QHRAI Revenue Reallocation Request

Executive Director Gorajec:

Please consider this email as input from Indiana Breeder & Owner Protection (IBOP) regarding the request of the Quarter Horse Racing Association of Indiana's (QHRAI) to amend 71 IAC 12-2-18 Allocation of interstate simulcasting revenue to purses and 71 IAC 12-2-19 Allocation of breakage and outs.

Executive Summary

The Indiana Horse Racing Commission (IHRC) approved two quarter horse-only race dates for the 2012 racing calendar, which was identical to the quarter horse-only race dates in 2011. For the most part, the quarter horse racing program is not being measured by race dates, but by the number of races run. Therefore, considering an amended rule to redirect revenues to expand the quarter horse racing program, to what as a goal is a very arbitrary number of 200 races, is tantamount to approving additional quarter horse racing dates. Effectively, the IHRC, by consideration of the QHRAI request, is considering expanded racing opportunities (race dates) for quarter horses for 2013 and beyond. At the January 24th IHRC meeting, you compared the "explosion" of the number of quarter horse RACES from 2003 to 2011 versus thoroughbred RACE DATES increasing from 100 to 125 in the context of program growth. While this comparison, race dates to races, is bit of an apple versus an orange, it does somewhat connect two different measurements into a comparison of racing opportunities.

IBOP's position is that any decision on the QHRAI request should be delayed until the discussion regarding applications for race dates are reviewed for 2013. Such a discussion will allow the IHRC to view the QHRAI request within what the IHRC requires of itself under 71 IAC 11-1-7(2) and 71 IAC 11-1-7(7) in determining racing opportunities for all breeds. (See 71 IAC 11-1-7 copied below.) To our knowledge, the evaluation of the QHRAI request on these two points is very incomplete. In addition, our understanding, from comments made at the March 7th IHRC meeting, is that any change in revenues, if approved by the IHRC, would not occur until January 1, 2013 any way.

71 IAC 11-1-7 Assignment of racing meetings
Authority: IC 4-31-3-9
Affected: IC 4-31-5-9
Sec. 7. In determining the assignment of racing meetings and race dates to permit holders under IC 4-31-5-9, the commission shall consider factors relating to the economic and practical feasibility of conducting racing meetings at various tracks. Factors to be considered shall (emphasis added) include, without limitation, the following:
(1) The types and dates of racing meetings being held elsewhere, both within and outside of Indiana.
(2) The effects that various types of pari-mutuel racing have on one another. (emphasis added)
(3) The quality of horse racing provided at various tracks.
(4) Past dates.
(5) Past performance of the permit holder.
(6) Whether the permit holder has complied with all applicable laws and rules relating to horse racing.
(7) Whether the assignment will maximize revenues to the state. (emphasis added)
(8) Whether the assignment will adversely affect the public health, welfare, and safety.
(9) Stability of dates.
(10) The stability of the racing circuit.
(Indiana Horse Racing Commission; 71 IAC 11-1-7; emergency rule filed Feb 10, 1994, 9:20 a.m.: 17 IR 1211; emergency rule filed Jan 27, 1995, 3:30 p.m.: 18 IR 1507; readopted filed Oct 30, 2001, 11:50 a.m.: 25 IR 899; readopted filed Mar 23, 2007, 11:31 a.m.: 20070404-IR-071070030RFA)

Delaying the QHRAI request until later in 2012 will allow the IHRC staff, in conjunction with the breed organizations and breed development advisory committees, to study "The effects that various types of pari-mutuel racing have on one another" and determine "Whether the assignment will maximize revenues to the state." We believe that the same care in the assignment of racing dates should be taken regarding the QHRAI request to reallocate revenues and include an understanding of the fiscal impact to the State of Indiana. Plus, reviewing the QHRAI request after the conclusion of the 2012 racing calendar will allow for a better review of the actual impact on racing from the $3 million reduction to slot revenues from the change in the law in 2011, the impact of any continued erosion of pari-mutuel handle nationally or in Indiana, and the impact of the expanded simulcast operations at Ellis Park on Indiana Downs' Evansville OTB.

Facts That IBOP Considered

There were many factors that the IBOP board considered in our position. Please note that thoroughbred racing data is more readily available to our organization, hence the comparisons used.

--Demand for Quarter Horse Racing--

The best example of the demand for quarter horse racing can be seen with the above mentioned quarter horse-only race dates. On July 2, 2011, Indiana Downs had their quarter horse night where 10 races with purses totaling $537,000 were carded. the on track handle for the night was considered a huge success. According to Equibase, the on track handle was $82,977 which only trailed the on track handle for the final day of the Indiana Downs 2011 meet. However, the off track handle, as reported by Equibase, was $353,048 which was the worst handle for a full race card for the entire meet. There were similar results at Hoosier Park's quarter horse-only night on October 8, 2011. The on track handle for their 11 race card with $289,000 in purse money was reported by Equibase as $51,869 which was in the top five for the meet. Equibase reported the off track handle to be only $291,535 which was the worst full card result for the entire meet.

While on track handle for special quarter horse events can rival that of a thoroughbred or combined race card, over the course of 188 races, the averages tell a more complete story. While 2011 handle numbers have yet to be released by the IHRC, we reviewed data from the 188 quarter horse races in 2010. Based upon information obtained directly from the IHRC's 2010 Annual Report, the average live handle on quarter horse racing was $3,235 for those 188 races. Using the same source for thoroughbred handle numbers, the live handle per thoroughbred race was approximately 17% higher at $3,780. While the dollar difference in live handle is just over $500, the simulcast export handle as reported by the IHRC indicates that the average quarter horse race had export handle of $32,769 versus a significantly higher average for a thoroughbred race of $86,014.

There are numbers available (taken directly from the IHRC website) that a similar relationship existed in 2011 via review of contributions to purses from live racing. In 2011 thoroughbreds earned $1.858 million toward purses from the live racing product (the standardbreds earned $1.2 million) and the quarter horses earned just under $125,000 from their 188 live races. The quarter horse average for live racing revenues to purses was $660 per race versus $1,745 per race for thoroughbreds. (These number include the $3,461.76 recently moved from the quarter horse purse account to the thoroughbred purse account at Indiana Downs to correct the revenues from those flat racing program in 2011.)

There are economic reasons why the race tracks put the quarter horse races at the end of the race card rather than slot them for races 3, 4, and 5 on the prime of the race card. Those same economic reasons should be a consideration in the QHRAI request for additional revenues.

--Pari-mutuel Wagering Revenues--

According to the "Indiana Handbook of Taxes, Revenues & Appropriations" published by the Indiana Legislative Services Agency and the Office of Fiscal and Management Analysis, the State of Indiana received $2,985,181 from the pari-mutuel wagering tax in FY 2011. The most recent handbook illustrates a steady decline in the pari-mutuel wagering tax from $4,188,334 in FY 2007. We recognize the pari-mutuel wagering tax is inclusive of wagering on the live racing on track, the exporting of live racing, and the importing of outside signals. The general trend in pari-mutuel wagering is downward. With that said, the State of Indiana derives more tax revenues from wagering on racing, both live and simulcasting, in the following order; from thoroughbred racing, then standardbred racing, then quarter horse racing. We don't believe anyone disputes this fact. Considering a lower demand for the quarter horse racing product, we view the QHRAI request in the context of a zero-sum game. While the quarter horse racing program would benefit, that benefit would come at the expense of the two racing programs that do generate more fiscal impact on the track.

--Declining Thoroughbred Races--

Based upon information provided by The Jockey Club, thoroughbred races in Indiana have declined from their peak of 1150 in 2009 to 1065 in 2011 which is a 7.4% drop. The average number of thoroughbred races per day over that same period has dropped from 9.2 races per day to 8.9 races per day. Given that thoroughbred races are already declining, and given that there is less revenue available in 2012 and beyond, we view waiting until after the conclusion of 2012 race meet as a more prudent approach in considering the QHRAI request.

--Impact to Breed Development Programs--

While the Indiana Standardbred Association and Indiana HBPA represent their horsemen as it relates to '71 IAC 12-2-18 Allocation of interstate simulcasting revenue to purses', those organizations do not represent their breed development programs. Therefore, the IHRC should also hear from the breed development advisory committees as to the impact of the QHRAI request to future breed development programs regarding the reallocation under '71 IAC 12-2-19 Allocation of breakage and outs.'

Thank you for your consideration,

Jim Hartman
IBOP Vice-President on behalf of the IBOP Board of Directors

CC: Chairman McNaught
Commissioner Lauck
Commissioner Schaefer
Commissioner Grimes
Commissioner Barclay