HORSE RACING IN VIRGINIA:
A PROMISE IN PROGRESS

Robin Traywick Williams

    (Editor's note: This article was written in response to "Does horse racing have a future in Virginia?" by C. Fred Kohler that appeared in volume 6, number 1. An announcement that Colonial Downs would be sold came as VIA was going to press.)

To paraphrase the great Irish novelist James Joyce, horse breeding and racing in Virginia is a promise in progress.

In 1988 the Virginia General Assembly passed legislation authorizing parimutuel wagering on the outcomes of horse races, and the bill became effective with passage of a statewide referendum in November of that year. The legislation was drafted to permit wagering for the ". . . promotion, sustenance, and growth of a native industry"--in this case, horse breeding and racing. The enabling legislation charged the Virginia Racing Commission with the responsibility of maintaining ". . . horse racing in the commonwealth of the highest quality and free of any corrupt, incompetent, dishonest, or unprincipled practices and to maintain in such racing complete honesty and integrity."

Now more than 10 years later, much has been accomplished, although a great deal more needs to be done before the full promise of horse breeding and racing in Virginia is realized. These past two years, I have served as chairman of the commission, and as you have read in these and other pages, they have been years full of controversy. Amid the tumult and shouting, it is important that we not focus on the "bad news" at the expense of the "good news." Here are just a few of the positive developments since the first license was issued in 1994:

  1. A beautiful racetrack has been constructed in New Kent, and the new Secretariat turf course at Colonial Downs is recognized as one of the finest of its kind anywhere in the world;
  2. The four, short, live race meetings conducted at Colonial Downs yielded promise that live racing will, in fact, promote, sustain, and grow the native industry of horse breeding in Virginia;
  3. Last year's inaugural running of the Virginia Derby and the Breeders' Crown harness races brought national acclaim and media coverage to the commonwealth;
  4. The simulcast wagering at the four satellite facilities has more than proven its worth as a key element in the future financial success of Colonial Downs.

Even more important to the long-range growth of horse breeding and racing in the commonwealth is the fact that the experience of the past four years has encouraged expansion of racing in other regions of the state. The commission is currently considering two applications to build licensed racetracks in Prince William County. These proposals call for tracks to be built and operated along the lines of the principal racecourses of England, e.g., Goodwood, Newmarket, and Ascot.

Nevertheless, the commissioners recognize that there have been disappointments and setbacks along the way to realizing the promise of Virginia horse breeding and racing. Clearly, Virginia's first parimutuel racetrack, Colonial Downs, has not yet been as successful as the commissioners were led to believe that it would be.

HOW DID WE GET HERE?

Reviewing the entire application and evaluation process would take a score of pages, so here is the short version. In 1994 the commission spent nine months analyzing six applications for the state's first license to build a track. As a participant in those proceedings, I can affirm that they were thorough and excruciatingly fair.

The quality of the applications was quite high, and we felt that this was a testament to the potential of Virginia as a market for racing. However, there was no obvious choice for the license. In fact, in the commission's opinion, each of the applications had shortcomings. Those problems were listed in the commission's final order awarding the license to Colonial Downs and rejecting the other applications. To our dismay, the current situation bears little resemblance to the picture Colonial Downs officials drew for us during the application process in 1994.

WHAT THE VRC EXPECTED BUT DIDN'T GET

Numbers that work

With new racetracks in Texas filing bankruptcy on a regular basis, the commission was concerned that applicants were presenting overly optimistic projections for attendance and handle (total amounts wagered). Colonial Downs had a desirably conservative image because of its repeated statement that it could break even and "operate in the black" even if the track missed its projected parimutuel handle of $176 million by as much as 36 percent. However, in 1998, its first full year of operation, Colonial Downs had a total parimutuel handle of $139 million, well above the applicant's stated breakeven point of $113 million. Furthermore, the breakeven point took into account that Colonial Downs would offer a program of 152 days of live racing, with 102 of those live days devoted to thoroughbred racing. Now, however, Colonial Downs maintains it will go into bankruptcy if it is required to run anything more than a limited 25-day thoroughbred race meeting. As we work toward the Racing Act's minimum of 150 days of live racing by the year 2002, it remains to be seen whether Colonial Downs can meet its statutory obligations and its own promise to offer the commonwealth the equivalent of five months of live racing

A professional racetrack management team

In its application, Colonial Downs clearly stated that the racetrack and its satellite facilities would be under competent, professional management. It proposed a joint undertaking with the Maryland Jockey Club (MJC), which puts on the second jewel of the Triple Crown: the Preakness Stakes. This was an important factor in our decision because there were concerns whether Colonial Downs' principal owner at the time, an accomplished owner of a small harness track, had the expertise and vision to run the sort of bigtime thoroughbred track that everyone expected here.

However, despite paying MJC a High fee for managing the project, Colonial Downs, until recently, has used Maryland personnel only in a very limited way. Instead, the track hired its own people and let MJC's staff cool their heels. Not only was the track paying double for the same service, it was not taking advantage of the racetrack expertise it was buying. So, because the reins of the racetrack have been held tightly in the hands of Colonial Downs executives with no previous racetrack experience, horse racing in Virginia has been checked from the start.

Earlier this year, Colonial Downs and MJC renegotiated the management agreement, reducing the cost for Colonial Downs and increasing the actual authority of the track professionals to run the project. This was a good move. On July 1 of this year, John J. Mooney, an experienced racetrack manager from the MJC, took control of the daytoday operations of Colonial Downs' racetrack and satellite wagering facilities. The horsemen are happier, and the commission is pleased with the improvement in the general operation. Colonial Downs should benefit in the long run because the MJC has the expertise and contacts within the industry to take advantage of operating efficiencies and opportunities for increasing revenue.

A fully developed site

In analyzing Colonial Downs' application, the commission was concerned about the New Kent County location, which is 20 miles east of Richmond and 20 miles west of Williamsburg. Extensive plans by Delmarva, Inc., to develop the surrounding property allayed some of our concerns. While these proposed developments were not the responsibility of Colonial Downs, we were led to expect a golf resort; an equestrian village; Branson, Missouritype theatres; a microbrewery; a minitheme park; an equine medical and surgical center; and so on. The Del Webb Corp., the country's largest developer of retirement communities, announced plans for one of its "Sun City" projects. All these developments would have attracted existing and potential racing fans to the area. Unfortunately for Colonial Downs and Virginia racing, the only development so far is a championshiplevel golf course. This has increased the challenge for Colonial Downs to attract fans.

Aggressive marketing and promotion

Although current majority owner Jeffrey P. Jacobs did not join Colonial Downs until two years after the license was awarded, he brought with him the expectation of improved public relations. Initially, each of the applicants for the license had promised professional marketing efforts. Given the Jacobs family's experience in professional sports, the commission and the horsemen expected to see improved marketing and public relations.

Regrettably, Colonial Downs has not yet lived up to its potential in this area. Repeated announcements of impending bankruptcy have tarnished the track's image, whether one views those threats as bargaining tools or genuine possibilities. The marketing campaign promised during the application process never materialized until the horsemen, with a little help from the commission, took matters into their own hands. In July 1998 the commission ordered Colonial Downs to spend $500,000 to promote the fall thoroughbred meet. The horsemen formed a coalition of related organizations that added to and leveraged Colonial Downs' marketing budget. The result was the most skillful marketing effort to date. This past summer, the harness horsemen followed suit and produced an effective media campaign of their own.

The improved marketing and professional management of the racetrack have mitigated the negative publicity about the corporation to produce the most successful meets in the track's short history. We are hopeful that further improvement lies ahead.

WHAT THE VRC EXPECTED AND DID GET

A firstclass racetrack

Overlooked in the morass of legal and financial disputes is one very important fact: Colonial Downs built a racetrack that is one of the finest in the nation. Horsemen from all three disciplinesharness racing, flat racing on the dirt, and flat racing on the turfall attest to the quality of the racing surfaces. Not surprisingly, the racing has been excellent, attracting leading trainers, jockeys, and stables along with equine luminaries such as Victory Gallop, the 1998 Belmont Stakes winner.

The grandstand is also very attractive, the food is good, and the atmosphere is friendly. Patrons who go to the races have a fun experience. It is a nice place to take your family. Ten thousand people spent the 4th of July there, and another 5,300 braved the remnants of Hurricane Dennis to spend Labor Day at the track.

A racing circuit with Maryland

An undefined part of the management fee Colonial Downs pays to the MJC is to compensate the MJC for closing its tracks when Colonial Downs is racing, thus eliminating the competition between the tracks for both horses and fans. Certainly, in these start-up years, Colonial Downs could not have held thoroughbred racing without the horses that came here as a result of the seasonal closing of Laurel and Pimlico. The circuit was designed to benefit racing in both Virginia and Maryland, and it has done so.

STIMULUS TO THE HORSE INDUSTRY AND WHAT RACING DOES FOR VIRGINIA

Even the limited amount of live racing that has been conducted thus far has begun to stimulate growth in the industry statewide. The racetrack is only the most visible segment of a vast agribusiness undertaking. It takes 1,000 to 1,500 horses to run a live meet, and each one of those horses is the product of a laborintensive effort from breeding to foaling to raising to selling to training a young racehorse. These activities lead to the employment of a wide range of people, including veterinarians, feed dealers, hay farmers, implement salesmen, tack shops, grooms, exercise riders, trainers, farm managers, farriers, trailer manufacturers, office managers, sales agents, fence and barn contractors, and, of course, attorneys, bankers, and accountants.

One penny of every dollar wagered goes into the Virginia Breeders Fund. This fund, which presently accumulates about $1 million a year for thoroughbred horses and another $200,000 a year for harness horses, is distributed as incentive payments to Virginia breeders of horses that win races at Colonial Downs and selected races in Maryland. These payments, plus the opportunity to win purses at Colonial Downs, have stimulated the state's horse industry.

Other sectors of the horse industry, including nonracing breeds, benefit from racing in Virginia, too. Beginning this fall, $400,000 per year from parimutuel wagering will be distributed to the Virginia Horse Council, Virginia Tech's VirginiaMaryland Regional College of Veterinary Medicine, and the allbreed Virginia Horse Center in Lexington. In addition, parimutuel wagering at the racetrack and the satellites has produced $5.5 million in state taxes and $4.1 million in local taxes since December 1996.

But the real, tangible benefits envisioned by the Racing Act will accrue only if there is a substantial number of live racing days. Some within the racing community disagree about what the "right" number of days is, but horse racing and breeding are not going to enjoy a meaningful financial stimulus from a mere 25 days per year, which is what Colonial Downs requested for 1999. To date, Colonial Downs has acted as if it would like to operate the lucrative satellite wagering facilities without the financial expense of running more than a minimal number of liveracing days. But the Racing Act clearly recognizes live racing as the foundation for Virginia's breeding and racing industry, and the commission takes seriously its statutory mandates.

WHY ALL THE LEGAL WRANGLES?

The commission wants Colonial Downs to live up to its statutory obligations and its 1994 promises to maximize the number of live racing days and the size of the purses in exchange for holding the franchise for pari-mutuel wagering in Virginia. After all, both the General Assembly and the voters of Virginia approved parimutuel wagering for the express purpose of promoting the commonwealth's 300yearold horse breeding and racing industry.

Pursuing the Racing Act's goal to maximize live racing has landed the commission and Colonial Downs in circuit court. While it is unpleasant to fight these legal battles continually, the commission has a duty to enforce the Racing Act. It is not unusual for new statutes to be the subject of litigation, and often the outcomes of that litigation illuminate the strengths and weaknesses of the statute. That has been our experience.

When statutory changes have been needed to promote and grow the native industry, the commission has sought them. The commission has, in fact, promoted legislative changes every year since live racing commenced. In most cases, the need for these changes has come to our attention through the daytoday experience of regulating racing and wagering. In other cases, unforeseen global changes in the way horse racing operates and is presented to the public have made legislative changes desirable.

THE VRC'S LEGISLATIVE PROPOSALS

The Virginia Racing Commission has developed several proposals for consideration by the General Assembly in January. The commission believes these amendments to the Racing Act are necessary to give effect to the legislature's intent that live racing comes first and to clarify the commission's authority over racing with parimutuel wagering. The commission proposes these amendments to the Racing Act:

  1. Language to clarify that a percentage of the wagering from the satellite facilities is deducted and deposited into the horsemen's purse account on a daily basis. In the commission's view, Colonial Downs, to offset its own financial problems, has used millions of dollars that should have been deposited into the horsemen's purse account. In Colonial Downs' stated view, the number of live racing days should be determined by the amount of revenue left over after the expense of all other operations. The commission, on the other hand, believes racing should not be dependent on leftovers but should get a percentage of the revenue off the top, as is the case in every other racing state in America.

    The purse issue was originally left up to the negotiations between horsemen and the track. Unfortunately, Colonial Downs has administered the revenue from the wagering at satellite facilities in a largely discretionary fashion, merely parceling out enough money for purses to keep the horsemen marginally satisfied. The current method of dividing the revenue has led to deep divisions within the ranks of the horsemen themselveshardly something that is in the best interests of racing.

  2. Language to provide the commission with authority to summarily suspend a license, pending a prompt hearing, whenever it believes a licensee has willfully disregarded commission orders or regulations and there is a financial risk to the commonwealth or the horsemen's purse account. This is the case in other states.

    Unfortunately, it has become clear during the past year that the Racing Act needs further refinement to give the commission adequate authority to regulate a licensee with a monopoly on parimutuel wagering. It takes a minimum of three months of due process hearings and appeals to force the licensee to comply with commission ordersand Colonial Downs knows that. When the licensee can continue to operate the lucrative satellite facilities, regardless of the commission's orders, the financial incentive for the licensee to flout the commission's orders is too great. The commission should be able to shut down the satellite facilities on short notice in order to force compliance with its orders and regulations.

  3. Language specifying that Colonial Downs use the "breakage"the odd cents left over from the payout of winning betsas follows: 70 percent for capital improvements and 30 percent to improve the quality of life for the workers in the stable area. In most states, the breakage, amounting here to almost $1 million a year, is designated for similar uses, split between the track and horsemen, or paid to the state. This proposal would permit Colonial Downs to keep it but would require the racetrack to reinvest the money in the project.

    The commission's legislative proposals are important amendments to the law, regardless of who owns and operates a racetrack in Virginia.

    The summary suspension authority will simply ensure that the commonwealth has the ability to sufficiently regulate licensees. Likewise, the purse money proposal is one that is in the best interests of the industry, regardless of who operates a racetrack in Virginia. Horsemen and track owners alike will know up front what to expect from the division of revenues, and they will be able to plan accordingly.

    These issues, as we have learned from hard experience, need to be addressed in the law.

    Perhaps the most important of these proposals is the third one. The backstretch workers are the least fortunate members of the racing community, and it is absolutely proper that we set aside a portion of the handle to help them better their lives. Racing must look after its own.

WHAT COLONIAL DOWNS NEEDS TO DO

I love Colonial Downs, and I am eager for the racetrack to be successful. This has been a difficult year, but there is much to be optimistic about.

I am encouraged by Colonial Downs' decision to turn day-to-day management of the track and satellites over to experienced racing personnel. The horsemen who put on the show have confidence in Mr. Mooney and his team. That is evident from the fact that 800 horses were stabled at Colonial Downs for the thoroughbred meet this fall, a fourfold increase over previous meets. In addition, handle and attendance are gradually increasing as more people learn about the existence of this exciting entertainment option.

There is sophisticated and dedicated leadership among the horsemen, and several key people have worked tirelessly to promote racing in Virginia and throughout the country. Certainly, the industry here has done everything conceivable to enhance the prospects of success for racing in Virginia.

And racing is beginning to benefit the agribusiness community as intended, through Breeders Fund incentive payments, through distributions to the veterinarian school and the horse center, through stimulating the agricultural economy, and through tax payments to the state and localities. Still, there is much to be done to realize the full promise of racing in Virginia.

Colonial Downs, for its part, must do the following:

  1. Promote a positive image of racing and of itself;
  2. Demonstrate a genuine commitment to horse racing in Virginia; and
  3. Accept that horse racing with pari-mutuel wagering is a heavily regulated industry that, unlike other private-sector undertakings, requires government supervision and assistance to flourish.

These steps are nothing more than the commission would expect from any licensee.

The last two items are particularly important. The Virginia Racing Commission, appointed by the governor and approved by the General Assembly, is charged with ensuring the integrity of racing, the safety of the participants, and the promotion and sustenance of the horse industry. Colonial Downs' repeated challenge of the commission's every order does not contribute to a cooperative atmosphere for the development of racing. Gambling opponents in the legislature could use the excuse of Colonial Downs' uncooperative behavior to enact legislation detrimental to racing, thereby damaging the livelihood of thousands of Virginians in horserelated jobs. I am hopeful that the General Assembly as a body will recognize that the benefits that were projected to accrue to the state and the horse industry are beginning to be realized. Furthermore, the problems of Colonial Downs should be viewed as the shortcomings of one particular company, not the failure of racing.

Five years ago, horse racing was on a downward slope of its national business cycle. Now, with the economy on the upswing and the promotional campaign of the National Thoroughbred Racing Association, many racetracks are experiencing a wave of doubledigit increases. Colonial Downs is behind the wave right now, but the situation can be reversed. The hurdles confronting horse breeding and racing are not insurmountable, and they can be readily addressed in a spirit of cooperation, commitment, and credibility. The commission is committed to working cooperatively with the licensee and the horsemen to do what is in the best interests of the sport.


Robin Traywick Williams is the chairman of the Virginia Racing Commission and a legislative liaison for Lt. Gov. John H. Hager. She is a member of the board of directors of the Association of Racing Commissioners International and serves as chairman of ARCI's Legislative and Judiciary Committee. A former candidate for the House of Delegates, she has been editor of the Goochland Gazette, a reporter for the Richmond Times-Dispatch, and a legislative assistant for former Lt. Gov. John Dalton and four members of the General Assembly. This year she received the Joan Pew Award from ARCI, presented to the racing commissioner demonstrating vision, vitality, and courage.

FALL 99 VIA