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«DLLR MenvnNo RActNG ConmrssroN 300 East Towsontown Blvd. Towson, MD 21286 or Lagon. Lrctxsrxc DEp.,rRrl,teNr ANn Rtc;ur-,A.rroN 3I,2Ol4 December ...»

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S"rarr op M.a,ayr-eNo

DLLR MenvnNo RActNG ConmrssroN

300 East Towsontown Blvd.

Towson, MD 21286

or Lagon. Lrctxsrxc

DEp.,rRrl,teNr ANn Rtc;ur-,A.rroN

3I,2Ol4

December

Maryland General Assembly

TO:

Maryland Racing Commission

FROM:

The legislation which impiemented Video Lottery Terminal (VLT) support to the racing

industry requires a report to the General Assembly by December 2014. The legislation states: "On or before December L,2Ol4, the State Racing Commission shali: (1) Conduct a study to determine the impact of the Purse Dedication Account on the racing industry in the State and (2) make recommendations to the General Assembly regarding the continuation of the Purse Dedication Account and the amount of money distributed to the Purse Dedication Account.

This report is respectfully submitted as required by the legislation and wilI describe the current uses and successes of the VLT Program, will provide recommendations regarding its future and will relate the vital need for continuation of the program.

It will show that the funds received thus far have been utilized to revive an industry that was in deciine and on the brink of disaster.

Furthermore, the report will demonstrate the vital role of the VLT Program, not only for the horse racing industry, but for the economic benefit of all Maryianders.

This report will show that the Investment in Racing is an Investment in Maryland.

xe

There 2 very basic facts:

The VLT Program has literally "saved" Maryland racing, and...

1) In turn, the Maryland horse industry provides extensive 2) economic and environmental benefits to the State.

The Maryland Racing Commission unilaterally solicits your continued support of the program and discusses the actions that will optimize the VLT investment for the future of our great industry.

.7- :t' '!*

–  –  –

Executive Summary

Background

Role of VLT Programs in the Horse Racing Industry

Analysis

Impact on Horse Racing

Racing Facility Renewal Account (RFRA)

Impact on Breeding

Thoroughbred Breeding Program

Standardbred Breeding

Economic Benefit to the State

Future

Recommendations

Addendum

Table of Figures Figure 1 - Purse Dedication Account History

Figure 2 - History of Thoroughbred Purses Paid

Figure 3 - History of Standardbred Purses Paid

Figure 4 - Average Thoroughbred Field Sizes

Figure 5 - RFRA Account History

Figure 6 - Stallions/Mares Comparison by State

Figure 7- History of Standardbred Resources

i Executive Summary The horse racing industry throughout the United States has undergone a dramatic change since the proliferation of alternative gambling options. In Maryland, horseracing was the only form of legalized gambling until 1973 when the lottery was initiated. Since then, numerous other forms of legalized gambling have been introduced. There is widespread competition for the gambling dollar within the State. Because of the evolution, and proliferation of gambling opportunities both here and in our surrounding states and the fact that Maryland was a late entry into legalizing Video Lottery Terminals (VLTs), our State and the horse racing industry suffered greatly. Since there is virtually no end to competition for the gambling dollar, the horse industry has had to develop a new economic model in order to remain competitive. Video Lottery Terminal support is vital to this model.

In the decade prior to the initiation of the VLT Program, Maryland lost nearly 80 percent of its stallions, mares and foals. No industry can afford to lose that much of its inventory and remain viable. Maryland racing went from third or fourth behind Kentucky, Florida and California to fifteenth or sixteenth behind places like Idaho and Indiana. It looked like a sad ending to a rich story of Maryland racing history and heritage.

However, in 2010, Maryland racing began to receive VLT monies to supplement revenue generated within the industry and there was hope. The effect on the Maryland horse industry has been and is profoundly positive. In the short time VLT revenue has been invested in the industry, a remarkable revitalization has occurred. VLT revenue has allowed for increased purses for owners and trainers, provided the financial stability for the race tracks to refurbish and repair their aging facilities and established a firm base for the breeders to develop and expand their programs.

The industry is making huge strides on its road to recovery as will be demonstrated in the report.

The report will also show that the investment in horse racing has an enormous economic effect in Maryland, an effect that has been valued at $1.6 billion and accounts for over 28,000 jobs.

The combination of the benefits to so many people and so many industries directly involved with racing, coupled with the sound economic benefits that accrue to the State, illustrates the vital role that VLT revenues play in supporting horse racing. It is the strong opinion of the Maryland Racing Commission that the VLT support has already greatly enhanced and assisted horseracing and that its continued support benefits not only the horse industry but the entire State. The details of these turnarounds will be explained and illustrated in the report, but the crucial and compelling fact is VLT support to the horse industry must be maintained. The report will demonstrate how the VLT support to date has literally turned around the Maryland horse racing and breeding industries, and will illustrate the importance of continued support at the level provided for in the present law.





The Commissioners believe that after reviewing this Report, the General Assembly will concur with our view that the investment of VLT revenue in horse racing has been wise, and that to recognize its full benefits, funding must continue at the prescribed level. We respectfully solicit your support.

Background The Maryland VLT statute, as amended, allows for six VLT facilities located in Alleghany, Anne Arundel, Cecil, Prince Georges and Worcester Counties along with Baltimore City. The racing industry began receiving 7.0 percent of the VLT commissions earned by the five operating facilities for purses and breeders and 2.5 percent for capital improvements and operations at race tracks.1 Upon opening of the Baltimore City location the funds received for capital improvements was reduced from 2.5 percent to 1.0 percent.

The VLT Program benefits all aspect of horse racing. The Program is segregated into the

following sub-programs:

–  –  –

In establishing the Video Lottery Terminal (VLT) program in Maryland, the General Assembly provided for 7% of proceeds from video lottery terminals at each video lottery facility to go to a Purse Dedication Account (PDA), under the authority of the State Racing Commission. The Commission was directed to allocate 80% of the funds in the PDA to the Thoroughbred industry and 20% to the Standardbred industry. Of those amounts, 89% goes directly to purses and 11% to the respective Bred Race Funds.2 The horse racing industry was projected to receive a maximum of $100 million in annual assistance for purses and bred funds. However, currently the industry is only receiving $40 million.

Upon the opening of the facility located in Prince Georges County the horse racing industry percentages will be reduced from 7.0 percent to 6.0 percent.

The original 2007 legislation divided the PDA money into 85% and 15% shares to the purses and Funds; this was amended to the present level in 2009.

Role of VLT Programs in the Horse Racing Industry Historically, the main source of revenue in horse racing is generated by the public wagering on racing. Approximately 80 percent of the amount wagered is returned to the public in the form of winnings. The remaining 20 percent is allocated among the race track for operating expenses, the horsemen for payment of purses, the breeders for breeder/owner/stallion awards along with an allocation to the State. Wagering on races and the purses paid on those races has long been the cornerstone of the economic model of horseracing. Increased purses attract more horses, which in turn increases wagering resulting in increased revenue earned to the racing industry.

Because of the proliferation and effect of other types of gambling on its product, there has been a continued and detrimental effect to the horseracing industry.

Because of the changing landscape of wagering, VLT support to purses has become a nationwide solution to revitalizing horse racing across the United States. Legislators across the country have evaluated the positive attributes and implemented the appropriate legislation to ensure the continued support and growth of horse racing in their respective states. Simply put, VLT revenue is now a part of the fabric of the U.S. horse racing industry.

The new economic model for Maryland incorporates the best of the successful models of other jurisdictions — an economic approach that relies on three aspects; live wagering, sale of the Maryland signal (simulcasting) to jurisdictions across the U.S. and continued VLT support, versus the historic approach of live wagering only at tracks. The VLT Program is the catalyst and provides for higher purses; higher purses attract more and better quality horses to the races;

more and better quality horses provide for more wagering opportunities both at the tracks in Maryland and a better product to export (sell) to other jurisdictions… all of which equates to more revenue generated to support the Maryland horse industry.

Although Maryland was late to the VLT game, the current benefit to the State has been profound.

The VLT revenue has revitalized the breeding industry in the State, thereby securing and ensuring the supply of horses that is crucial to racing's success. Wagering is increasing (albeit incrementally), which benefits all members of the industry; the track, the horsemen and the breeders. The Race Track and Facility Renewal Account (RFRA) program has and will continue to provide for not only remedial improvements to the tracks, but also significant capital improvements to the facilities.

It is only through the continued support of Maryland’s governor, leadership and members of the legislative houses that the Maryland horse industry will continue to grow and be able to provide the $1.6 billion economic engine and more than 28,000 jobs to Marylanders. The Maryland Racing Commission recognizes the significant benefits of the VLT Program and respectfully requests that the VLT Program continue under its current structure.

Analysis In preparing this Report, the Commission has looked at the impact of the VLT revenue, including both the PDA and RFRA on horse racing itself, on the horse breeding operations in the State, and on the general economy of the State.

Impact on Horse Racing

–  –  –

The infusion of VLT revenue to the Purse Dedication Account has changed the entire landscape of Maryland Racing. As illustrated in the below table, the Purse Dedication Account has grown significantly since the first VLT facility became operational in 2010.

–  –  –

As a result of the VLT revenue, Thoroughbred Purses, which include monies from mutuel wagering in addition to PDA funds, have grown as well, which is illustrated by the below chart.3

–  –  –

For Figures 2 and 3, purses consist of percentages from mutuel pools and PDA.

2. Horses Larger purses attract more and better horses. According to the Sunset Review of the Maryland Racing Commission (December 2013), between the years 2011 and 2012, “larger purses in Maryland have caused the average field per race (the average number of horses that run in a race) to increase from 7.6 to 7.9, while the average field per race in Delaware and West Virginia decreased from 7.6 to 6.9 and 8.4 to 8.1, respectively.” Pg.

19. During this same time period, “the average number of thoroughbred horses that race per day also increased from 69.9 in calendar 2011 to 73.7 in calendar 2012, a 5.4% increase. Similarly, the total number of thoroughbred races that were run in the State increased 3.7% during the same time period.” Id. The below chart from the Sunset Review illustrates these trends.

–  –  –



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