Lexington, KY - Until only recently, Keeneland has held the issue of expanded gaming at arm's length, its officials readily expressing concern about the increasingly perilous state of the horse racing industry, but refraining to take a public position in favor of gaming as one solution. Then came the recession and with it, a tipping point. In an interview with Tom Martin, Keeneland president Nick Nicholson cited a litany of threats to the industry, ranging from the bankruptcy of key tracks and declining trends in attendance to a shortage of Thoroughbreds. But none, he said, compare with the peril posed by increasingly aggressive competition from states enhancing racetrack purses with revenues generated by expanded gaming.
You're arguing in favor of expanded gaming as one approach to the budget shortfall in Frankfort. That's a fairly new public policy position for Keeneland, isn't it?
NN: Yes, it is. The tough thing here is one of the criticisms of the industry - and probably justified - has been that we are not unified when we go to Frankfort. And that's sometimes a naÔve statement but one that has some merit to it. And (on) the other side of unity comes compromise. You can't be unified unless you compromise. And what we have done the last few years is compromise to get a position of unity. The various ideas of freestanding casinos, without being real clear about how many and what they would involve, were ideas that I was less than crazy about. Yet, you have to balance what's most important, and instead of criticizing elements of a program publicly that you don't like, in order to seek industry unity, you compromise positions. We've never taken the lead before. I think we decided some time ago that this proposal now is more tempered; it's a more moderate proposal. It's one that will produce substantial amounts of revenue to the state, and that's one of the reasons for doing this. But it would also produce substantial revenues for the industry. Would it produce as much as would many, many freestanding casinos throughout Kentucky? Probably not. But it would produce a substantial percentage, north of 80 percent, of what would be produced anyway.
You're talking about video lottery?
NN: Yes. The current proposal of Speaker Stumbo, which would allow video lottery terminals. To the consumer they will look, sound, feel and act like a slot machine, but there are some legal and structural differences. All of these machines would be controlled by a computer system headquartered in the Kentucky Lottery Corporation. So the lottery commission would be able to oversee each one of these machines, and the integrity of each machine would be protected. I like that idea. I like having a strong regulatory structure over it. The Lottery Corporation has some years of competent regulatory experience that can demonstrate that they can oversee the integrity of all these lottery machines. I felt that here was a way that we would be much less intrusive in a community.
I think it's important that people who want to participate in this, can - and there are tens and tens of thousands of Kentuckians that really enjoy this. It's entertainment to them, and they enjoy it. Also there are many people that don't like the idea. Well, those that don't like the idea don't have to participate. Those that do enjoy it will generate substantial revenue for Kentucky and for this industry in a way that is not so intrusive in so many different communities. Gambling would be where it is today, so there would be no geographic expansion of gambling. The venues would not change, just the menus inside the venues.
The other thing that happened to me - and I've never really explained this publicly - but last year, the governor appointed a task force to look into the oversight of the Kentucky Racing Commission. I was asked to head a subcommittee that would look at what other states were doing, and quite frankly, I was surprised at what I learned in doing this research. I knew intellectually that things were going on in other states, but I'd never put it on one piece of paper, and when we did, I learned some staggering statistics. Of the 12 states that we compete most with on horses and race dates and things like that, 11 of them have already legalized this - 11 of the 12. Only Ohio hasn't, and there's an active movement there. So we are already virtually the last state in our racing circuit to adopt this, and that means we're going to be behind no matter what we do. And then when we looked at the United States, I asked the staff to prepare a map of red and white and blue, indicating where expanded gaming is. It came back and the whole western part of the United States was red, indicating that they would allow expanded gaming. I actually sent the map back. I said this can't be right, and they went back and researched it and it was right. So I have, perhaps grudgingly, come to accept the fact that this is a reality in modern life in the United States - that slot machines are already a part of Kentucky communities from Ashland to Paducah along the Ohio River, so we're getting none of the benefit. We're building Indiana roads and Indiana schools and Indiana police stations. We're paying Indiana's state government salaries with Kentucky money. The combination of other states doing it, seeking and tying it to their horse business, using that money to supplement their purses, to supplement their breeders - basically incenting Kentucky farmers to move their horses to these other states - combined with increasing purses so that you race in those states instead of ours, has drawn me to the conclusion that this is an idea whose time has come.
Your subcommittee produced a rather startling chart ranking purses by state, correct?
NN: We asked the Thoroughbred Racing Association of America to tell us where purses were in the year 2000, where they were in 2007 and where they were going to be in 2013. When we got the chart back for 2013, one category was the top 20 tracks. I again thought there had been a mistake, because I couldn't find Keeneland. And I called up there and they said no. By the year 2013, there are so many tracks that are going to have the purse supplements from slot machines, that (Keeneland) won't be on (the top 20 list). Very sobering moment.
Horse racing and breeding are huge points of pride for this community, embedded in our DNA. So, as I was hearing you expound on that, I'm thinking about what life is like after all this ends. Is it that apocalyptic?
NN: I don't want to overstate it and I don't want to dramatize the depth of what will happen and when it will happen, but the dominance that we know today is most certainly at serious risk. And it probably wouldn't be an exaggeration to say the dominance is in crisis mode.
When you grow up here, you follow these horses and this sport even if you're not involved, the same way you follow probably the University of Kentucky basketball even if you're not directly involved. It's because it's something that is unique to this town, unique to this area; it's something that the state does well when there are so damn few things that we do well.
The fact that these Thoroughbred farmers would seek to win championships not only at Keeneland but in New York and Los Angeles, Miami, Chicago, London, Paris, Hong Kong, Japan - they're trying to win races all over the world. Ö Pick whatever sport you like or pick whatever hobby you have and think how hard it is to be the best in Lexington - to be the best trumpet player in Lexington, to be the best whatever in Lexington. It's hard to do, ... and very few people will ever be the best in the city. Very few people will ever know what it's like to win a state championship, fewer still a national championship. Lexington horse farmers have for year after year after year not only won the national championships, but the international championships, never playing on their home court or seldom playing on their home court, and reproducing new crops every year that goes back and does this. And so I think it's part of the intangible DNA; I like your point and your question. It is part of the intangible DNA that tells a young person growing up in Central Kentucky that they can be as good as they want to be, because they see their neighbors winning international championships and that should be an inspiration to them. And it also should be a reaffirmation to them that you can dream big and you should work hard in school and reach for whatever it is you want to reach for. And I think that's one of the true and tangible benefits of having this wonderfully unique Thoroughbred industry in Central Kentucky. It's living proof that every child sees in Lexington that they can compete in any stage that they want to play in. And I hope that we never lose that.
This brings us back to the proposal for expanded gaming in support of the industry. Why, in your view, should Kentucky legislators favor the idea?
NN: I don't see any other industry coming forward to say, "Look, we have a plan where we will take 100 percent of the risk. We will provide the capital to launch this enterprise, build the building, manage the building, market the product, and we will have a tax rate that would be the highest tax rate of any business in Kentucky. It provides $300 (million), $350 million dollars a year to the general fund or to state receipts, and also set aside 15 percent of the gross to target protection of your signature industry." So that's a pretty compelling package. I don't see any other industry coming forward and saying, "Here's a way we think we can be part of the solution. It's important that we don't overstate it. I try and say every time I answer this question, we're not saying if you pass this all of your problems will go away. We're not saying that, but we're saying that, whatever package is put together to get Kentucky through this economic situation, this idea deserves to be part of the package.