At odds over betting: Michigan’s last two horse tracks battle over electronic wagering

Split decision: In the backdrop of efforts to shore up Michigan’s beleaguered racing industry is the question of how to split purses between the two remaining tracks, Northville Downs and Hazel Park Raceway, above, both in metro Detroit. (Bridge/Crain’s photo by John Sobczak)

LANSING — After years of sparring about the best way to split the pot, Michigan’s two remaining horse tracks have found some common ground when it comes to divvying up money from bets placed on horse races.

That consensus, though, hasn’t yet reached other parts of the business that owners of both tracks say will be necessary if the industry is going to be relevant in the 21st Century — namely, the introduction of electronic wagering.

Past efforts didn’t bear fruit. And now the Detroit-area tracks — Hazel Park Raceway, which holds thoroughbred races, and Northville Downs, which runs standardbred harness races — find themselves on opposite sides of proposed legislation that initially attempted to resolve the issue.

Executives at Northville Downs say the bill as written is a non-starter, even after a controversial provision that would have allowed some Internet-based wagering at the tracks was stripped from the bill on the Senate floor.

In response, Hazel Park Raceway and its affiliated horsemen’s group, the Howell-based Michigan Horsemen’s Benevolent and Protective Association, say they intend to ask the Michigan Gaming Control Board to pursue online wagering as an administrative rule change, rather than in statute.

The practice, known as advance deposit wagering, would allow people to place bets on simulcast races from their cellphones or tablets without having to visit a track. Current law requires anyone betting on horse racing to do so from within a track.

Hazel Park and Northville Downs consider online betting on horse races an extension of what they already do, replacing paper with the mobile devices that people carry everywhere. The Michigan Lottery has introduced online games, which track owners believe is essentially the same thing.

And because more than 95 percent of the tracks’ wagering revenue comes from people who place bets on simulcast races, rather than live ones, the interest in electronic wagering is also financial. The tracks say they’re competing for business against out-of-state mobile wagering sites that don’t pay state taxes and don’t offer a cut of the proceeds to support either track and their affiliated horse owners’ group.

Earlier versions of Senate Bill 504, sponsored by state Sen. David Robertson, included a provision that would have allowed the horse track with the larger handle during the past five years to operate advance deposit wagering.

By numbers alone, Hazel Park had the larger simulcast handle — $56.6 million in 2015, compared with $45 million for Northville Downs, according to Michigan Gaming Control Board figures.

“I would have had to take everybody to court,” said Mike Carlo, Northville Downs’s operations manager. “That was the biggest slap in the face I’ve ever seen in this industry.

“In our world, we live under the purview of our license,” he added. “Basically, what it would have done is it would have said that Hazel Park has a different license to operate pari-mutuel wagering in a manner that Northville Downs can’t.”

The bill that passed the Senate does not include that language. Instead, it would allow Michigan’s racing commissioner to draft administrative rules to govern the practice.

The Michigan Gaming Control Board, which regulates the horse industry along with Detroit’s three commercial casinos, opposed the earlier version of the bill. Robertson, R-Grand Blanc Township, said the board and harness racing groups wanted the language removed.

A 2004 amendment to the Michigan Constitution requires a statewide vote for any expansion of gaming. The board has not yet publicly said whether it would consider authorizing advance deposit wagering.

Robertson, track owners and horsemen’s groups all say they don’t believe the practice would violate the constitutional provision.

“The (board) will have to see what the options and its authority are if the bill becomes law,” gaming board spokeswoman Mary Kay Bean said via email.

The bill could get a hearing in the House agriculture committee this week after clearing the Senate last week in a 30-7 vote.

A new formula?

Robertson’s bill would be the first update to Michigan’s 1995 horse racing statute. Among other things, it would rewrite the formula that distributes revenue from wagers.

Currently, all wagers placed on simulcast races at Hazel Park and Northville Downs are pooled into a common purse, where it’s split between the tracks and horsemen’s groups. Track owners say that setup made more sense years ago, when Michigan had more horse tracks in operation.

But waning interest in horse racing led to the closure of seven tracks since 1998, leaving just two. Hazel Park and Northville Downs essentially compete for the same audience, despite the fact that they don’t race the same breeds of horses, and have lost money as the wagering pool decreased. Thus, competition for market share has become increasingly important.

Today, the common purse is divided in a way that offers roughly 65 percent of the proceeds to the harness racing standardbreds, after winners and a 3.5 percent state tax are paid, with the rest going to the thoroughbreds.
Robertson’s bill would eliminate the common purse in favor of a “site-specific” model, meaning all of the wagers placed at Northville Downs and Hazel Park would stay at the respective tracks.

“Horse racing has had very tough times. It’s been diminishing as a sport, and this is an attempt to try to amend the law in a way that will help all of racing,” Robertson said. “This language is archaic.”

Northville Downs agreed to the funding formula change, which ultimately is a concession that would award them a smaller share of the simulcast purse pool than they receive now.

But Carlo and the Michigan Harness Horsemen’s Association say the change triggers a problem with a different section of the bill, which they believe would require Hazel Park’s owners to sign off each time Northville Downs wanted to simulcast a thoroughbred horse race.

Their fear is that Hazel Park and thoroughbred groups could block Northville Downs from simulcasting the Kentucky Derby, for instance, since the money collected under the new model would not be shared with Hazel Park and thoroughbred owners.

“Since the dawn of simulcasting, all tracks have taken all breeds,” said Tom Barrett, president of the harness horsemen’s group. “We are only going to support a bill that treats both tracks the same.”

George Kutlenios, president of the thoroughbred horsemen’s association, said his group doesn’t intend to prevent Northville Downs from showing thoroughbred races.

“I don’t know why we would not want to send a signal,” Kutlenios said. “The more signals, the more product you have to offer. I can’t even envision a scenario where that makes sense.”

Simulcast dollars

The fight over simulcast revenue in some ways explains the desire for advance deposit wagering.

Simulcast wagers contributed $3.6 million in state tax revenue last year, a drop of 9 percent from 2014, according to the gaming control board. And the roughly $106 million wagered on live and simulcast races last year is well below the $261 million bet in 2007.

Kutlenios said he has heard some industry estimates peg the amount wagered illegally in Michigan through services in other states at between $90 million and $120 million.

Robertson also sponsored Senate Bill 505, which would make it a felony to accept wagers on live or simulcast horse races in Michigan without a license. That bill also moved to the House.

Proponents say they want to stop vendors like TwinSpires, which is owned by Churchill Downs, from taking unlicensed wagers from potential track visitors that otherwise could be used to support Michigan’s race tracks.
“There are people right now on site using their phones but not wagering even through us,” said Dan Adkins, vice president of Southfield-based real estate developer Hartman and Tyner Inc., whose owners have an ownership stake in Hazel Park Raceway.

Carlo, of Northville Downs, said Michigan’s horse tracks could make inroads into the market for advance deposit wagering if a third-party vendor managed it on behalf of both tracks, rather than allowing one track to operate at the expense of the other.

“We’re in favor of it being in place somehow and some way,” he said, “but I don’t think we have figured out the best way for our industry in Michigan.”