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Maryland Horse Racing Needs to Catch Up

Posted on May 22nd, 2011

This weekend, the eyes of horse racing aficionados will be glued on the Preakness Stakes, colorfully called “The Run for the Black-Eyed Susans”. Held every year on the third Saturday in May, at the Pimlico Race Course in Baltimore, Maryland, it is a thoroughbred horse race for three-year-old horses. Attendance at the Preakness Stakes is surpassed only by the Kentucky Derby, and exceeds that of all other races including the Belmont Stakes, the Breeder’s Cup and the Kentucky Oaks. Held on May 27, 1873, the first Preakness earned for John Chamberlain the winning purse of $3,000. In 2010 the winning purse was $1 million, and in 2011, the owner of the winning horse could win as much as $6 million, including bonuses.

However, the Preakness Stakes will also spotlight the sorry state of the horse racing industry in Maryland, an industry that employs 28,000 full time workers and contributes $1.5 billion to the state’s coffers. Because of poor planning, restrictive legislation on online gambling and lack of funds, the industry is suffering from fewer racing horses, smaller purses, antiquated facilities and the lack of a long-term development plan. Through the years, this has resulted in a chicken-or-the-egg situation. Tom Chuckas, president of the Maryland Jockey Club noted that, “The state of Maryland racing is not something that happened yesterday morning. It’s been an attrition over the last 10, 12 years.”

First, there’s the issue of supply. In the mid-Atlantic region, there is a shortage of horses in Maryland more than anywhere else. Maryland registered 1,023 thoroughbred foals in 2003 and only 586 in 2009. By contrast, Pennsylvania had 1,039 registered thoroughbred foals in 2003 and 1,486 in 2009. The breeding industry in West Virginia, which was almost on the way out in the late 1990’s, has been revived. Cricket Goodall, director of the Maryland Horse Breeders Association, points out that for breeders, who receive incentive money for horses that win in the state they are born in, the Maryland incentive pool of $3 million looks paltry beside the $25 million given by Pennsylvania. This has motivated many breeders to move to those states with higher incentives.

One of the sources of higher incentives is online gambling, bringing up the second major reason for the decline of the horse racing industry in Maryland. When Pennsylvania, Delaware and West Virginia allowed slot machines and casinos, they significantly hamstrung the Maryland racing industry. Tom Chuckas points out that, “There’s not the level playing field … Prior to the advent of the additional forms of gambling, Maryland was head and shoulders above our mid-Atlantic competitors.” Ms. Goodall adds, Ironically, this situation was the result of an oversight. In 2005, Maryland voted to install 15,000 slot machines in Anne Arundel county (site of Laurel Park), Baltimore City, Cecil County and Worcester County. In 2009, after years of hyping the benefits of slot machines, MI Developments (formerly Magna Entertainment), a majority holder in the Jockey Club, the owner of Pimlico and Laurel Park, neglected to include the $28.5 million license fee with its bid. That error enabled Cordish Cos., based in Baltimore, to secure the license for the slots for Arundel Mills.

The government has promised support for the industry, but with a lot of strings attached. At present, the horse racing industry already receives 7 percent of the revenue from slot machines for breeding and purses, and 2.5 percent for capital improvements. However, this pales in comparison with income from having a casino at a racetrack. Maryland Gov. Martin O’Malley has announced a plan that will allow the Maryland Jockey Club to use the capital improvements budget for operating expenses, such as paying employees and keeping the races going. This plan will continue until 2013.

While this is a welcome respite for the Jockey Club and the Preakness, the rest of the industry is not as upbeat. To move on beyond 2013, the state is requiring the industry to come up with a 5-year business plan that does not include revenues from slot machines. Several options are being considered, including fewer days of live racing and a shorter racing schedule. But, not many are optimistic about the outcome until the slot machine issue is resolved. For Kentucky Derby winner Animal Kingdom, and this week’s Preakness favorite, it might be an easy race. But, for the industry, there’s a lot of catching up to do.