A Tale of Two OTBs

In the broader economy, various types of construction projects are viewed as indicators that might be signaling the overall direction or strength of the business climate. Within the past two weeks in the Thoroughbred racing industry, two relatively small initiatives made local headlines, but both have the potential to be industry-wide signposts that point to where the nation's racetracks might be investing for the future.

The two projects are important as much for what they are as for how they were received in their respective communities: Both are brick-and-mortar off-track-betting facilities planned by live racing license-holders to be incorporated into existing multi-use properties.

Over the past 15 years or so, racetracks have not exactly placed a high priority on investing in stand-alone simulcasting facilities. Chasing an ever-changing and ever-elusive best business model, the industry has shifted through phases that have focused on phone and Internet wagering, alternate forms of casino/racino gaming, and within the past year or so, figuring out how to either compete with or quash the multi-billion dollar onslaught of online fantasy gaming.

OTBs, in the meantime, have more or less drifted to the bottom of the desirability list from a racetrack operator's standpoint. The unpalatable, hard-to-shake stigma of seedy, poorly run, urban storefront “parlors” certainly contributed to the demise of many OTBs in the early 21st Century, but economic reality also played a significant role. New York City Off-Track Betting Corporation, for example, was forced into bankruptcy and eventually went out of business in 2010. In the five-plus years since the largest and potentially most lucrative OTB network in the nation has been dark, no serious entity has stepped up to make a bid for taking over its dormant individual shops, which once numbered as high as 150.

But New York City is a far cry from Owensboro, Kentucky. On Jan. 20, with a fair amount of local fanfare, that city of 58,000 authorized a purchase agreement that would sell its 67-year-old multi-purpose sports arena to the owner of a minor-league hockey team for one dollar. The East Coast Hockey League team, the IceMen, would move across the state line from Evansville, Indiana, to take up residence at what's known as the Sportscenter. In exchange, the potential new owner has agreed to invest up to $6 million to refurbish the property to make it a civic centerpiece.

The owner of the IceMen is Ron Geary, who also happens to own nearby Ellis Park. Part of Geary's proposal includes an OTB with a full restaurant that is projected to infuse $600,000 in annual wages to the local economy.

“We chose to look at OTB and we were greatly impressed with downtown,” Geary said at a city hall news conference that announced the deal. The Owensboro Messenger-Inquirer reported that the contract includes language that not only shows that the local government supports the OTB, but will require “Ellis Park to use its reasonable business efforts in good faith to obtain permission from the Kentucky Horse Racing Commission to open and operate a sports-themed restaurant” by 2017.

The Owensboro paper further quoted Marc Guilfoil, the newly appointed KHRC executive director, as saying that it's been so long since anyone proposed an OTB in Kentucky that the commission is going to have to research the rules to figure out how it's done.

“Looks like Owensboro will have legalized gambling,” the Messenger-Inquirer editorialized. “And without any fuss at all.”

But broad civic support for an OTB is definitely not the case in Timonium, Maryland, where a project to allow the Maryland Jockey Club (MJC) to establish a year-round simulcasting room at the state fairgrounds where Thoroughbreds run every August has been in the works for several months.

Two weeks ago residents and community leaders claimed to be caught of guard by the prospect of expanded gambling encroaching upon their retail-dominated neighborhood hard by Interstate 83. Their discontent simmered over as the fairgrounds simulcasting facility was preparing for a “soft” opening that appeared to have secured everything but the formality of a final vote from the Maryland Racing Commission.

“They're just trying to shove this down everybody's throats and shove it down in the middle of a snowstorm,” one irate resident complained to the Baltimore Sun, alluding to a Jan. 22 local hearing on the OTB that was wiped out by a blizzard (but has since been rescheduled for Feb. 11). The paper also reported that a Baltimore County Councilman is researching whether he can quickly pass a zoning bill to put a stop to the simulcast facility.

One argument against the Timonium OTB has to do with worries of potential traffic woes. However, considering that the fairgrounds routinely holds a full slate of concerts, festivals, and other year-round events (this past weekend's Fasig-Tipton Midlantic Winter Mixed Sale, for example, shared exhibit space with a sold-out charity “bull roast” and a popular exotic reptile show), the notion of simulcast players choking the roadways seems preposterous.

Sal Sinatra, the MJC vice president and general manager, told the Sun that the Timonium OTB projects to draw 100 to 150 horseplayers daily arriving in 35 to 50 cars. The MJC would have to be exponentially off in its business forecast while operating the most wildly successful simulcasting room in America to inflict any noticeable burden upon local traffic.

Local reactions to these two projects aside, what does the foray into mixed-use OTBs signify for the racing industry as a whole?

In the MJC's case, an eventual expansion into a small network of a half-dozen or so OTB sites around the state in facilities where other forms of entertainment (or gambling) are simultaneously going on is part of an evolving master plan.

Last May, the MJC opened a new OTB on the first floor of the Horseshoe Casino in downtown Baltimore, and the venture was so well received that the room had to be enlarged twice within three months. MJC has indicated it is scouting locations that border surrounding states for future OTB sites, and would like to bring simulcasting to the MGM National Harbor Casino that is being built along the Potomac River near Washington D.C. (expected to open in the second half of 2016).

According to the Maryland Thoroughbred Horsemen's Association, the profits at the new simulcasting sites are split equally among the OTB property owner, the MJC, and the state's horsemen (Thoroughbred and Standardbred associations divide their third 89%-11%).

The MJC is backed by The Stronach Group, which also owns Santa Anita Park, Golden Gate Fields, Gulfstream Park and Portland Meadows. Although OTB laws vary by state, The Stronach Group often tries to turn profitable practices into templates for other properties, so the OTB expansion plan could spread to the organization's other tracks.

Geary's OTB plan is not backed by any such corporate racing entity. But by flying solo, he has flexibility and maneuverability on his side.

Since buying Ellis in 2006 as something to do in his “retirement,” Geary has earned a reputation as a horseplayer-centric track operator, and his past business career is deeply diverse. The Louisville native previously worked as a certified public accountant, a lawyer, been the president of a Bible college and seminary, served in a Kentucky gubernatorial cabinet, and was the chief executive of a Forbes Magazine– recognized publicly traded health care company. Geary is also a recent inductee to Kentucky's Entrepreneur Hall of Fame.

Just like in the broader economy, not every growth project signifies an emerging trend. But the mixed-use OTB projects in Kentucky and Maryland bear watching, lest the industry fail to see the potential economic indicators until it's too late to act upon them.