24 March 2012

Fort Erie Racetrack Beyond 2012

There will be a horse racing season at Fort Erie this year. Beyond that, the prospects are not very good without outside help.

Grossly unfair as it was, slots from the track will be pulled at the end next month, barring a very unlikely decision reversal by the OLG. The OLG has assured that the expected payments of what would have been if the slots were in place, would still be paid to the track this year. However, as it is right now, next year, Fort Erie is on its own.

Fort Erie is in big trouble if it has to fend for itself. From various sources and using extrapolation, a ballpark figure on what it costs to run a track for a season can be guesstimated. For the past three seasons (including 2012), thanks to the negotiations of the EDTC with the government, Fort Erie was able to receive $5.6 million instead of the $2.9 million they were only supposed to get a year from slot operations. Purse accounts received $2.9 million from slots as well, which represents 10% of the slots revenues at Fort Erie.

The Town of Fort Erie also pitched in as well from part of their municipality share of slots to try to keep the track at a break even level, as did the HBPA.

Fort Erie does give out around $100,000 a day in purses, which means that around $4 million must be generated by wagering. This also means that the track makes around $3.5-$4 million from wagering.

Nordic Gaming, the company that owns the track, leased it out to the EDTC the past 3 years, and in return received $100,000 in 2010, and $600,000 last year and this year.

In total, if Fort Erie to run a 75 day season in 2012, it appears to need more than $10 million to operate. Though the EDTC does not pay staff inside the casino, I imagine they will be able to cut some jobs that might be related to the casino from outside of it.


In Ontario right now there are two thoroughbred tracks. Woodbine is home to large purses, and owners who pay big bucks to keep horses in training. Fort Erie is Woodbine's minor league affiliate. If a horse can't compete on polytrack or can't compete for $10,000 claiming or greater, they generally wind up at Fort Erie. Sometimes horses are given up on too early, or improve enough, and the might wind up back at Woodbine, and there are quite a few horses that toggle between the two tracks.

The existence of a B track is very important to most Ontario owners and breeders. The owners need an out that is simple. If the out for an owner of a horse who isn't cutting it at Woodbine is to ship to the US (which requires finding and trusting a new outfit miles and miles away in most cases), or trying to quickly get rid of the horse (which could, unfortunately, mean sell for meat), the owner will quickly become disillusioned, and most small owners and partnerships will either drastically reduce exposure or get out of the game completely.

This is not good news for breeders who need as many owners in the game to keep the demand for horses as high as possible. Many small owners also breed, without a B track, they will disappear as well.

From Woodbine's standpoint, with fewer owners and fewer horses, they will have a very difficult time filling races over as the years go on, and that is going to be very bad when it comes to their betting handle.

Woodbine is trying to become a recognized A track but will resemble Penn National instead.

Could Woodbine run a bunch of $5,000 claimers? Even if they wanted to, I doubt it. At $80-$100 in day pay rates, owners are not about to hang onto those horses even if they could get stalls at Woodbine. And those who might be able to pay Fort Erie rates ($45-$60 a day) while racing off a farm or training center, will quickly learn that they will be at a serious disadvantage running against horses dropping from $12,500 who have been training at Woodbine.

How about Ajax taking over as the B track location? They did build a five eighth oval, but unless they can house around 500 horses minimum in their backstretch (which they can't right now), it just won't work, for reasons cited above. There would be too much of a disadvantage and overall hassle if too many owners need to ship from anything but a racetrack.

Fort Erie is the perfect locale for a B track and it just doesn't make much sense not to have it around.

THE OPTIONS FOR RACING AT FORT ERIE BEYOND 2012 (outside of closing the track down altogether)

1. If nothing else changes, a shortened season with maybe 35-40 race dates might be in the cards. If expenses to run the tracks can be cut down to around $4-$5 million this is a definite possibility. But a shortened season means even fewer outfits will be attracted to stable at Fort Erie, and also may not be enough of an out for the Woodbine based owners and outfits. This will probably create shorter fields at both Woodbine and Fort Erie.

2. A new owner willing to gamble (or Nordic willing gamble...unlikely) that they can make a go of it by cutting expenses and focusing on horse racing handle, that they can make Fort Erie close to profitable. This is a long shot on the surface, and it might be appealing to someone with lots of money to lose who just wants to own a racetrack.

3. The OLG and Ontario government has stated that they are looking to privatize slots in the short term. However, Fort Erie wasn't even given the opportunity because of its proximity to the Niagara Casinos. The fact that Fort Erie is a different municipality than Niagara makes this move by the OLG even more unpalatable. I'm not a lawyer, but the move by the OLG has anti-trust written all over it, and if the OLG goes the privatization route at racetracks, I believe that Fort Erie should be given the opportunity to run their own slots. At this time, the OLG hasn't even hinted at what the new cut would be (they used to get 75% of slots revenues, but had to cover all the casino expenses. They receive 20% of gross revenues at the Caesar's at Windsor which the OLG does not operate and pay casino expenses, and Caesar's operators lost money even with that deal last year).
Depending on Fort Erie's ability to get back slots and what the new deal would be makes this scenario a possibility that has some hope.

4. An actual government subsidy to keep Fort Erie alive. The loss of slots jobs will be devastating enough to all businesses in the Fort Erie area, but loss of the track will turn Fort Erie into a ghost town. Whether this gives the Ontario government reason to step in, in light of their mandate to reduce the deficit, is up in the air, and something I wouldn't bank on. Small help from the HBPA will most likely happen if needed.

5. Woodbine's future is also unclear. They are perceived to know more than what they are saying, but that might just be a perception. Do they know what the new cut will be, do they know they are getting expanded casino gambling? Or will they get a much lighter cut than they are getting right now, and with the OLG getting into internet gambling soon, how much cannibalization will there be on current and future casino customers?

Whether they realize the importance of a B track now or not, they eventually will. And if no other option keeps Fort Erie alive next year, they might just step in and lease the track or even buy it back and operate it knowing they will most likely lose some money.

One thing track closures do for Woodbine is it increase their "home market" for HPI where they don't have to split betting commissions with tracks that close. If Fort Erie goes under, or if Woodbine ends up leasing or owning the track, they wind up with a full market of over 450,000 residents in the Fort Erie home market. A market that really hasn't been advertised probably because it isn't that profitable with a split....but without a split, it would be worth Woodbine's efforts most likely. Bottom line, because there is a lot of overlap in Horsemen operations between Woodbine and Fort Erie and factoring in more betting revenues, it might not be that difficult for Woodbine to run a break even operation at Fort Erie in an effort to maintain Ontario's current level of thoroughbred racing and breeding and horse ownership.

6. In a worst case scenario, Fort Erie revenues will now be totally dependent on what it makes on customers betting horses. The EDTC has not shown that they understand the Horseplayer yet. They did drop takeout on the Pick 4 last year to 17.3% (something that increased handle on that bet), but their total handle dropped 17%, which was much higher than the industry drop in 2010.

There has been a shift in the mentality of the Horseplayer lately. They've become more informed. Many are cognizant of track takeout. Takeout on doubles and exactors at Fort Erie is over 26%. There are most likely many who will not even look at Fort Erie because of that. Then there is the churn factor and its psychological effects. Slots works because they have a payout of around 90-93%. Players last, and even think they are winning when they are not...or at least think they are close to winning. The longer they last, the more they want to come back, the more likely they are to go more and expose more friends and family to their game. The same is true of horse racing, and even if it means paying out an extra $2 or $3 a day, that money will wind up back in the windows.

At 26%, whether the player knows it or not, they have no chance of even thinking the game is somewhat beatable.

Fort Erie must reduce takeout on exactors and doubles to 21% absolutely tops (Woodbine charges 20.5% for these two wagers). If that is something that Fort Erie management can't rationalize on its own, how about bringing in rolling doubles to make up for any deficit they think they might overcome (though I strongly believe that without having to resort to expanding the wagering menu, just dropping the exactor and double takeout will have a very positive effect on both handle and bottom line for the Fort Erie track).

Barring a bad reduction in field size, on track handle should rise just because slots are no longer available at The Fort.

The reality is almost $30 million was lost by "gamblers" at the slots in Fort Erie last year. Though Horseplayers and slot players are generally not the same person, there is some overlap and couple that with the racetrack now being the only game in town (OK, Fort Erie does have a Bingo Hall), it can be expected that at least some of the $30 million will now be lost betting on ponies. How much is the big question. But it doesn't have to be a huge percentage to fill in the gap that slots is leaving.

The $30 million lost on the one armed bandits means that over $300 million was churned by slot players. In order to bring in $8 million extra to the track and the purse accounts, that means that around $45 million more needs to be churned on
track, and this includes simulcast wagering too. Believe it or not, I don't think that something like this is totally impossible. Even if they can capture another $20 million churn, it would help prospects for next year immensely.

But attracting churn means lowering the takeout, and paying real odds on simulcast races despite whatever takeout the other tracks have (it really pisses off players when they get less than the real payoff is).

Fort Erie needs to get with the mentality that it isn't a crime to let players leave with money in their pockets. They won't get cannibalized by slots when it comes to that money, and a player that leaves with money is a lot more likely to come back.

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