Gambling in Texas - A Four Part Series
This is a four-part series in the Texas Republic News on various issues related to gambling legislation. The Series:
Twenty-two years ago, the Texas Legislature signaled the return of
gambling to Texas in a limited form by legalizing pari-mutuel horse
racing in Texas. It was an innocuous entry into the world of gambling:
horse racing is ultimately a game partly of skill, not just chance like
slot machines or roulette tables. But now Texas thoroughbreds are
carrying more than just jockeys on their backs – they carry the hopes
and dreams of the gambling lobby to bring the holy grail of gambling to
An unlikely partnership of supporters, including horse breeders and
the generally conservative Texas Farm Bureau, has stepped up to the
plate to support an initiative that would bring video lottery terminals,
or VLTs, to Texas tracks. VLTs are virtually indistinguishable from
casino slot machines, and more importantly, are treated as such in
federal law – with rather large implications for Texas.
Indeed, the introduction of VLTs to Texas horse tracks would create a
domino scenario that most of the legislation’s supporters appear to not
have considered. Instead of reviving the declining stakes of the Texas
horse raising industry, VLTs and their consequences would likely start
an explosion of gambling beyond the ability of the race tracks – or the
State of Texas – to control.
First there are the general arguments for gambling. Proponents say it
will bring in large tax revenue to the state, as well as economic
development (These issues will be discussed in Part IV of our series).
But there are also arguments specific to racetrack gambling.
Texas Horse Breeders say they’re hurting, and argue that the only way
to rejuvenate their industry is through the passage of legislation
establishing “horse incentives” to grow the industry. This can only be
done, they claim, by increasing the purses at thoroughbred racing venues
like Sam Houston Park in Houston and Retama Park in San Antonio.
And the only way to get those payouts, they assert, is through the introduction of slot machines at racetracks.
To get their message across, the Texas Thoroughbred Association has
even hired noted Texas songwriter Lyle Lovett as their spokesman. In a
video on their website, Lovett makes the Association’s case, and pushes for passage of the “Texas Horse Prevention Preservation Act.”
“It’s a bill that would benefit virtually every aspect of the horse
industry in Texas and would allow video lottery terminals or VLTs to be
installed at existing licensed racetracks,” Lovett said. “It would
provide a way to supplement purses and breeding programs for racehorses,
equine research, breed retirement and adoption programs.”
Regardless of the merits of what is essentially a bailout
for the Texas horse-raising industry, the “Texas Horse Prevention
Preservation Act” is somewhat misleadingly named. The subsidy amounts –
which are unknown, but would likely be in the tens of millions – would
likely be dwarfed by the actual slot machine revenue, which supporters
say will likely be in the tens of billions of dollars. It is the equivalent of a mouse hitching a ride on an elephant and painting his own name on the side.
Farm Bureau Support
One of the big wins for the racetrack casino lobby prior to the
opening of the 81st Legislature was the winning of an endorsement of the
project by the Texas Farm Bureau. Steve Pringle, the bureau’s
legislative director, said the issue came up from members in the horse
raising industry, who argued that slot machines at racetracks would
revive their business.
“The horse industry in Texas has been suffering in the last five
years,” Pringle said. “We support these incentives and support VLTs as a
funding mechanism to support that industry.”
Pringle said that the bureau doesn’t take a position on gambling, and
said that if there was an alternative funding mechanism for the
incentives, the group would support that. As of today, however, VLTs are
Texans for Economic Development (TED) – a group which promotes racetrack casinos, or racinos
as they are sometimes called – commissioned a poll by Baselice and
Associates, which shows strong support in Texas for the proposed race
track casinos. The poll (linked via Newspaper Tree, an online El Paso newspaper) found 63 percent of Texans support the idea and 36 percent oppose.
However, the poll was paid for by TED. A similar poll from only two
years ago, conducted by an a separate gambling group favoring “resort”
casinos, found only 45 percent of Texans supported racinos. That poll was also conducted by Baselice and Associates.
The dueling polls is a legacy of past discord. Historically, disunity
has been the gambling lobby’s worst nightmare, and the biggest boon for
opponents of the idea. This session, such groups have put up a front of
unity, although it remains unclear how strong that remains. Right now,
gambling proponents are supporting HB 1724, which technically includes
both resort casinos and racinos, although it did not escape notice among
the capitol crowd that a recent press conference touting the bill did
not have any representatives from the horse racing industry present.
Word in the halls also suggests that many members of the Farm Bureau may
be getting cold feet, although Pringle says the group continues to
support the idea.
A Monopoly or the Big Tent?
Currently, horse racing tracks have a near monopoly on gambling in
Texas, and a big-tent approach would end that. It would also make
legislation a harder sell. In the past, legislators have been somewhat
moved by the idea of gambling that has a “small footprint.” For this
reason, racetracks have generally advocated for the exclusive right to
gamble, limiting casinos to existing tracks. This is actually an
impossibility, given the impacts of the federal Indian Gaming Regulatory
Act (which will be discussed in Part III of our series).
Will The Revenue Projections Turn Out?
Historically, gambling revenues have underperformed expectations. The
Texas Lottery was sold as a cure-all for the state’s school finance
system, but failed dramatically (though this was partly a result of
skyrocketing school costs which the lottery could not have met anyway).
But is the current economic environment the right time to launch a major gambling operation? In a March 5, 2009 Houston Chronicle story
a Nevada economist and gambling expert said no. William Eadington, an
economics professor at the University of Nevada and director of the
university’s Institute for the Study of Gambling and Commercial Gaming,
pointed out that two states are currently facing the prospect of having
to pass tax breaks to bail out the very casinos that were pitched to
legislators as a way to bail the states out.
Even Texas tracks have been touched. On the same day the Chronicle
story appeared, Magna Entertainment Corp, the parent company of Grand
Prairie’s Lone Star Park, filed for Chapter 11 bankruptcy. Lone Star
Park’s press release is
quick to point out that its operation is not part of the filing. Magna
Entertainment is the largest horsetrack operator in America; after its
colossal collapse after 7 years of failing to make a profit, the company
was officially de-listed from the Nasdaq Exchange on Monday.
The loss of revenue is not restricted to racetrack operations, but is
a trend generally true of all casino operations. Casinos in New Jersey
posted a 20 percent drop in income last month – the largest decline in
the 30-year history of gambling in that state. Famed casino developer
Donald Trump – who made a name for himself turning everything he touched
into gold – couldn’t even make it work.
About the only positive casino developers can take from recent
developments, in fact, is the argument that gambling may not be as
addictive as some say. Given the choice between paying the bills or
playing the slots, it seems, people just aren’t gambling as much. Yet
the premise behind the argument – that the two items compete at all – is
hardly something gambling proponents want to admit to.
Opening the Door for an Explosion of Gambling?
Last week was National Pathologicial Gambling Week. Indeed, the
social costs of gambling are widely known, and are tacitly admitted to
by the fact that virtually every gambling bill proposed includes funds
for treating compulsive gamblers (These issues will be discussed in Part
IV of our series).
Given this fact, gambling is recognized by all as a cost/benefit
ratio. Benefits are maximized – and costs reduced – by limiting the
footprint of gambling. Destination casinos are likely just as addictive
as any others, but they are generally less accessible and require
sufficient expense, premeditation and planning to visit, unlike hometown casinos.
For the horse racing industry, furthermore, there is additional
reason to keep the footprint low. As alluded to above, the business
model of a racino includes slot machines which make sufficient revenue
to offset the loss – or insufficient gain – of the actual horse racing
operation. The more casinos there are – racinos or others – the more
diffused the potential revenue base. More casinos chasing a limited
number of gamblers means fewer returns. A model of business based on a
handful of casinos will simply not work if the casinos proliferate
wildly. This does not even consider the draconian – and uneven – tax
rates levied on gambling operations.
This then, is the ultimate mirage of racetrack casinos: proponents
believe they can prevent the expansion of gambling. But a closer look at
the law – and experiences from around the country – prove this is a
very dubious proposition. Casino gambling can’t be tamed, because it
isn’t a thoroughbred, it’s a mustang.
That’s because another group of people who once lived and died by the horse hold all the cards now. Indian Tribes
bring a whole new dimension to the dynamics of gambling. They have the
power to expand – indeed they virtually guarantee it by their presence –
the footprint of gambling wherever they exist – or could potentially
Indeed, when the dimensions of Indian gambling are considered, all
bets are off, and all the dreams of horse racing enthusiasts – and state
budget writers – could likely be dashed. For that reason, we turn next
to the most controversial and vital piece of the gambling puzzle: Indian
Tomorrow: Indian Casinos and their Implications