Racinos are coming to Ohio. Last week the Ohio House approved a bill, earlier passed by the Senate, that will allow the state’s seven racetracks to apply for video lottery terminals (VLTs).

Governor John Kasich, who had urged passage, is expected to sign the bill, which also includes a provision for owners of current racetracks to move their location. This would allow Penn National Gaming Inc., for instance, to move two of its racetracks that would compete with the two casinos it is building, to other locations.

The state has three thoroughbred racetracks and four harness-racing tracks. Their owners will now be able to apply to the Ohio Lottery Commission for licenses to operate the VLTs, but they must do so within a year or lose the privilege. The state will tax their revenues at a rate of 33.5 percent. The operators must pay a $50 million licensing fee are also required to invest a minimum of $150 million for each facility, although they will be given some credit for existing facilities and land. Penn National has said it plans to spend $200 million per facility if it is allowed to move to Dayton and Youngstown.

The idea of deploying VLTs at racetracks was first proposed by Kasich’s predecessor, Ted Strickland, although his plan would have charged each racino $65 million in licensing fees and taxed the revenues at 50 percent.

The bill is a direct result of a deal Governor Kasich made with the developers of four regional casinos in Ohio, Penn National and Rock Ohio Caesars. Kasich persuaded them to each agree to pay the state an additional $110 million over ten years and in return the state dropped its formula for calculating how commercial activity taxes (CAT) by the amount of money wagered, instead of the actual revenues from the wagers, and the state agreed to make it easier for racetrack owners to move their licenses, something that has not been done in Ohio for 50 years. Rock Ohio Caesars owns the Thistledown racetrack in Cleveland, where it is building a casino. Penn wants to move its licenses for Beulah Park in Columbus and Raceway Park in Toledo from those cities, where it is building casinos, to Dayton and Youngstown.

The legislation does not guarantee that Rock Ohio Caesars or Penn will be the only ones who could move their racetracks. Any racetrack owner would be allowed to apply for a move. This is being referred to in Ohio political circles as the “jump ball” referring to basketball, where the referee throws the ball in the air and anyone can try to catch it.

The developers will still need the approval of the Ohio Racing Commission to move its racetracks. Some analyses of the market project that a racino in Youngtown could generate up to $109.5 million in revenues, and one in Dayton could generate up to $95.8 million.

The four casino and seven racinos will be all the gaming activity that will be allowed for the foreseeable future. A spokesman for Kasich said the intent is to impose a “10 year moratorium” on other gaming activities. “It's a chance to catch our breath and monitor how this is working, to make sure that it's been rolled out in the proper manner,” said the spokesman, Rob Nichols, according to the Cleveland Plain Dealer.

One factor about limiting further gaming activity for ten years is that it salves concerns that Penn National and Rock Ohio had about slot machines being allowed at bars and taverns, similar to what is currently legal in Illinois, or at gambling parlors. Predictability in taxes and competition were the most important concerns for the developers, who are currently building casinos in Toledo, Cleveland, Columbus and Cincinnati.

“It helps us a lot to have this clarity,” commented an attorney for Rock Ohio Caesars.

Under terms of the agreement, state officials will not encourage any other Las Vegas style casinos for ten years. That, of course, would not prevent someone from putting another gaming expansion on the ballot, as the developers of the four casinos did two years ago when voters approved the constitutional amendment that allowed the casinos to be built. However, if that happened, the developers would be relieved of the requirement to pay the state the $220 million in fees.

Nichols said, “If voters go back to the ballot and say we want eight more casinos, we can't stop that. But on the things within the control of state government, there's a moratorium for 10 years.”

In a related development the final budget law passed and signed by the governor did not include a proposal to privatize the management of the Ohio Lottery. The provision had been in the Senate version of the budget, but was not included in the final bill.

Kasich has pushed for some sort of privatization of the lottery, so it might be revived as a standalone bill before the end of the current legislative session. However, the effort spent on passing the VLT racino bill dominated lawmakers’ attention. As one political observer commented, as quoted by GamblingCompliance, “The oxygen has really been sucked up by the VLTs.”

By Staff