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Group of Legislators Call for State to Get Equal Share of Slots Money

For Immediate Release: Wednesday, June 11, 2008
For More Information, Call: Joe Fulgham (302) 744-4184

As state lawmakers grapple with a $200 million shortfall for the upcoming fiscal year, a bipartisan group of legislators – led by State Rep. Deborah Hudson (R-Fairthorne) and State Sen. George Bunting (D-Bethany Beach) – is calling for the state and Delaware’s three horse tracks to split slot machine revenue evenly.

State budget-writers have indicated they would like to deal with half the shortfall via budget cuts and raise the other half by increasing taxes and fees.

“A lot of Delawareans don’t realize this, but the tracks get the lion’s share of the slot machine money,” Rep. Hudson said. “With what we’re facing, we need to take another look at that.”

The Horse Racing Redevelopment Act (H.B. 628), passed in June 1994, legalized slot machine gambling at Delaware’s three horse tracks: Delaware Park, Dover Downs, and Harrington Raceway. The law also contained a formula for dividing the slot machine revenue.

Although the percentages can vary slightly from week-to-week based on the amount of play, the slot machine revenue figures from Fiscal Year 2007 show the tracks collectively received approximately 47.5% of net revenue ($301.9 million), while the state got 35.5% ($225.7 million). The remaining money went to the horsemen, primarily in the form of higher racing purses, and the vendors supplying and maintaining the slot machines and related equipment.

“At one time, you could have justified this disproportionate take,” said State Rep. Greg Lavelle (R-Sharpley), who supports the proposal. “The tracks took a risk and invested considerable capital in new slot machine facilities. At the time, no one knew if they’d be a success. Those days are long over. The tracks have enjoyed a mind-bogglingly lucrative monopoly on slots gaming and have been more than compensated for their initial risk.”

According to financial reports from the Delaware State Lottery Office, over the last five years (FY 2003 to FY 2007) the tracks have collectively realized a total of $1.364 billion from slot machine revenue.

“We only want what’s fair,” said Rep. Hudson. “For more than a decade, the state has supplied the tracks with a protected monopoly and it’s high time for them to pony up.”

Supporters of splitting the slots money say that under their proposal, which will be introduced as legislation, the state and the tracks would each get approximately 41.5 percent of the net revenue. The bill would phase-in the fair share split over three years, with the state getting two percent more and the tracks two percent less each year. Based on FY 2007 revenue, the state could expect to see an additional $12.7 million the first year, $25.7 million the next year and $38.1 million annually when fully implemented.

“I know the tracks are going to disparage this as soon as they hear it,” Rep. Hudson said. “They’ll point to the competition from Pennsylvania and the possibility that Maryland could legalize slots as reasons they can’t possibly do it. That’s good spin but it doesn’t hold water.”

Rep. Hudson noted the tracks have used a portion of their windfall over the years to reconfigure their facilities as “destination resorts” specifically to deal with the threat of increased competition. “Delaware Park has purchased a hotel, developed a first-rate golf course and upgraded every area of the track. Dover Downs has built a hotel and conference facility, top-notch restaurants and upscale salons. Harrington, too, has reinvested to continue to draw visitors.”

To prove her point, Rep. Hudson noted this item pulled from the “history” page of Delaware Park’s website:

“Delaware Park's future looks bright, as it comes up against yet more surrounding competition. With the anticipated opening of its hotel, plans for further property enhancements, and its commitment to its guests and team members, Delaware Park will continue to flourish.”

Additionally, fair share supporter State Rep. Bob Valihura (R-Delaware North), notes the tracks are likely to get two significant boosts to their bottom line.

Currently, Delaware’s three slot machine venues – Harrington Raceway, Dover Downs, and Delaware Park – cannot operate between 6 a.m. and noon on Sundays. They are also forced to close on Christmas and Easter. According to figures supplied by the state Video Lottery Advisory Council to the House Pari-mutuels and Gaming Committee, allowing play on Sunday mornings would generate another $6.69 million annually for the tracks under the current formula. Removing the prohibitions on Christmas and Easter would generate an additional $1.87 million for the tracks annually.

“A proposal to allow slots play 24 hours a day/seven days a week could be made before the General Assembly adjourns on June 30th,” Rep. Valihura said.

Rep. Valihura noted the potential of sports gaming could also prove very beneficial for track operators. Under federal law, Delaware is the only state east of the Mississippi permitted to engage in sports-betting.

A report by Morowitz Gaming Advisors – commissioned by Delaware’s three race tracks/slot machine venues – estimates the tracks could earn as much as $80.4 million in the first full year of legalized sports gaming solely from increased slot machine play. In fact, the report indicates the bulk of the new money from sports gaming would come as the result of drawing more people and new players to the slot machines.

A separate state report on sports gaming, released earlier this year, contained more conservative estimates. That report projected the tracks could collectively reap up to an additional $32.3 million from improved slots revenues if sports-betting were enacted.

“Whichever report you trust, the tracks are looking at a substantial increase in revenues,” Rep. Lavelle said. “When you combine the increased slot machine revenues expected to result from sports gaming and increased hours of play, even when we split the slots money evenly, the tracks are still looking at a net revenue gain.”

The tracks are also expected to get additional revenue from sports-betting itself, as well as money from the higher casino traffic it's expected to generate (i.e - meals, hotel rooms, concessions, etc.).

House Substitute 1 for House Bill 190 (as amended), which would legalize sports gaming, has already passed the House on a mixed bipartisan vote of 28 to 10.

“The state is facing fiscal problems the likes of which we haven’t seen in more than a decade,” Rep. Hudson said. “The tracks are potentially looking at two huge new sources of income, the state is in dire need of cash, and we’re looking at raising taxes on our citizens. It’s time to split this pot of money evenly down the middle and for Delawareans to get their fair share.”

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