racing and gaming conference of saratoga

When It Comes To Decoupling, ‘Subsidies’ Is A Dirty Word For Some, The Perfect One To Others

The way someone talks about decoupling in horse racing will almost instantly tell the listener whether that person is for or against it. A panel at the Racing and Gaming Conference At Saratoga Aug. 16 struggled to agree even on how to refer to the money given to racetracks by casino companies – are they subsidies, or aren't they? And should they continue?

There was a time when casino companies and racetracks were competitors, but about 40 years ago when casinos began expanding, casinos made a deal with the racetrack ownership in the state where they wanted to build – allow us to coexist, and you can have a share of our revenue. Most of the time, that money goes into purse accounts and may sometimes be transferred to offset the use of a racetrack's physical plant, in the case of tracks that are host to casino games.

Marc Dunbar, a Florida-based shareholder of Dean, Mead and Dunbar, said he has worked for racetracks and casino companies alike and watched decoupling contribute to the end of greyhound racing in Florida. The shift was small at first, Dunbar said – at first, poker rooms were authorized to operate but only on live racing days, then on dark days. The same thing happened with simulcast – at first harness tracks had to race year-round in order to import signals year-round but over time they were able to cut back live racing by about two-thirds.

“Lawyers like me and others came up with alternative ways to race horses and still meet the statutory minimum,” Dunbar acknowledged. “Decoupling is here to stay.”

Once casinos no longer have to give a portion of revenue to purse accounts and their licenses are no longer dependent on the existence of live racing, they're able to shed live racing from their business plan. That's a good thing for many of them, because live racing isn't all that profitable. It was ultimately a partnership between animal rights activists and casinos that made Greyhound racing in Florida illegal, according to Dunbar, and he believes that partnership could happen again to eliminate live horse racing.

While those looking from the outside in call those payments from casinos to racetracks “subsidies,” that's not a comfortable term for those inside the racing industry who want to preserve that cash flow. Thinking about those legally-required payments as subsidies isn't a good look for the racing industry, according to Sharon Ward, policy and communications consultant and former director of Pennsylvania's Budget Office.

“Pennsylvania is not like New York,” said Ward. “There is no glamor, no parades, and no people in fancy dress. There are very few people taking their kids on a Sunday outing to the racetrack. It has a very different market. The allure that surrounds horse racing and has for a long time doesn't exist, certainly, in Pennsylvania. By every measure, it's declining.”

From the perspective of a taxpayer, said Ward, it's hard to justify allowing horse racing to continue getting subsidies from casinos, because they could rightly view that as money that would otherwise be paid to the state in taxes. Ward's calculations find about $15,000 in benefits per horse to owners through casinos, while state subsidy programs to college students only amount to about $5,000 per student. Even industry-generated figures totaling jobs and economic impact generated by racing pale in comparison to other industries in Pennsylvania, like tourism, which Ward says aren't given the same government-mandated cash flow. The fact that owners are among the direct beneficiaries of increased purses, and yet don't expect to make a profit on their racing stable almost makes the system more problematic, in Ward's view, as she likened it to the state diverting funds to someone to support maintenance of their sailboat or fishing equipment.

“Most businesses have to make a profit, and if they don't, they have to change their business model to make a profit,” said Ward. “Why haven't you? Or, I guess you have, by getting taxpayer subsidies.”

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“What about the people you're taking this money from?” asked Joe Faraldo, president of the Standardbred Owners Association of New York and director of the U.S. Trotting Association. “What about those grooms, what about those guys who sell food outside the Plainfield Avenue gate at Belmont Park?

“There are guys in our industry that want to get rid of racing (these are mostly private track owners on the harness side) because if they get rid of racing, they get rid of a lot of the costs and a lot of the problems they have with racing. That's a horrible thing, and it's going on.”

Joe Appelbaum, president of the New York Thoroughbred Horsemen's Association and NYRA board member, acknowledged that there is great variability from one state to the next as far as the health of their racing industries and the economic impact of those industries. He expressed frustration, however, that so much casino revenue had gone into purses over the years and not into developing new ownership or capital projects at many tracks.

Many of the usual arguments from the industry, like its ability to preserve jobs and green space in urban areas, aren't compelling to state legislators like they used to be, according to Dunbar. He said he routinely had Florida legislators ask him why The Stronach Group didn't give up on racing at Gulfstream and build condominiums on the valuable real estate there.

“We have to be real that we are going to go through a contraction in order for this game to survive another 100 years,” Dunbar said.

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When It Comes To HISA, Much Of What We Know Is How Much We Don’t Know

At this point, the feasibility of the July 2022 deadline for implementation of the Horseracing Integrity and Safety Act is a matter of conjecture. According to panelists and audience members at the Racing and Gaming Conference at Saratoga Aug. 16, there's a wide range of opinions on whether the legislation (which was signed into law at the end of 2020) is a good idea, where its greatest legal and logistical challenges may lie, and whether it will make its deadline.

First, it's helpful to understand the basic definitions in the law, according to Pat Cummings, executive director of the Thoroughbred Idea Foundation. The law will apply to “covered horses,” “covered races,” and “covered persons.” Covered horses are any Thoroughbred from the time they post their first timed workout until the authority receives official notice of their retirement from racing. Covered races are those with parimutuel wagering, which means fair circuit races and steeplechase races are not automatically included. Covered persons, Cummings pointed out, includes the usual positions already licensed by state racing commissions like trainers, owners, jockeys, etc., but also includes breeders.

Cummings pointed out that currently, breeders are not licensed by state racing commissions, though in some states they may face action from their state breed organizations if they violate certain rules as members. This creates some confusion, since the federal law also places restrictions on use of bisphosphonates, which many in the industry say have been used on sales yearlings in an attempt to improve the appearance of pre-sale radiographs.

“Some of us argue that you're still leaving breeders out by conferring jurisdiction when a horse has its first workout, which means you're leaving a gap from the time the horse is born,” said panelist Alan Foreman, chairman and CEO of the Thoroughbred Horsemen's Association. “The response is that there's language about unfair and deceptive trade practices [which would apply].”

How widely that language or what may constitute “unfair and deceptive trade practices” could be applied is anyone's guess at this stage.

One of the biggest concerns shared by many industry onlookers is what the new organization will cost, and who will pay for it. Cummings said horseplayers largely assume the bill will fall to them.

“I think the bettors would suggest they are already paying for it, based on takeout,” Cummings said. “There is a fear amongst bettors that increasing takeout will come as a means to pay for these programs.”

Racing commissions don't know what they would be charged to outsource pre- and post-race drug testing to a new authority, and some in states with smaller racing industries have expressed concerns that an increase in testing costs would bankrupt them. Ed Martin, president and CEO of the Association of Racing Commissioners International, was in the audience and noted that most state racing commissions he has spoken with are looking forward to the change and believe it will make regulation more cost-efficient for them, with a few exceptions.

Attorney Pete Sacopulos also wonders whether legal costs for smaller training operations will rise. Sacopulos laid out his interpretation of the way drug positive cases could be adjudicated under HISA. The current process (which varies somewhat by state) sees the stewards issue a ruling when they determine there has been a violation of racing rules. If the licensee appeals that decision, the case may go to an administrative law judge and/or the racing commission, on to the state judicial review process, on up to the U.S. Supreme Court.

Sacopulos' understanding of the federal law however, results in fewer choices for a trainer looking to appeal a finding. He believes HISA would hear a case, though it's unclear whether this would be done by a subcommittee or the overall board. This could be appealed, but it would be appealed most likely to office of administrative law judge housed under the Federal Trade Commission banner, since HISA falls under the FTC's purview. This would limit the pool of judges available to hear the case and therefore, restrict a defendant's choice if they wanted to request a different judge than the one assigned. Sacopulos also believes the administrative law judge would hold another hearing, including witnesses and a review of evidence, rather than reading through existing transcripts and motions from the original hearing the way state courts do now. He also said HISA doesn't seem to allow for mediation in such a case, which state and federal courts do.

If a trainer wants to continue appealing, Sacopulos said they would be requesting the FTC hear the case, which the organization could decline.

“You're not guaranteed a hearing from the FTC, let's be clear about that,” said Sacopulos, who said if the FTC chose not to hear a case, it would go straight to the U.S. Court of Appeals at the cost of $30,000 to $50,000 to the defendant. “How does a person with a minor overage operate in this system?

“They don't.”

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Foreman said he didn't agree with Sacopulos' interpretation of the process, but said both of them were speculating at this stage. He also pointed out that the vast majority of minor overages are for therapeutic substances and aren't appealed under the current system. Under USADA's regulation of human sport, Foreman also said “only a very small number of violations” are ever appealed past the USADA level, so it's not likely these limitations would meaningfully impact defendants, even if Sacopulos' interpretation is correct.

It all may be moot anyway, according to attorney Chris Kannady, state representative in Oklahoma. Oklahoma's racing commission is one of several bringing suit against the new authority, questioning whether it's legal to designate regulatory power to a private entity in the way HISA does.

Prominent attorney Bennett Liebman, government lawyer in residence at the Albany Law School, agreed that the U.S. Supreme Court has not made a ruling about this kind of delegation since 1936 and would likely be eager to review it, should that case come before them.

“It is probably unlikely that this will go into fruition in July 2022 as predicted,” said Kannady. “I just don't believe, given the circumstances legally and politically, that it will.”

Kannady predicted that state legislators in conservative states would likely not agree to delegate authority to any kind of federal authority. In Oklahoma, Kannady believes the bill would need support from at least 76 out of 101 state representatives. Eighty-two of the state representatives in the legislature are Republican, and Kannady doubts the increased costs that will come with HISA will be looked upon kindly by them.

Whatever problems there may be with the new law, some panelists expressed hope that the new authority could bring the sport back from what many see as the brink of disaster.

“We have not moved as society has moved in many respects,” said Foreman. “The public simply doesn't accept the way we do business … we have not been the same since 30 horses died on the racetrack at Santa Anita, because we couldn't explain it.

“This is a perfect storm. That's why this is happening.”

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Racing And Gaming Conference Of Saratoga Returns With A More Mainstream Approach

In recent racing seasons, the Albany Law School's Racing and Gaming Conference was a hub for lawyers and racing industry executives to gather and discuss legal issues facing the racing and wagering industries. After the 2019 edition of the conference, it seemed the event may have run its course, as the college decided it would no longer host the event, which is traditionally held in Saratoga between the Fasig-Tipton Saratoga Sale and the Jockey Club Round Table.

Attorney Patrick Brown, co-founder of Brown & Weinraub, couldn't let it go.

“I was very disappointed because I worked on it for many years,” Brown said. “I decided, well I know the conference, so why don't I step up and try to do it myself?”

Brown was on the event's advisory board for the law school, and had been a panelist, sponsor, and speaker at various times during the life of the event. The conference had been offered for continuing education credits for equine attorneys, but Brown had bigger ideas of what it could be.

Unfortunately, the COVID-19 pandemic struck and one of Brown's first actions as the new organizer of the event was to cancel its 2020 edition. He delayed planning the 2021 conference until it became clear that the Saratoga race meet would go on with fans in attendance. Then, he got to work.

As the product of a law school, the conference has previously been focused on academic legal subjects. Brown wanted to open it up a bit, so racing fans and industry professionals could find an engaging topic presented in a way that made sense to them. While lawyers still make up a portion of the speakers and panelists at this year's event, Brown has balanced them with non-attorneys whose perspective he finds key to the issues at hand.

“I wanted to move the focus of the conference from academic/lawyer to some academics, lots of industry folks, and if we can attract some fans, just regular people who are really interested in horse racing and the gambling industry, I wanted to try to make the panels attractive to fans as well – and potential participants in horse racing,” Brown said. “I think we lawyers can get into the weeds quickly. It's interesting, and the panels I participated in were very good for lawyers but I wanted to make it less of that and more accessible to non-lawyers.”

This year's topics include an examination of the Horseracing Integrity and Safety Act (HISA) and its challenges, information on decoupling, ownership models, sports betting in New York, mobile sports betting, esports wagering, and tribal gaming.

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Brown has also moved the event from a hotel downtown to the 1863 Club at the track and will be partnering with the New York Racing Association for the first time. It always made sense to have the event during the race meet, but Brown wanted to connect it more directly with the experience of the track, which is the primary draw for most attendees.

In some ways, Brown said he has had a career's worth of preparation to structure an event like this one (although he admits he has had considerable organizational help from Spectrum Gaming Group). Brown worked in Gov. Mario Cuomo's Counsel's Office in the late 1980s, where he advised Cuomo on matters pertaining to racing, lottery, and tribal gaming law. After Cuomo left office, Brown worked for a firm with a number of racing industry clients before launching his own firm in 2001.

He is also a Thoroughbred owner.

Brown said there are two panels he's most excited about — one he will moderate on mobile sports wagering, and another titled 'Economics of Bookmaking,' which will feature a top Vegas attorney and a professional bookmaker.

“The point of that panel is to highlight that one of the fundamental challenges of the new sports wagering is to get people to change their behavior,” said Brown. “People who bet on sports in this country have been doing it the same way for a long time and when you bet with a bookie, you don't have to put the money up, you can bet on credit. There's advantages to doing it that way, and the authorized sports books have to now get people to change that behavior.

“I really like the array of policy choices you have to make when you're trying to create a rational horse racing and gambling policy in a state. It's really fascinating to me.”

The Racing and Gaming Conference at Saratoga will be held Aug. 16 and 17. Registration is available on site or in advance at this link.

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