Transitional Report: Too Vague To Help The Industry Right Now

On Friday, the much anticipated Horse Racing Industry Transition Panel Interim Report finally was released. I skimmed through it on Friday, and read it again in much more detail this morning.

It is encouraging that the panel is very fact driven, though they are still missing a few pieces of the puzzle which I'll get to later on.

I think a lot of their realizations and conclusions regarding the industry's apathetic attitude towards growing a customer base and that slots revenues were earned without any meaningful earmarks are completely right on the money.

I do take exception with what I believe is a faulty premise, which is being used as the reason why they think the slots program shouldn't be reinstated, and that is that the revenues that went to the industry from slots were public funds (hence a subsidy). They also state that the main reason tracks and horsemen were given 20% was to stabilize the industry. That is only one third of the real reasons. The other two were that slots would cannibalize horse racing (one could argue that because of slots the ability of the industry to attract new Horseplayers over the last 14 years was hindered tremendously as well) and that racetracks would be an acceptable location for slot machines. Referendums on gambling almost always wind up against casinos and the government knew they could smoothly start making money without public uproar by locating slots at tracks. In fact, right now the OLG still believes that tracks are the most acceptable locations for slots as they are negotiating rent deals with many racetracks.

The problem I have with calling these funds public monies is that it is after tax dollars that are being lost by patrons. The OLG even called the money that went to tracks and horsemen "commissions" (see page six here). Much like variety and gas store owners get a commission for selling lottery tickets. Did you know that over $200 million is paid out in commissions to those who sell tickets in Ontario each year? And to throw another curve ball at the panel: Do store owners have prerequisites on how to spend their commissions? Are those dollars received public monies too?

The panel is wrong when stating racing would die out completely if the government sticks to only handing out $50 million over the next three years. Ontario could sustain one thoroughbred track and a couple of harness tracks, whether it is Woodbine, Mohawk, and Western Fair, or if Woodbine decides to exit, Fort Erie, Western Fair and either Rideau Carleton or Flamboro Downs. Wagering, if focused on three tracks would be significant enough to carry three Ontario racetracks, and one would expect to see full fields and lengthy schedules. However, 20-30,000 jobs would be gone, and that is horrible public policy even by the worst dictatorship government.

I'm with the panel, $50 million is not nearly enough to give horse racing an opportunity to become self sufficient and save most of the full time jobs.

I think the panel underestimated economic impact because money that goes to horsemen, track employees, etc. go into the local economies and could make the difference whether places like hardware shops and restaurants make a profit or not.

Another thing the panel missed the boat on is that most owners lose money. Less tracks, less horses, less race dates means less owners. Owners do get the majority of purse monies, but by the time they pay the jockey, trainer and vet, they wind up going into their own pocket. This is actually another funding source that the panel overlooked. It is important because much of this mad money might be invested offshore or in investments that have low multiplier effects associated with them. If someone earns 40k a year, all the after tax money is going into the local economy for the most part, but for someone making $150k a year, well that money could get locked into long term investments or again, go outside of Ontario.

Another problem with the report is that it states the SAR program should end, but that another source of subsidy needs to be established, or even a "new" partnership when it comes to sports betting should come about. What makes being a partner in sports betting any different that being a partner is slots? Slots can't be your partner, but a sports book can? Sounds like something Jackie Mason could do a skit about.

And another thing that irks me is that the panel failed to discuss the OLG's plan to privatize going forward and compare it to the SAR program. Are the profits that the new operators going to make "public funds?" Will they have to be accountable to the government regarding these profits? I think not. It appears that public funds will now become casino operator profits. Should this be a major focal point as to whether the slots at racetracks program should end? We obviously cannot trust the government (very faulty, as Dwight Duncan insists there are only 5,000 industry jobs) or OLG numbers, as much as changed since they were put together in March (ie a slam dunk casino in Toronto).

The panel also doesn't realize that the HIP program, the way it is set up now, it detrimental to growing a customer base. Reason being, it is a percentage of the handle currently. It needs to be a percentage of the takeout commission instead. The reason why takeout decreases aren't tested in Ontario is because of the current set up, and in order for horse racing to compete with other forms of gambling and experience customer base growth, takeout rates need to drop, probably significantly.

Unfortunately, although there is a compelling argument to reverse the slots at racetrack program decision, and reimplement it with much needed earmarks, the government is unlikely to reverse things now. The problem right now is that even though there are probably very good legal reasons to go after the government, and some are still being pursued like MPP Lisa McLeod taking the case to the Auditor General, or the Ombudsman's possible recommendations when they come out, the horse racing industry can't afford to wait any longer. The industry needs to work with the government in order to have even a slight chance at transitioning. But getting the industry to work together with the government will most probably more difficult than herding cats in 15 separate locations around the world at the exact same time.

The report that came out should have at least hinted at how many dollars would be needed to sustain the industry. In light of the financial vagueness, I see no point in having the September Sales for either harness or thoroughbreds. The right thing to do is to move the sales to November or December.

Next piece will be on where to go from here.

Check out Pull The Pocket's take on the Interim Report.

Also check out A View From The Grandstand's take.

Queen's Plate Prediction and More

I feel obligated to at least predict the winner of today's Queen's Plate. I'll start off by stating that I don't like Strait of Dover. He reminds me of Not Bourbon, and even though that horse won the Plate, generally, those type are not successful at a mile and a quarter. This one hasn't gone past a mile and a sixteenth, and hasn't raced in 43 days. To me, he is a pitch.

River Rush was very green in the Plate Trial and still pulled off a 5 length victory. The time for the race was 7 ticks faster than the very competitive Oaks. However, he travels like a sore horse and that might explain the fact he has had only 3 well spaced out races in his career. I expect a bounce, and that might mean he can still be used for third or fourth.

When taking recency and mileage under the belt (fitness and endurance), two horses stand out: The filly, Dixie Strike, disappointed in the Oaks, though she may have bounced. Her second last race is good enough to win the Plate. She gets blinkers on and has a five pound weight advantage (as does Oaks winner Irish Mission, who is a major bounce candidate, and is also inferior when it comes to speed figures). Trainer Mark Casse may have taken it too easy on Dixie Strike going into the Oaks, and I expect a much better effort in the Plate.

The other horse that looks to come into the race fit and completely ready to peak is Classic Bryce. He has a good post and jockey Todd Kabel will get the most out of him. His last running line in the Plate Trial is an indicator that he might enjoy a more relaxed pace that usually comes with a stretch out in distance. If he kicks in at all in the stretch, he could be the one.

Finally, the best jockey in North America, Ramon Dominguez, is aboard Big Creek. He was off a 43 day layoff going into the Plate Trial and he chased while running outside (which was against the bias, as the top three finishers were the ones closest to the rail during most of the race). Dominguez is also in a position to over whip the horse (he can afford the fine just as Alex Solis did in the Oaks with Irish Mission) if the horse needs it, as he would just be a first time offender, and excessive whipping would only cost him around 20% of his share...and no suspension.

So here is the superfecta: Dixie Strike, Big Creek, Classic Bryce, and River Rush.


The Crap Being Spewed By The Ontario Liberal Party

The Paulick Report has put out quite a few articles bringing to light the dismal situation the future of Ontario horse racing is facing right now. I had to chime in with a comment on one of his articles:

The tactics used by the Ontario Liberal Party really sickened me. Calling it a subsidy and pitting it against health care and education. The reality is that it is a business partnership and both partners needed each other to get it going. This arrangement has been the blueprint for all other slots deals in the US because of its success. As for pitting the revenues the tracks and horsemen get from slots, it is the goal of the OLG (a Crown Corp.) to privatize slots. What that means is the most of profits (that went to racetracks and purses), if not all of them will go to private operators instead of the racing industry and NOT to health care and education.

As for calling it a subsidy, in Ontario public sector workers make close to 30-40% more than private sector workers doing similar jobs when factoring in benefits (there is something called the Sunshine List, government workers who make over 100k a year, and it grows in leaps and bounds each year. In 2011, over 70,000 people were on the list). The Ontario taxpayer is subsidizing these overpaid individuals big time, yet the government is looking at wiping out the livelihood of those involved in the racing industry, many who make net incomes of 20k-50k.

On the other side, as Pull The Pocket points out, the Ontario racing industry seems to be putting out unnecessary propaganda too. Mainly, it is done by a few, on articles in newspapers, Standardbred Canada, and Facebook, where comments and even articles use terms like "ill advised" plan, or "inexplicable" when referring to the new way the OLG wants to have casinos run.

Bottom line, and I've stated here before, the OLG knows they run an inefficient operation. Salaries and benefits have got way out of hand. They also don't want to pay for the expense of expanding gaming. So they have decided to privatize, which means they intend to just keep the role of oversight, and lose the role of operator.

The old deal was basically 10% to the tracks, 10% to the horsemen, and 5% to the municipality. That doesn't mean they made 75%. They had to pay the expenses, and in many cases, that works out to a high percentage of the 75% they retain, when you factor in things like utilities on top of highly paid casino workers. So in order to attract new operators the OLG will have to take a much smaller percentage of gross casino revenues, and bottom line, they could make more money in the long run....but when you take into account the lost horse racing jobs, the negative effects on the businesses near racetracks, etc., the government may still wind up in worse shape.

The reality is that the OLG only gets 20% of total gaming revenues at Caesar's in Windsor, so the government makes money, but Caesar's actually still loses money after giving the government the 20% share. There are a lot of operating expenses in running a casino. Table games have much thinner margins than slots as it takes a lot more employees to run those games, for example.

My point is that those questioning the new deal shouldn't be focused on the potential profits the OLG is expecting to make (they expect to make more by eliminating the expenses), but focus on the social and job impact that destroying the horse racing industry will have. The government's number one goal shouldn't be making the most profits they can off gambling, but keeping employment numbers as high as possible, and micro economies going as strongly as possible.


Frog Juice

The frog juice scandal has been growing legs. Louisiana is starting to name the culprits whose horses tested positive. Right now they are only facing 6 months, which is a typical slap on the wrist the industry tends to hand out. I believe these suspensions will wind up being much longer once final decision are made.

In a nutshell, it is so hard to catch cheaters, cheaters should be dealt with as harshly as possible when caught. It is the only way to deter those who seem to always be a step ahead of the regulators and lab testers.

2 years minimum, $50,000 fines, and possible jail sentences for those who use illegal drugs (I'm not talking about overages on legal substances, but illegal substances). This is the only way to clean up horse racing.

To show what horse racing is up against, here is a post from Pace Advantage by a lab worker who uses the handle Storm Chaser:


Quote:
Originally Posted by jorcus99
'I doubt there is a substance that is undetectable. There are only compounds that are not tested for yet.'

Storm Chaser posted:
'Great quote. To define the process, all substances are deemed undetectable until the specific lab can identify the gc-ms fingerprint of a specific drug. One it is identified then it is placed, if requested by the racing board as an illegal substance, to the labs testing profile.

The labs are usually the second in the chain to learn of a new doping agent. Once it is brought to their attention, then they have to try and acquire the drug to be able to break it down and test it. That process takes many months.

We just went through this with the NCAA and the other accredited labs in dealing with a new synthetic marijuana from Europe. We all heard the rumours about it, but could not acquire it here in the states. Our lab went to Germany to acquire it, bring it back to their lab to start analysing it. Mind you they had to get people to ingest it, so the could see how it was metabolized in the urine so they could devise a test for it. Then it took months of analysing the data before the felt good about testing for it in their clients athletes.

And then we found out that all the drug guys had to do was change one small part of the chemical mixture of the synthetic marijuana, and it was undetectable again because they changed the fingerprint again.

Lesson to be learned, the drug guys are always going to be ahead of the test labs with no end in sight.,
__________________

Lets Recap What The OLG Is Really Doing

The Drummond Report came out recommending that the Ontario government revisits the slots deal it has with racetracks.

It didn't take long for Dalton (Norman Bates) McGuinty and his sidekick Dwight (Have Another Donut) Duncan to start lying about the relationship between racetracks and slots (calling slots revenues tax dollars and stating they were subsidies to the tracks) and then hinting that racetracks may lose all or some of their slots revenues.

In what seems the time it took to read the Drummond Report, border Racinos in Fort Erie, Hiawatha, and Windsor were told that their slots were going to be eliminated by April 30th this year, but that the government will make sure tracks are able to operate and purses accounts will be (close to) maintained for another year as long as these tracks race.

Of course, more lies were used by the collective PR of the OLG and Ontario Liberal Party, stating these Racinos were losing money. Revenues are way down, but the only track that is close to break even is Fort Erie, and it is doubtful that the OLG was losing a dime there.

OK, so the macro reason for the slots closures has to do with the budget, or so they claim. But why close them so quickly? Because the main agenda item is to prop up the revenues for the 4 stand alone casinos (Niagara has two) that are very close to proximity to the 3 Racinos that had the slots taken away. The goal by the government is to sell these casinos (before online gambling erodes these numbers down again), and the reality is that these casinos actually do lose money.

The fact that the government is paying lots of severance to slots employees and lots of money to the three tracks for the lost slots revenues over the next year shows that immediate deficit reduction is what this move is all about, nor is it about changing the ratio of what tracks get to keep on slots revenues.

In fact, the government has made it clear that it wants to privatize all slots and casino operations within the next year or so, which means that the OLG will not have to worry about paying slots employees, maintaining machines, etc. The gaming operator will now take over that function. The question again is what will the new cut be if a track takes over the operation, and what will be the deal with expanded slots as well as online gaming which is expected in the near future.

The government is attempting to get out of paying for the expenses of gambling, and they are looking to sell their assets (by the way, someone should clue in Puppet Progressive Conservative leader Tim Hudak that what he wants is what the government is looking to do).

This isn't really what the Drummond Report said to do, but this is the new direction the government is taking. Let gambling competition run amok, and tax the gambling company as much as it can (without having no gambling companies interested in doing business with an untrustworthy government in Ontario).

Hudak meanwhile, is not getting the big picture. The government is looking to put slots anywhere and everywhere, which means that Fort Erie and the other tracks should have had the opportunity to keep them. But the selling of the casinos is the reason they were taken away abruptly.

I wonder if Fort Erie, Hiawatha, and Windsor have a legal case by having their rights denied to compete to have slots, and the way in which this was done (especially if it turns out that the other tracks will be given the choice to operate slots).

Down the road, once the government decides what their new cut is going to be on slots and how and for what price they will sell the location rights, the rest of the tracks that have slots will make their decision as to whether to operate or not. Once the Niagara Falls casinos as well as those in Windsor and near Sarnia are sold, Fort Erie may have the opportunity to buy the rights to operate slots, unless part of the sale of the casinos will have a clause that no other gambling operations can be put up within a 25 mile radius, for example.

I have to say though, Duncan, McGuinty, and Paul Godfrey make me sick with their lies and misrepresentations. Hudak, if he wasn't so clueless and wasn't so badly managed, could have been the Ontario leader right now, and one thing is for sure, this wouldn't be going down like it is right now. I also believe that there would be no closures either, nor would racing be destined to die at any location in the near future either.

The next stage in the game for the Ontario Liberal Party and OLG is to believe they are entitled to have gamblers gamble with them. It won't work as long as they maintain their Pro-Line odds mentality. See "Is Horse Racing in Ontario the Fall Guy For Government Mismanagement?"

Note: The photo above is circulating on Facebook (where I happened to come across it). McGuinty has pissed off quite a few people. Even I find the message a bit harsh but decided it fit in well with the blog piece.