THE NEW GAME IN TOWN HAS SOME RACING EXECUTIVES RUBBED THE WRONG WAY : DOES THE LOTTERY HOLD THE WINNING TICKET?

‘Every place there’s been a lottery, patronage at the races has fallen. How to counteract it? No one has, yet. How to beat it? Outlaw the lottery.’

--Kent Hollingsworth

Neil Papiano, Hollywood Park’s lawyer, like so many others in the California racing industry, wasn’t making a secret out of it. He had the lottery blues.

“Why doesn’t the press play it up when someone wins $300,000, $400,000, $500,000 at the track,” Papiano asked. “Why does it pay so much attention to the lottery?”

He noted that a story on the California lottery-drawing was on the front page of the newspaper, while a $558,000 payoff on the Pick Six at Bay Meadows was only a small story inside the sports section. Additionally, he pointed out, the winners of the Pick Six would get their money right away, while those winning the highest amounts in the lottery would have to wait 20 years to get all of it.

To Alan Balch, assistant general manager at Santa Anita, the reason for the disparity in coverage is obvious: “The lottery is new, and, with racing, we’re marketing a 50-year-old brand.”

Throughout the state’s horse racing industry, such sentiments, tinged with an underlying pessimism, have taken hold. Racing promoters talk unhappily of the vast attention the lottery is getting. They lament the lottery’s $20 million-plus advertising campaign at a time when individual tracks rarely spend more than several hundred-thousand dollars to promote themselves. They note the lottery’s 20,000 outlets at a time when racing is stretching to get just a few more outlets for simulcasts and intertrack betting.

Racing spent close to $3 million in a vain attempt to beat the lottery initiative on last year’s ballot. Now, its fight to compete is just beginning.

Officially, California’s racing community is not airing its conclusions about the lottery’s impact. As Robert Mukai, the counsel to the state racing board, said at the board’s last monthly meeting, it has hardly been underway long enough to reach any firm conclusions.

Mukai noted that the instant games, which have marked the lottery’s first weeks, account for only about 18% of nationwide lottery sales. “We must await the full operation of the lottery in California to see what will happen,” Mukai said. He suggested the lottery is apt to get even more exciting in the months ahead as the really high-stakes games that are so popular elsewhere are introduced here.

Unofficially, concern is widespread that, as in many other states, the lottery will cut into racing’s business, perhaps substantially.

So far, according to the first figures provided the racing board, the impact has not been all that great. The mutuel handle (the amount of money bet) at Los Alamitos is down between 1.5% and 2% from last year. Santa Anita’s Oak Tree handle was off about 3%. In the San Francisco Bay area, Bay Meadows’ own handle was down 8%, but due to the introduction of intertrack betting in Northern California, the total handle for Bay Meadows was up between 12% and 14%. Intertrack betting is where tracks that are not currently racing open their plant to betting on races held at another track, usually showing the races on television.

Looking ahead, Leonard Foote, the veteran executive secretary for the racing board, estimates that in the first year, the lottery will reduce the handle on horse races anywhere from 8% to 13% in Southern California. In Northern California, he said, however, he expects the decrease at the home tracks to be more than offset by new intertrack betting.

Despite intertrack betting, which is already benefiting his own track, Bob Gunderson, president and general manager at Bay Meadows, is pessimistic. He said the impact may ultimately be so severe that the industry will have to seek financial relief from Sacramento, asking the Legislature to reduce the state’s take of the wagering dollar below the roughly 6.5% it now gets.

The experience of other states indicates trouble may be on the way. In New York, attendance at the harness races fell by half after the lottery was introduced, although the advent of casino gambling in neighboring New Jersey and an offtrack betting arrangement that let others, instead of the tracks, reap most of the profits obviously did not help. In Maryland, the lottery helped put the tracks in such a bad financial position that the Legislature reduced the state tax on harness racing from 6% to .075%. In the East, harness racing is a far bigger, more important part of racing than it is in the West.

Morris Alhadeff, president and chief executive officer of the Longacres race track in Renton, Wash., said last week that the handle at his thoroughbred track has declined by more than 12% since a lottery was instituted in that state in 1982. Despite extensive marketing efforts, he said the decline is continuing.

“Every place there’s been a lottery, patronage at the races has fallen,” said Kent Hollingsworth, the publisher of the trade publication, The Blood Horse. “How to counteract it? No one has, yet. How to beat it? Outlaw the lottery.”

Intertrack betting--now underway complete with simulcasts, during the Bay Meadows meeting from tracks in Sacramento, Santa Rosa, Stockton, Fresno and the East Bay--is probably the most important innovation in the effort to compete with the lottery.

At the last racing board meeting, John Reagan, a staff member, said that Golden Gate Fields in the East Bay, for example, had been averaging more than a $400,000 handle for each racing day at Bay Meadows, while Sacramento had been registering $120,000 and Stockton $80,000.

The tracks where the betting takes place are allowed to keep 2% of the handle as their share, while the rest of the 6% track share, is going to Bay Meadows. When Golden Gate Fields is racing, Bay Meadows will offer intertrack betting facilities for races there.

The theory is that many people will go to the intertrack facilities who would not, otherwise, drive to the track where the races are taking place. This is obviously true at such far flung Northern California sites as Sacramento and Fresno, but whether it is true between Golden Gate Meadows and Bay Meadows, which are only about 25 miles apart, is more questionable.

In Southern California, the various tracks have not been able to get together on an intertrack betting plan and are, at this point, only waiting to see how the Northern California arrangement goes.

“It’s something we’re watching,” said Del Mar’s executive vice president and general manager, Joe Harper. “We’re very cautious because we feel it could generate real inroads into our patronage (25% of which normally comes from L.A. County). . . . We have to be convinced that taking a bet outside the gates at Del Mar is taking a new bet and generating new money.” In the L.A. area, Santa Anita and Hollywood Park are so competitive, they seldom get together on anything, and with Hollywood Park’s ownership of Los Alamitos, the two sides are very often trying to attract the same people on the same day--not a situation that encourages development of intertrack betting.

The doubts in Southern California about intertrack betting were reflected in a division this past spring over the details of an offtrack betting plan that was being pushed in the Legislature. Offtrack betting differs from intertrack betting in that the outlets may be in movie theaters or other facilities away from tracks.

James Garabaldi, Hollywood Park’s lobbyist in Sacramento, said he and other industry representatives had finally concluded there was no prospect Gov. George Deukmejian would sign an offtrack betting bill this year and so had decided not to push for immediate passage in the Legislature. But Garabaldi said too that Southern California racing interests really ought to get together on the details before any further push is made.

According to the initial proposal, the offtrack betting sites would have to be at least 45 miles from the track where the racing was taking place.

Santa Anita objected to this as not enough. Robert Strub, the track’s president and chief executive officer, said that offtrack betting should be no closer than 60 miles from the track. He explained that someone living halfway between the track and the offtrack facility might be tempted to go to the facility instead, so that a 60-mile limit really might mean an adverse affect on track admissions and concession incomes that would begin with people living just 30 miles away.

Of course, a 60-mile limit would keep offtrack facilities out of virtually the entire L.A. metropolitan area. Offtrack betting in Southern California, as championed by Santa Anita, in effect, would mean it would be confined to such sites as Palm Springs, Santa Barbara and San Diego. Even the San Bernardino-Riverside area would be too close.

Beyond intertrack betting and offtrack betting, some racing enthusiasts see a time when a bettor will be able to pick up his telephone and call in a bet by computer.

The current chairman of the racing board, Sherman Oaks attorney Ben Felton, said the problem is: “The lottery you can buy anywhere. You can’t make a race track bet anywhere.” He said the ultimate answer to keeping racing competitive is phone betting with some mileage limitations, to protect, at least to some extent, track attendance.

Against the lottery, Felton said, “racing will reaccess and marshal its forces. Perhaps the races have to now be taken to the people.”

But extension of intertrack betting to offtrack betting or phone betting requires political decisions--the approval of both the Legislature and the governor. Right now, there is no sign, as Garabaldi said, that the governor will go along or that there is sufficient support for the concept in the Legislature to override his veto.

Even if this situation changes, any offtrack betting plan in California, in order to really benefit the tracks here, would have to absorb the lessons of offtrack betting in New York, where the profits from the facilities there for the most part fall into other hands. Track attendance and handles have sharply decreased, jeopardizing the future of racing, while third parties profit.

The argument in the background is whether gambling dollars are constant or subject to expansion. Currently, the pessimists seem to be in a majority. While they concede that there is some elasticity, they say there are strict limits to it and that the lottery has the long-range effect of cutting up the pie into smaller and smaller slices.

“There’s only 12 eggs in a dozen,” Alhadeff said. “No matter what you do, there’s only so many residual dollars. People have to spend money on feeding themselves and housing themselves and transporting themselves to work. Only after that comes football, baseball, the lottery, racing. There’s only so many of those dollars.”

So, with three years of fighting the lottery behind him in Washington, Alhadeff is fundamentally pessimistic. No matter what marketing promotions are undertaken, he expressed the feeling that racing is bound to lose some of its clientele, because it is inevitable that some of the residual dollars, maybe a lot of them, will slip off to the new competitor.

This is a view that finds a certain echo in California racing, where, as racing board chairman Felton noted, attendance at the tracks was already on a slow down trend even before the lottery was introduced.

Quite a few racing executives, including such track managers as Gunderson at Bay Meadows, Peter Tunney at Golden Gate Fields and Harper at Del Mar expressed the fear that there were limits on what they could do, a feeling that racing, for the most part, has already exhausted much of its marketing potential and that virtually everything that can be tried has its drawbacks.

This does not mean they will not try. “We’re considering all options,” Tunney said. “Desperate times make desperate men.”

The view at Santa Anita was decidedly more optimistic or at least more combative. Balch and Strub said they think residual or leisure dollars are elastic to some extent, that the lottery is likely to increase the total amount of gambling in the state and that, if it expands its appeal, racing could even benefit from this.

“I would challenge the notion that we are at the outer limits of our promotional ability,” Balch said. “In fact, the lottery may have greatly expanded the profile of the idea that you might be able to win money. The market for taking a chance might be a lot greater than it was, and we have to take advantage of that. The challenge to us is to appeal to people’s desire to win.”

Strub pointed out the thrust of the argument: “The lottery gives back 50% of the money bet. And it’s really an annuity. But we’re paying 82% and we’re paying it right away.”

In other words, Santa Anita is prepared to argue that a bet on the horses is a far better bet, and, it is added, those who take the time to learn to handicap may regularly do better still. Racing, said Strub and Balch, is a complete experience, while buying lottery tickets is rather mundane.

Balch said Santa Anita, which has introduced Pick Nine betting this year, with a daily carryover which can run as high as $5 million, is making plans for a massive advertising campaign beginning in January that may challenge the lottery on its comparative merits. He indicated the extent to which this will be attempted remains uncertain.

At Hollywood Park, there seems uncertainty. Track owner Marge Everett declined to be interviewed and a spokesman said one reason is that Hollywood Park management has yet to make up its mind about the situation and is reserving its options. In the meantime, it has told the racing board that it wants to sell lottery tickets at the track, a strategy to which Santa Anita has vocally objected.

The lottery challenge comes, as Felton said, at a time when the racing industry has already seemed strained. For one thing, racing is not an activity that draws many children and its clientele has had a tendency in recent years to become older.

In efforts to keep up popular interest, the number of racing days in California has been increased in recent years. So-called exotic bets--the Daily Double, were brought to the state in 1964; the Exacta (1974), and the Pick Six (1979)--have been gradually growing in popularity to the point where at some tracks they now constitute more than 50% of the handle. Recently, big carryovers when no one wins the Pick Six and Santa Anita’s new Pick Nine, have helped draw people to the track.

However, Hollywood Park’s Everett, will not use the Pick Nine at her track because she says that isn’t what the public wants.

Still, these innovations have carried with them problems of their own.

Racing board secretary Foote, for instance, said that one effect of increasing the number of racing days from under a total of 900 statewide for all tracks in 1973 to close to 1,100 in 1981 was that average daily track attendance dropped. Since then, the number of racing days has been cut back to about 1,000.

“More doesn’t necessarily mean better,” Foote said. He said that in Japan, where racing is generally held only on the weekends, crowds of up to 200,000 are not unusual. “It is uniquely an American attitude that has led to racing being conducted five or six days a week,” he added. “We may be going in the wrong direction adding dates.”

At the same time, he said, if the tracks are not used frequently those who own them may be tempted to close them down and subdivide the land into real estate, which they believe might return a bigger profit. With such tracks as Santa Anita and Hollywood Park, in the heart of urban areas, he said this is not an altogether fanciful notion.

As for the exotic bets, channeling more and more money into such high stakes wagering may actually reduce the handle. The reason is that it diminishes the so-called “churn,” whereby winnings in early races generate betting in the later ones and increase both the state and the tracks’ total take.

Now, with funds being put into the Pick Six and Pick Nine, there is a much smaller chance that this money will be bet more than once, and thereby less may be wagered from which profits can be drawn.

Harper at Del Mar nonetheless said he has come to believe the key to holding and possibly expanding the clientele at the tracks is further transformation of the exotic bets into lottery-type bets, promising a very few huge payoffs.

“The theory with the Pick Nine is to get a high pool and high payoffs, and build up a carryover,” he said. “The Pick Six became popular after it was amended to have a carry over provision. . . . What has worked for us is the high payoff type wager. Generate a carry over and your attendance skyrockets. It’s a definite people getter.”

Carryover means that if no one manages to pick all six winners or all nine winners, the person or persons with the next highest number get a small amount, but most of the pool is carried over to the next day. As the carryover builds, word spreads and crowds increase.

When the racing board approved the Pick Nine at Santa Anita, it set a limit on the carry over of $5 million. If the pool reached that amount, and there was no winner, the person or persons with the highest number of winners that day would get the pool.

Despite the seeming improbability of anyone being able to pick nine winners on a daily racing card, there have been several successful Pick Nine winners at Santa Anita and the $5 million limit has not been reached. In fact, as of the weekend the carryover pool had not exceeded $1 million.

Santa Anita, in a move Balch said is calculated to show lottery patrons there is an alternative, has been advertising its Pick Nine results extensively. For instance, just last week, a Santa Anita ad pointed out that on Sunday, Nov. 3, a single Pick Nine ticket had paid $358,041 and added that “including $2 minimum win, place and show wagering on each of nine races, $6,524,271 in winnings were returned to 41,970 fans.” The ad called this “just another ordinary day at Santa Anita.”

Such results is what convinces those involved in racing that they have some good arguments to counter the lottery.

In fact, some key racing people profess disdain for the lottery. “I don’t think it’s as good a bet for the people,” Felton said. “I hate to use the word sucker game, but they don’t have much chance. I don’t say racing is salvation, but at least they have three chances and they get to make their own selections.”

Despite everything that is being done, some racing managers indicate there are definite limits to racing’s capacity to expand.

Harper released, for example, a Del Mar marketing survey that showed that more than half of the adult population in San Diego has been to the track and that 32% have been there within the past two years. Of the total sample, only 17% seemed to be in the category of never having been to Del Mar and yet susceptible to being convinced they ought to go. The rest of the non-goers, or 24% of the sample, said they would never consider going, either having no interest or being against gambling. The number against gambling, incidentally, was very small, only 6%. Most of those who said they would not consider going considered themselves too old to easily get about.

Harper concluded that the opportunities to increase the track’s clientele were restricted and that basically it had to appeal to those who already come to Del Mar.

What concerns him about the lottery, he said, is that “it’s always been our theory there’s just so many discretionary dollars out there, and the lottery is taking a good many of them.”

Tunney, the Golden Gate Fields manager, agreed with Harper that the most important thrust of track promotion must be to appeal to those who already are acquainted with the track. “We think our clientele likes racing,” he said. “These people come to the track and enjoy themselves. They like the handicapping.” He expressed hope they will continue to be loyal.

Again in this matter, Santa Anita officials are not in total agreement. They maintain it is quite feasible to interest large numbers of non-track goers in racing. HORSE RACING REVENUE

Fiscal Year Amount Wagered* State Revenue** 1933-34 $6,315,634 $259,657 1934-35 $24,862,484 $1,005,103 1935-36 $39,359,861 $1,587,373 1936-37 $47,976,296 $1,933,259 1937-38 $66,143,358 $2,661,142 1938-39 $75,371,789 $3,030,689 1939-40 $70,423,604 $2,832,230 1940-41 $94,553,615 $3,799,115 1941-42 $37,816,692 $1,515,435 1942-43 $25,569,145 $1,077,685 1943-44 $49,383,136 $2,372,392 1944-45 $152,394,493 $8,258,568 1945-46 $414,767,035 $22,778,671 1946-47 $343,884,702 $18,741,499 1947-48 $354,242,360 $20,196,744 1948-49 $301,358,691 $17,091,734 1949-50 $278,075,056 $14,129,723 1950-51 $288,625,822 $16,264,097 1951-52 $357,551,294 $19,883,709 1952-53 $364,080,266 $20,752,406 1953-54 $402,556,400 $22,479,830 1954-55 $404,754,548 $22,864,199 1955-56 $442,846,078 $25,050,884 1956-57 $469,229,710 $26,778,752 1957-58 $452,921,490 $25,885,255 1958-59 $489,905,295 $28,029,923 1959-60 $481,145,930 $36,117,012 1960-61 $496,149,501 $37,330,906 1961-62 $510,897,609 $38,204,940 1962-63 $545,431,193 $41,663,349 1963-64 $576,010,908 $43,442,480 1964-65 $614,432,622 $47,560,370 1965-66 $617,383,594 $47,442,605 1966-67 $629,271,146 $49,311,213 1967-68 $681,293,817 $54,799,427 1968-69 $786,240,281 $59,839,346 1969-70 $792,073,269 $58,244,375 1970-71 $872,880,697 $64,600,950 1971-72 $973,814,089 $69,380,018 1972-73 $940,897,051 $72,499,126 1973-74 $1,251,880,498 $77,748,085 1974-75 $1,188,402,745 $86,828,703 1975-76 $1,276,308,373 $96,116,807 1976-77 $1,393,669,258 $102,707,570 1977-78 $1,314,213,437 $111,591,029 1978-79 $1,531,990,977 $113,252,878 1979-80 $1,691,709,674 $127,634,796 1980-81 $1,931,963,514 $131,751,000 1981-82 $2,036,600,878 $129,540,000 1982-83 $2,038,659,036 $127,448,000 1983-84 $2,180,758,883 $141,705,096 Totals $33,409,046,834 $2,298,020,155

* Includes parimutuel amounts on all meetings during the fiscal year. ** Includes all revenue irrespective of later distribution.