Sept. 28, 2010

With much at stake for New Jersey’s future, the decisions regarding our state’s gaming, professional sports, and entertainment industries need to be based on the best possible information available from thorough research and from the many organizations and individuals with expertise and experience in each of these fields.



 
The future of these related industries was the focus of a special commission appointed by Governor Christie in February.[i] The panel, officially known as the New Jersey Gaming, Sports, and Entertainment Advisory Commission, in July issued a report containing a series of recommendations that will have widespread implications for these industries.[ii] The Hanson Report, as it is known because its chairman is former New Jersey Sports and Exposition Authority Chairman Jon Hanson, now is being reviewed by a special legislative Gaming Commission, comprised of Democratic members of the State Senate and Assembly. This legislative commission has conducted two public hearings, during which a number of compelling arguments were set forth by representatives and officials from the state’s gaming industries, labor unions and other organizations involved with this issue. A third hearing is scheduled for this coming Wednesday (September 29) at Monmouth Park.
 



The issues discussed in the Hanson Report and the subsequent legislative hearings are diverse, yet intertwined. They range from casinos and racetracks to sports arenas and Xanadu, an unfinished entertainment and retail complex at the Meadowlands. To fairly balance all of these varied interests is indeed a challenge. The report seems to advocate strongly for government support of Xanadu and is sympathetic to the concerns of Atlantic City and the casino industry. However, one industry – horseracing – has not received the full hearing and consideration it merits and may be thrown by the wayside. It has not been proven that a dismissal of horseracing is the best long-term solution. And unless there is evidence that such action is warranted, it should not be taken. More study is needed.
 


As discussion of the issue has evolved, it has become evident that casinos are at odds with horseracing enthusiasts, who favor placing slot machines at the Meadowlands racetrack as a means of bolstering the horseracing industry. Although there are arguments that can be made both for and against adding slot machines at the Meadowlands, the Hanson Report does not recommend any change in gaming policy as it pertains to the Meadowlands Sports Complex. Yet it offers no reason why – other than to say that it would take a long time to implement changes such as placing slot machines at the track. [iii]
 


Determining the value of horseracing is a very complex topic and one that needs to be researched fully. The purpose of this paper is to point out some obvious shortcomings in the Hanson Report and some of the arguments being made so that discussion and debate can continue and more robust solutions can be considered by the Legislature and the Governor.
 


Is horse racing a dying sport?
 


Horse racing has continued to lose a market share of the gaming dollar since the establishment of the New Jersey Lottery and blossoming of casinos in Atlantic City. To a certain degree, mismanagement and a lack of coordination over the years also have contributed to the industry’s hard times. Outside of New Jersey, however, the industry has begun to adapt to current gaming environments by expanding racing venues into sites for additional forms of entertainment, particularly slot machines. Such enhancements at other racetracks have greatly contributed to their recent successes; so far, these enhancements have not been allowed in New Jersey.


 
As for suggestions that horseracing is dying in New Jersey: They simply are not true. This past summer, New Jersey conducted the Elite Summer Meet at Monmouth Park, a bold experiment reducing the number of race days and increasing the purses. It is too early to draw a conclusion from the results, but all indications are that it was a tremendous success that may very well serve as a national model for horseracing. As The Wall Street Journal reported, “Despite nearly halving the amount of days, the meet pulled in almost $390 million in betting, known as handle, over 49 days -- an 87% increase over last year.”[iv]
 


Horse racing in New Jersey has survived in large measure because of purse enhancements provided by the casinos. Of course, with hard times, the casinos no longer want to provide these enhancements. Those who have taken up the cause of the casinos now refer to the enhancements as subsidies. Furthermore, the casino interests argue that the subsidies are supporting a dying industry. These are blatant mischaracterizations and need to be addressed. The enhancements are part of an agreement that would keep the racetracks from having slot machines. In other words, the horse tracks have foregone an opportunity to provide additional gaming options and sources of revenue at their venues.


 
In practice, slot machines and racing have worked well together in other states. People like multiple options when they go to a venue. Keeping slot machines out of racetracks would be like saying a casino can have poker but it cannot have blackjack and slots. Other states are moving forward with racinos – at New Jersey’s expense. If we refuse to even consider options such as slots at our tracks, we risk falling even further behind the competition from neighboring states. Just this month, New York City approved plans for a casino at Aqueduct Racetrack in Queens. New York State Comptroller Thomas DiNapoli called it “one of the most important vendor contracts New York has ever signed.”[v]


 
Will racinos at the Meadowlands actually hurt Atlantic City?
 


The Hanson Report simply says racinos are not an option. It does not describe why. We assume that it is for fear that it will take market share from Atlantic City. However it does not explicitly say this and it is not clear that it will. 
 


Even some of the legislators reviewing the report have taken a similar approach. At a September 10 Gaming Summit, State Sen. Jim Whelan (D-Atlantic City) said it would be unproductive to spend time deciding whether to put slot machines at the Meadowlands because Governor Christie already is on record against such a move.[vi]
 


Senator Whelan is correct in noting that the Governor is the leader of our state. The Governor, however, does not set policy unilaterally. We live in a democracy with three co-equal branches of government, and our leaders ultimately are responsible to the citizenry. The Governor has a right to take a position on this or any other issue, but that should not mean that all discussion and debate is over. As Tom Luchento, president of the Standardbred Breeders and Owners Association of New Jersey, said in response to Senator Whelan’s remarks: “The Governor works for the people of New Jersey.”[vii]


 
There seems to be an unfounded fear that adding slot machines to the racetrack at the Meadowlands will hurt Atlantic City’s struggling casino industry. There is no evidence to support such a theory. In fact, New Jersey already offers another gaming option – lottery tickets at the Meadowlands racetrack, as well as at Monmouth Park and Freehold Raceway.
 


Will not having slots at the Meadowlands and not having horse racing at all be enough to save Atlantic City?



 
Before we preclude success at the racetracks for the protectionist benefit of Atlantic City, we should consider whether such action will actually save Atlantic City. The answer may be found in a report issued in 2009 by McKinsey & Company, a global management consulting firm. The study found that the key to Atlantic City’s revitalization lies in making the city safer and cleaner, targeting non-gaming visitors by providing more entertainment options, and broadening its appeal by building new restaurants, casinos and hotels – and renovating existing ones. According to the study, such initiatives could potentially double visitor spending.[viii] Clearly, this would be a massive undertaking, but given the potential benefits, the McKinsey Report merits serious consideration.
 



If Atlantic City is going to be the destination resort that the McKinsey Report envisions, then its ultimate future does not depend on “convenience gaming.” Atlantic City has already lost the convenience gaming battle to neighboring states. We need to truly understand whether the concern is the Meadowlands taking market share from Atlantic City or if that market share already has been lost to neighboring states (and if that be the case, then the Meadowlands would, in fact, be taking it back from other states).



 
According to Investors Business Daily, some 20 states are considering major gambling proposals, and when the dust settles, New Jersey could find itself in an even more precarious position. “It's being threatened in all directions,” Dylan Engberg, a research analyst with the National Conference of State Legislatures, told Investors. “It's being threatened by Pennsylvania, Delaware, Maryland and Aqueduct in New York.”[ix]
 


Any strategy that relies upon keeping slot machines out of the Meadowlands to revitalize Atlantic City is based upon a false premise. However, if it is so important to keep convenience gaming out of the tracks in New Jersey (contrary to most other tracks in the country) then maybe the purse enhancement is the way to go and should be continued. But it is not a subsidy. It is a cost for protectionism.
 


Clearly, the Hanson Report is incomplete. Likewise, the Legislature has yet to indicate that it fully recognizes the value of New Jersey’s equine industry, which generates about $4 billion and is associated with 13,000 jobs, many of them held by individuals who have been especially hard hit during the economic recession.[x] The industry also pays more than $160 million annually in federal, state and local taxes, which help governments of all levels provide needed programs and services.[xi] It also helps preserve open space and recreational areas that make New Jersey an attractive place in which to live and work, to operate a business, and to visit for vacation.
 


As indicated earlier, there also appears to be a misconception that horseracing in New Jersey is being subsidized by the casino industry. In reality, the “subsidy” is provided in return for a commitment that slot machines will not be added to our racetracks. Such a subsidy is really protectionism. It is protecting a special interest. Most economists will agree that protectionism only hurts the consumer and helps the special interest.
 


Have the benefits of having horse racing been fully appreciated?
 


In addition to economic benefits outlined above, the horse racing industry and its related enterprises make it possible to keep acreage green and open to productive use in New Jersey. Although we are the most urbanized state in the nation, New Jersey has one of the larger presences of equine interests with 42,500 horses – 30 percent of them involved in racing-related activities. Some 176,000 total acres of our land are devoted to equine interests, 78,000 of which are pasture lands. Another 46,000 acres produce hay and feed that go to non-equine activities.[xii]
 


New Jerseyans recognize the value of open space. Last year, voters approved the $400 million Green Acres, Water Supply and Floodplain Protection, and Farmland and Historic Preservation Bond Act to protect and preserve open space and other environmental resources. Given the current fiscal climate and the scarcity of state funds for needed programs and services, it would make no sense to turn our backs on an industry which, by its very nature, preserves open space.
 
Not only does open space enhance our quality of life, it makes sense from an economic perspective too. A two-year study by the New Jersey Department of Environment placed the value of New Jersey’s natural capital at about $20 billion per year.[xiii]
 
Moreover, case studies conducted by the Association of New Jersey Environmental Commissions showed that, over the long term, developing and building on open space can be more costly than preserving it. “Preserving open space has the long-range benefit of avoiding future costs,” the study concluded. “Communities and counties across the state and nation are finding that single-family residential tax ratables don't cover the costs of municipal services, community infrastructure and local schools.”[xiv]
 

Have we fully considered other strategies?
 
New Jersey is a state of innovation. Within our borders, we have great minds and extraordinary talent and expertise. We should tap these resources and explore different strategies and alternatives for our gaming industries.
 
For example, State Senator Raymond Lesniak (D-Union) has offered innovative proposals that would benefit both horseracing and the casino industry while reversing the job and revenue loss the state has been experiencing. They involve intrastate online gaming and the addition of Video Lottery Terminals at the Meadowlands Racetrack. A portion of the revenue generated by the VLTs would be reinvested in Atlantic City to broaden the city’s appeal in accordance with the recommendations contained in the McKinsey Report. The revenue also would be used for purse supplements, a sire stakes program and a sales tax exemption for sire and bloodmare transactions.
 

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Published on: 2010-09-28