Senate Finance Committee the racing industry is on the decline.

Remember when the introduction of the horse and dog racing industries, with their legalized betting on races, was going to be a financial windfall for the state? Boy, those were the days. But hey, let ’em have slot machines, or maybe just open the door to casinos, and this time we really will be swimming in the money. For sure! We mean it! What could possibly go wrong?