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State racing commission and racino operators at odds over seating

Big gaming companies rushing to redevelop Ohio racetracks into racinos have run into a roadblock: the Ohio State Racing Commission’s demand for more seating as part of an effort to restore the popularity of horse racing.

The commission, tasked with promoting and regulating Ohio horse racing, now serves as a major blockage to expanding legal gambling in the Dayton area. At issue is the number of indoor seats at each new racino with full view of the racetrack.

The commission must sign off on a $125 million racino planned for Dayton and Austintown, along with a $175 million facility in Warren County, before the projects can move forward.

The commission last month asked each of the operators to increase the amount of indoor seats with unencumbered views of the full racetrack. As a result, the company behind the Dayton racino says the project will be suspended for six months for redesign work to add 650 seats, while the company behind the Warren County racino, being asked to add 430 seats, says they’re continuing negotiations with the state.

Commission Chairman Robert Schmitz said he’s making sure horse racing in Ohio isn’t trampled by powerful gambling interests.

“I’d rather have it (too big) than not have enough seats for people to enjoy racing,” Schmitz said. “And then people come back and say ‘Gee whiz, let’s get rid of races. Let’s just have a VLT (video lottery terminal) operation.’ That’s the fear of horsemen in the state.”

Racino company officials say the commission’s seating requirements are unrealistically optimistic, and will lead to venues that are mostly empty. They also accuse the racing commission of making up the rules as they go.

The gaming companies argue the better approach is to build small, then expand if the crowds that once swelled the state’s seven racetracks return.

“Let us open. We think these plans are for the right number of seats,” said Bob Tenenbaum, spokesman for Penn National Gaming, the company behind the proposed Dayton racino. “We’d love to be proven wrong, but we don’t think that’s going to happen.”

Miami Valley Gaming, the company developing the Warren County racino, is “frustrated” with its experience dealing with the racing commission, spokeswoman Amanda Wurst said in an email.

“Today, there is no industry evidence that would support a seating capacity beyond what has been planned for,” Wurst said.

Peole in the racing industry believe proceeds from the video lottery terminals — slot-like machines regulated by the Ohio Lottery Commission — will fatten racing purses (prizes), increase attendance and betting, while keeping the best horses in the state.

Charles Moore, senior managing director of Conway MacKenzie, a Michigan-based restructuring and financial advisory firm working in the gaming industry, said the “real rub” here is trying to balance the operator’s desire to minimize investment with the state’s desire to maximize racing revenue.

“Just because you build something bigger doesn’t mean you’ll have more revenue,” Moore said. “You don’t build for your peak (attendance days).”

The ideal seating capacity would fit the crowd coming for a typical racing day, Moore said. Operators can otherwise get creative and add seating for large events held several times a year.

“The potential implication of building too big of a structure is that profitability is not going to be there, and operators are not going to have the tools they need to drive revenue,” Moore said. “What’s the impact of that going to be on state revenue?”

Plowing new ground

The conversion of Ohio’s seven racetracks into racinos began in 2011, when Gov. John Kasich signed an executive order approving rules set by the Ohio Lottery Commission for operation of VLTs at racetracks.

Scioto Downs in Columbus re-opened June 1 with more than 1,700 VLTs and just 500 enclosed seats for racing. ThistleDown in Cleveland reopens Tuesday after an $88 million renovation with close to 4,000 enclosed seats. And, Pinnacle Entertainment is rejuvenating the aging River Downs thoroughbred track in Cincinnati with a $200 million investment.

The racing commission typically prescribes rules for how horse racing will be conducted at the state’s seven racing tracks and at county fairs. New racetracks haven’t been built here since the early 1960s. But Kasich’s order thrust the commission into the middle of untested waters — shepherding the expansion of gambling and racing in Ohio.

“Obviously we’re plowing new ground,” Schmitz said. “There’s no question about that.”

In December, the racing commission granted racing and relocation permits to Miami Valley Gaming, a joint venture between Delaware North and Churchill Downs, to allow the company to move Lebanon Raceway to a new racino in Turtlecreek Twp. Company officials thought, at the time, they had cleared the commission, going as far as to announce they had obtained all the necessary licenses. The company publicly set an opening date in first quarter 2014 and began to raze ground at the site.

Company officials were left scratching their heads after the racing commission voiced concerns about the number of seats at the racetrack. Schmitz said in March the racing commission needed to also approve the final site plan for the racinos. He cited administrative code that was passed in February — two months after the commission granted Miami Valley what the company thought was final permission.

Schmitz said once the seating issue is addressed, he doesn’t anticipate there being any future hurdles.

“We’re usually the only ones sitting down here”

Churchill Downs, the racing half of Miami Valley Gaming, hasn’t built a new racetrack since 1994, when it constructed the 1,600 seat Hoosier Park just outside of Indianapolis. The track, which featured the unusual combination of both standardbred and thoroughbred racing, was the site of the first Indiana Derby in 1995.

But the track underperformed, and the company sold it to Centaur Inc. in 2006. A casino offering slots machines and video table games was built next to the track in 2008, making Hoosier Park a racino. Centaur Inc. went bankrupt and in 2011 emerged as a new company called Centaur Holdings, which runs Hoosier Park today.

Wednesday evening — on the second night of the racing season at Hoosier Park — there were about 450 people split among seats in the track’s restaurant with a view of the racing and cubicles with video screens that monitored offtrack races.

Meanwhile, the enclosed grandstands, which could seat around 1,000 patrons, remained mostly empty, containing between 25 and 40 people throughout the night.

Mike Ashman, 44, and his wife, Kristi, 47, watched the night’s final race alone in a section that could seat two dozen.

“We’re usually the only ones sitting down here,” he said.

Bob Hill, 59, said he and his wife, Mary Jane, come to Hoosier Park three or four times a year. While crowds are larger on the weekends, he said the empty grandstands are typical, as is conversely, the packed casino. He said he doesn’t think the two sides really cross over.

“I think most people come over here for this or that, and not much in between,” sad Hill, of Richmond.

Live racing is held 210 days a year at Ohio’s Northfield Park in Summit County so all of its 5,300 seats are indoors, said director of racing Dave Bianconi. Construction of Northfield’s new Hard Rock-themed racino is underway and is scheduled to open late this year.

Northfield nears capacity only a few days a year, Bianconi said. Most people bet from the comfort of their home computer or smart phone.

“A plant (facility) this big is somewhat obsolete by today’s standards,” Bianconi said. “We certainly don’t fill 5,300 seats. Those days are gone.”

“Horse racing brought these companies to the dance.”

Ohio’s new racetracks don’t need to be as big as they used to be, but they need to be bigger than the companies’ initial proposals, people in the horse racing industry say.

“Horse racing brought these companies to the dance. They need to make sure this prime ingredient is taken care of and that it’s not just used to expand gambling in Ohio,” said R. Kevin Greenfield, a director for the Ohio Harness Horsemen’s Association.

Mitch Nault, the owner of a breeding farm in Mount Sterling, Ohio who also works for the Untied States Trotting Association, doesn’t feel the seating levels proposed by the racino companies will meet the demand.

“I think what Penn National has proposed is kind of like a slap in the face to harness racing,” Nault said. “Horses are going to run regardless of the weather. It’s got to be built in a way to host people in a way they are comfortable. Build a facility that is impressive enough that people will want to come and spend money.”

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