A Deal Approved, a Future to Write and Some Sour Grapes

The Minnesota Racing Commission approved, by a 5-3 vote, the marketing arrangement between the Shakopee Mdewakanton Sioux Community and Canterbury Park yesterday in a specially called session. 

The afternoon started with Canterbury President and CEO Randy Sampson outlining the deal and providing some history for the panel.  Most importantly, Sampson related that for 15 years Canterbury has struggled for racino in the state legislature.  This past year there was a budget shortfall that was filled by borrowing from our children, a Vikings stadium that needed to be funded, a governor that was in favor of expanded gaming, a new party controlling the legislature and overwhelming public support for a racino and, at the end of the day, the legislation could not even be brought up for a vote.  Sampson was told flat out by several influential lawmakers, “It does not have the votes.”

House Speaker Kurt Zellers and Governor Mark Dayton told Sampson that the best way to get anything favorable done was to go to their neighbors and fiercest opponents in the racino struggle, the SMSC operators of Mystic Lake and Little Six Casinos in neighboring Prior Lake, and try and work something out.  Initial negotiations produced the Horse Racing Purse Enhancement Act.  Further discussions centered on the Native Americans running the racinos at the tracks, which Running Aces rejected.  Ultimately what came out of these discussions was the marketing arrangement that provided $75 million directly to the purse account at Canterbury.

What needs to be understood which I don’t think is by many casual fans, is that there have always been two very different views on how any expanded gaming money was to be utilized by the racetracks.

Canterbury Park was reopened after a three year hiatus by a public company, Canterbury Park Holding Company (CPHC).  The main shareholders of that company, the Schenian and Sampson families, are owners and breeders of racehorses.  Running Aces Harness Park was opened in 2008 by Southwest Casinos, a now bankrupt casino operator.  From the very beginning it was apparent that they were betting on the come that racino legislation would be enabled.  Just the way that the construction was done and the card club floor was laid out it was apparent that this property was built to be more than just a racetrack.

As the past four years have shown, there was a decided difference between the intentions of the ownership groups at the two racetracks for any alternative gaming revenues.  Canterbury Park was intent on working with the horsemen’s groups to provide as much of that money for purses as was possible.  Running Aces intention, after the bankruptcy of Southwest Casinos and the takeover by a private equity firm, was to retain as much of the money for management as possible while providing comparatively little for horsemen.  This fundamental difference simmered under the surface of any racino discussions and always remained a bone of contention.  Ultimately this was proven out by the rejection by Running Aces of having the Tribes operate the racinos with money being funneled into purse accounts.

Once the decision was made that having Tribal operators run the racinos was a non-starter for Running Aces, the politicians advised Canterbury to talk to the SMSC and see what could be worked out.  Whether or not they gave the same advice to the harness track is unknown.

Following Sampson, Running Aces spokesman John Derus stepped to the microphone to outline his objections to the deal.  He said that the money was outrageously high since it cost only $77 million to build Canterbury in 1984; that now Canterbury was an adversary in their pursuit of a racino; that it just wasn’t fair.

Fairness was a theme that ran through the testimony of politicians that supported Running Aces and the employees that testified at the hearing.  Oh, and the single harness horseman that spoke against the agreement – I couldn’t tell you if there were any others there.

“They got theirs so where is ours?” could have been the testimony.  It wasn’t fair that the Commission side with Canterbury.  It wasn’t fair that they were getting all this money and we aren’t.  It’s just not fair.

The fact is that Running Aces would never approve an agreement like the one Canterbury did because there is nothing in it for track management. ALL of the $75 million of the SMSC/Canterbury agreement goes to purses.  An additional $8 million goes to joint marketing efforts.  ZERO goes to track management.  CPHC will have to make money the old fashioned way: they will earn it by making a go of the racing product now that they will have a quality product to sell.

Jeff Hilger, President of the Equine Development Coalition of Minnesota, testified that he would work on a similar deal for Running Aces with everything he had in him.  The reality is: they don’t want that deal.  They want the money.  They want racino and they want the majority of the money that doesn’t go to the state in their pocket, not their horsemen.

State Senator Pat Garofolo tweeted during the meeting: “Racino is dead.  Anyone says otherwise is trying 2 sell you something. I chief authored it last session and even I won’t vote 4 it now.”

In the face of these realities, Canterbury Park cut a marketing deal that literally saves thoroughbred racing in Minnesota.  Running Aces racing secretary said that patience is still needed for racino, that it took 25-years where he came from in Ohio.  Thoroughbred racing in Minnesota had a maximum shelf life of two years without this agreement. Dick Day, lobbyist for Racino Now, said that they were “this” close to passing, maybe it’d take another five years, but it would happen.  I guess to a paid lobbyist what’s another five years?  To those that make their living out at Canterbury that would have been four years too late.

HBPA President Tom Metzen put it best when he said, “This agreement isn’t any different than the University of Minnesota accepting money from the Tribes to build a plaza outside of the football stadium.  If Coke-Cola wanted to give us $77 million to sponsor racing for the next 10-years we wouldn’t even be talking about this, but applauding it.”

Running Aces is free to pursue racino legislation unencumbered by the restrictions on their potential profit by Canterbury Park.  They are certainly free to cut a deal with another Native American Band similar to Canterbury’s with the SMSC.  They can do what they want to do now and best of luck to them, I guess.  I wish the best for their horsemen, who seemed to be in short supply yesterday which speaks more than any testimony that could have been given.

As I tweeted yesterday (@tlgrevelis), now it’s time for the heavy lifting to begin at Canterbury.  The story has really only just begun.  The playing field is level. The marketing dollars are there.  Now it’s up to the track and horsemen to write the success story.

Gaming Overhaul Needed in Minnesota

An overhaul of gaming is needed in Minnesota.  As the state budget issues worsen and the economy shows little sign of markedly improving, additional revenues are going to be needed to keep the state running.  Spending cuts alone will not make the budget work – the cuts would need to be too deep. Racino has been mentioned in many places are a large part of the answer and that may be correct, but I think a complete look at gaming in Minnesota needs to be looked at and fundamental changes need to be made.

Upfront, I want to say that I’m not going to deal with percentages to the state or any other breakdown.  I’m not even going to advocate for the use of any funds be it for the general fund, Vikings stadium or any other purpose.

There needs to be a look at all three prongs of gaming in Minnesota:  Charitable pull tabs in bars, Native American and racetrack.

First the easy part: get rid of paper pull tabs.  This system is way too easy to cheat and too difficult to monitor.  There is a finite pool and when certain jackpots are hit, they are marked off a sheet that is publically displayed.  At some point the remaining tickets could be “positive”, if you will.  That is, the remaining number of pull tabs can all be purchased and guarantee the buyer a profit.  For that you’d have to know how many cards remain – and there are individuals that do know this number.  The possibility for corruption is great and relatively easy.

Replace the paper pull tabs with electronic forms which would provide a total pool for several million potential outcomes, making the system impossible to cheat.  Each bar or organization would be limited to 3 machines connected by a central system run by the state lottery.  The Lottery will then be in charge of the charitable distribution of the proceeds.  Local referendums should be conducted as part of a primary or general election to determine if municipalities want them in their community.  The replacement of paper pull tabs with electronic versions are overdue, better regulated and serves to limit gaming since an unlimited number of patrons can buy pull tabs while on 3 machines can be occupied at a time.  Any bar or charity on the up and up should have no real issue with this change and, in fact, should welcome it.

Now the tougher part, getting the Native American Bands in Minnesota and the racetracks on the same page in regards to gaming.  Let’s get a few things out of the way first:

-        The gaming monopoly enjoyed by the Bands is not guaranteed.  There are no provisions in the compacts that promises that there will never be any competition for the gambling dollar;

-        The State can want money from the Bands all they want but their compact does not provide for any of it.  The compacts can be reopened only with the mutual consent of the parties.  Can anyone tell me why in the world any of the Band’s would want to reopen a compact?  I wouldn’t.

I try not to take sides on this issue.  I worked in gaming for a long time here in Minnesota (and may again) so the Bands here have been my customers and are my friends.  Conversely I’ve owned racehorses and been involved in the industry one way or another on and off for nearly 25 years and love it dearly.  Is there a way that both sides can benefit from gaming reform?  I think that there is.

I hate to do this to my friends at Running Aces, but you’re out.  Southwest Casinos built this place with the express goal of getting slots while, in fact, the building of the Park probably did more to unify opposition to the idea of racino than anything else.  When slots were only being discussed at Canterbury it was hard for the northern Bands, whose casinos generate considerably less revenue than the southern Bands, to jump on board to the defense of their fellow Natives in Shakopee.  The Mdewakanton Sioux, operators of Mystic Lake and Little Six Casinos, are the wealthiest Band in the state and the per capita payouts are tremendously high due to the success of the casinos and relatively small size of the Band.  However, once Running Aces came into the picture that all changed.  Now there was a threat to the Mille Lacs Band’s two successful casinos, Grand Casino Hinckley and Grand Casino Mille Lacs as well as the potential of the trickle-down effect unemployment would have on the rural counties where they are located.  It was easy then for the Mdewakanton to back off and let the Mille Lacs Band lead the assault on racino because, quite simply, the Mille Lacs story is much more compelling.

Limit the number of slots at Canterbury.  Yup, sorry to you all as well.  No monumental gaming palace, but why not a slot venue?  Especially in Shakopee.  Gamblers will have a choice between Mystic, Little Six and Canterbury.  It almost lends itself to a great joint marketing campaign.  When gamblers don’t win at one place, what do they do?  Move on to the next one.  Where in Minnesota would be the only place that you could actually do that if the track got slots?  Shakopee, that’s where.

What’s the right number, though?  That’s a good question and I would peg the high end at 2,000 with 1,500 probably being a fair number. That’s a good size casino and would produce enough revenue to revitalize the horse industry, build the equestrian park that is sorely needed here and generate generous amounts of cash for the state while still providing a bit of subsidy for Running Aces – you can’t leave them totally high and dry. 

But what about the Bands?  What do they get out of this deal?  Well, first of all get rid of the ridiculous “video only” gaming requirement in the state and let the Bands have mechanical reels as well as the table games that they are currently barred from offering: craps and roulette.  Why not?  Additionally, shed the maximum payback requirement.

According to the terms of the compact between the state and the tribes…the minimum and maximum payouts are regulated as follows: video poker and video blackjack - 83% to 98%, slot machines - 80% to 95%, keno - 75% to 95%. Each tribe is free to set its machines to pay back anywhere within those limits and the tribes do not release any information regarding their slot machine percentage paybacks. (taken from the American Casino Guide).

This limitation is ludicrous and only harms the players.  If I operated a casino in Wisconsin or Iowa I would advertise in Minnesota that my place offers “slots so loose they are illegal in Minnesota!”  Open it up and let competition reign.

Finally, restructure the technical standards that the Bands have to follow in the state.  The standards are so archaic and hard to change that as the gaming industry is moving toward more server based applications for gaming and leading edge computer technology, Minnesota lags behind.  The state should simply adopt the latest Gaming Laboratories Inc.’s (GLI) technical standards.  Once a new set of standards is GLI approved, they are approved in Minnesota.  This isn’t a radical step and, in fact, mirrors most gaming jurisdictions that do not have their own testing lab (which I would adamantly oppose as a waste of taxpayer money, by the way).

The Bands would then get more games and more leeway in the way they can build their business. And, by the way, keep revenue sharing out of any discussion.  The state is getting its money from the racino.

I admit that this isn’t perfect for everyone – it’s not meant to be.  What it’s meant to do is be as perfect as possible for the taxpayers of Minnesota while still providing something for three groups most affected by gaming legislation. 

Ultimately if everyone could get together and talk about this, much could be accomplished for the state and its residents. A comprehensive look at gaming in this state is necessary before we move forward on anything.  A little bit to everyone could very well mean a lot for the state of Minnesota.