The Business of Racing: Florida Racing: The Threat of the Seminole Compact

May 13, 2021

The Florida Legislature will meet in a special session May 17th to consider, and almost certainly approve, the agreement, or “Compact,” signed last month by Governor Ron DeSantis and Seminole Tribal Chairman Marcellus Osceola Jr., as well as two other racing-related bills. While the Compact will almost certainly face legal challenges, some of which may even succeed, all three of the bills are mostly bad news for Florida’s thoroughbred racing industry.

Let’s look at the other two bills first. The least controversial of the three would establish a new Gaming Commission to replace the current regulatory apparatus, buried deep in the state’s bureaucracy in the Department of Business and Professional Regulation. The proposal is similar to New York’s action some years ago, replacing the Racing and Wagering Board with a new Gaming Commission. In both cases, the moves reflect the increased importance of casino gambling and the declining footprint of racing.

A second bill would “decouple” pari-mutuel betting and casino licenses, except in the case of thoroughbred racing. That would allow dog tracks (already closed as a result of a voter initiative), jai alai frontons, and standardbred tracks to stop spending money on those athletic activities and operate just as stand-alone casinos.

Finally, the proposed Seminole Compact would give the tribe major advantages over non-Indian gambling, whether or not the Compact’s proposal for statewide sports betting housed in computer servers on the reservation is ultimately upheld by the federal government and the courts. Taken together, the bills don’t augur well for the future of racing at Gulfstream

Currently, the purse account at Gulfstream, one of only two thoroughbred tracks operating in the state (the other is Tampa Bay Downs), gets roughly 20% of its funds from slot-machine subsidies from Gulfstream’s own casino ($5-7 million a year in purse payments) and, at least through the end of last year, from the casino at Calder Racecourse, owned by Churchill Downs Inc. (about $10 million a year). Even without the impact of the Compact, the future of those payments is uncertain. Gulfstream Park’s contract with CDI to run racing at Calder (aka “Gulfstream West”) expired at the end of December, and, while CDI has agreed to some continuing casino payments, there’s no long-term deal in place.

By national standards, the Florida casino subsidies aren’t huge. According to Florida HBPA President Steve Screnci, roughly 50% of all purse money in the US comes from subsidies – mostly from a cut of casino revenues. In New York, for example, about 40% of the NYRA purse account is money from the Resorts World casino at Aqueduct, while in Pennsylvania, nine out of every ten dollars in purses can be traced back to casinos. But even at a modest 20% of total purses, the Florida subsidies are a key part of keeping purse levels – already well below the numbers at NYRA, Churchill Downs and other major tracks – up where they can, just barely, sustain a year-round racing program.

The proposed decoupling bill and the Seminole Compact threaten those casino subsidies in two ways. First, the decoupling bill relieves most casino licensees from the requirement that they also operate a pari-mutuel activity. That means Calder, which had already converted its thoroughbred license to jai alai, would no longer need to spend any money at all subsidizing racing, nor would the state’s now-shuttered dog tracks, other jai alai frontons or that one remaining standardbred track in Pompano. But casinos at thoroughbred tracks would not be allowed to decouple; they’d still have to spend some of their profit supporting racing. That would further doom the Gulfstream casino, a sad, dark shell that looks particularly uninviting to someone seeking the glitz and excitement of a Vegas, or even a Biloxi, casino. And it would effectively end the ongoing negotiations between the Stronach Group, owners of Gulfstream, and the HBPA over tying a possible expansion of the casino to raising more money for purses.

Second, the Compact would allow three more casinos to be built on tribal land, creating a mini-Las Vegas Strip on the Seminole acreage, located just a few miles west of Gulfstream. It would also lock in a tax advantage for the Seminole, permitting the tribe to pay a tax rate of only 10 to 15% on its net win, compared to more than double that tax rate at Gulfstream. The HBPA had been lobbying in Tallahassee for parity in those tax rates or even for a moratorium on taxes at the racetrack casino, The Compact firmly rejects that, locking in taxes on South Florida’s non-Seminole casinos at close to current levels.

All told, the Seminole deal promises to pay the state $500 million a year for its first five years. That sounds like a lot of money, but it’s not even half of one percent of the state’s annual budget. And it could have been a lot more, especially given the handle expected to flow to the tribe if the Compact’s authorization of statewide mobile sports betting is ultimately approved. But the combined lobbying weight of the Seminoles, backed by Hard Rock and other gambling operators, and the Disney colossus, which wanted to keep casino gambling out of central Florida, apparently kept the state’s mere fiscal concerns at bay.

Finally, we really have to say a little something about that sports betting plan. The Compact would make the Seminole Tribe the only licensee for mobile sports betting in the state, though it envisions three or more operators, including both pari-mutuel sites and big companies like FanDuel or Barstool Sports, offering platforms on the tribe’s infrastructure. No other state thus far has used the tribal model as a basis for mobile sports betting, and the Compact faces at least three legal challenges: First, the Compact requires approval by the US Department of the Interior, now for the first time headed by a Native American, Deb Haaland. Interior’s own lawyers may well conclude that the Compact goes beyond the bounds authorized in the 1988 Federal Indian Gaming Regulatory Act. Second, the Florida anti-casino lobby that in 2018 pushed through a constitutional amendment requiring voter approval for any expansion of casino gambling is arguing that the Compact violates that amendment and is promising a state court challenge. Finally, most legal authorities, including attorney Daniel Wallach of Hallandale, perhaps the most visible sports law practitioner online, believe that allowing people to place bets wherever their cell phones are, even if the computer server is on the reservation, violates the Indian Gaming Regulatory Act. Wallach cites a 2014 Supreme Court decision, Michigan v. Bay Mills Indian Community, which held the “gaming activity” authorized by the Act, and which must actually take place on Indian land, is the actual gambling or placing of bets, not merely servicing or administration. The Supreme Court’s personnel has changed a bit since 2014, but not necessarily in ways that suggest its Indian gaming jurisprudence would be reversed. 

Sports betting platforms that don’t include horse racing would have an obvious adverse effect. But even if the sports betting piece of the Compact is eventually struck down, the rest of the legislative package would survive, and it doesn’t do much for Florida racing either. The advantage that decoupled casinos and the Seminole Tribe will have, compared to Gulfstream, is a major threat to the purse account. Gulfstream is already seeing small fields. An extreme example was the $75,000 Big Drama Stakes this past Saturday, which scratched down to just four runners. Nationwide, a combination of smaller foal crops (down 53% from three decades ago) and fewer starts per horse each year (down 36% in the same period, to barely five starts per horse per year) means that there aren’t enough horses for all the races out there, even though the number of races nationally has also declined significantly. And in Florida, the number of races offered hasn’t dropped by as much as in the rest of the country. So, the outlook – too few horses, too many racing days, and stagnant or declining purse levels – isn’t a promising one. And the Legislature’s latest foray into the arena doesn’t make things any easier. At a minimum, the new legislative package will increase the pressure to decrease the number of racing days in Florida as a way of maintaining purse levels. The question will then be: how many days are too few to support a year-round industry. A continuation of the present 51 weeks a year, 200-plus racing days seems unlikely.

Photo: Gulfstream Park casino

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