Lucy DePadova, a retired jewelry saleswoman from New Jersey, paused a moment to assess the casino floor at Yonkers Raceway, where rows of 5,500 high-tech slot machines, or video lottery terminals, ran the length of three air-conditioned football fields.
The place felt empty, as a couple dozen other patrons dutifully pushed the buttons on the machines. “It’s beautiful outside, to look at the racetrack,” Ms. DePadova said over the dings and dongs from the slots and the pop music coming from overhead speakers. “If they had more comps, it’d be more of a draw.”
Many of the track operators agree. For the third time since the state approved video lottery terminals six years ago, the operators are in Albany fighting to lower the state’s effective tax rate on racetrack casino revenues — a sliding scale from 60 to 70 percent that is the highest in the nation.
The operators of the state’s eight racetrack casinos contend that they do not make enough money to pay for the kinds of advertising, prizes, buffets, entertainment and free promotions — or “comps” — needed to attract gamblers and compete with Indian casinos or gambling operations in surrounding states. More promotion will mean more gamblers, and more gamblers will increase the state’s revenue for education, even at a lower tax rate, operators assert.
“We believe that additional marketing dollars will translate into increased dollars flowing into state coffers for education,” said Tim Rooney Jr., whose family owns Yonkers Raceway and invested $290 million in its casino.
The operators have found significant support in the State Senate, where Senator William J. Larkin Jr., of the Hudson Valley, has introduced a bill that would help racetrack casinos, or racinos, finance marketing and capital improvements. The bill would also reduce the effective tax on tracks in less populated areas or where they face stiff competition from casinos in New York, Connecticut and Atlantic City.
But critics of the proposal say the state should not have to keep bailing out failing racinos, which will face ever growing competition as more casinos open. They also contend that reducing taxes will hurt education. Assemblyman J. Gary Pretlow, who represents Westchester County and is chairman of the committee on racing and wagering, said his preliminary analysis indicated that the bill would “decrease aid to education by 20 percent.”
“The purpose of this was to increase the amount of aid the state gives to education,” Mr. Pretlow said. “The lottery was not devised to enrich facility operators. No one was forced to introduce V.L.T.’s at their tracks,” he said of the video lottery terminals.
Gov. Eliot Spitzer has taken no position. “When it passes both houses,” Christine Anderson, a spokeswoman for the governor, said, “we’ll take a look at it.”
Jeffrey Gural, a New York real estate executive who owns two small upstate racinos, Vernon Downs and Tioga Downs, said he would be forced to close the tracks if he did not get a better advertising allowance and if the tax rate did not go down.
“We lose $12 million a year,” Mr. Gural said. “I don’t want to threaten, but I’d have to close. How can you have a casino in the middle of nowhere and pay the highest tax in the country?”
He asserted that tax revenues from racinos rose by more than 20 percent after he helped persuade the Legislature in 2005 to reduce the tax rate and provide the tracks with an 8 percent marketing allowance.
Under the terms of the Senate bill, the marketing allowance would rise to 10 percent for most tracks. The operators of small tracks would also be allowed to keep 40 percent of the first $50 million in revenues, up from 32 percent. The rate would fall to 29 percent on revenues over $50 million.
At Tioga Downs on Friday afternoon, about 150 people passed through the casino, which has 750 machines. The crowd was overwhelmingly made up of retirees.
Eleanor Shaffer, 72, of Horseheads was playing one of the machines. She comes once a month, limiting herself to $100 in gambling money. “If you’re here to win, you’d better go home,” she said with a chuckle.
Like Ms. Shaffer, Mike Vascello, 37, and his wife, Denise, 39, come for entertainment, not with the expectation of making a fortune. “It’s really good for the area,” Ms. Vascello said. “There are not a whole lot of things to do around here.”
But Tioga, like the Buffalo Raceway or Monticello Raceway, does not do as well as racinos in Yonkers, Saratoga or Pennsylvania.
In April, Tioga’s average daily “win” per machine was only $159, far below the $262 average of the nine states on the East Coast that have machines and well behind Yonkers’s $192 and Saratoga’s $258, according to the Gaming Industry Observer, a consulting company. The “win” is the 8 percent of the money gambled at each machine after 92 percent is paid out in prizes.
The racinos were supposed to be a gold mine for operators, the flagging horse racing industry and especially for education. Indeed, the gambling machines at the state’s eight racinos generated $219.3 million last year, up from $117.4 million in 2004, according to the New York State Lottery, which oversees the money.
At the same time, the horse racing industry and the breeders, which get roughly 9 percent of the video lottery revenues, are doing better. As a result, the purses are bigger. But the horsemen do not support the bill, said Joseph A. Faraldo, president of the Standardbred Owners Association, in large part because it does not specify their share of the revenues.
Mr. Faraldo, who has clashed with Mr. Gural, says it was a “bad business decision” to open the Vernon and Batavia racinos so close to Indian casinos. He added that the state should not have to bail them out.
At the urging of the operators, the Legislature has increased their share of the revenues over the past six years, in a competitive and balkanized gambling market. Not only are there casinos in Atlantic City and in Connecticut, there are also racinos in Delaware, Pennsylvania and Rhode Island. The racino at Monticello felt the pinch of competition when Yonkers opened last year. Yonkers, in turn, will feel the heat if video lottery terminals are installed at Belmont or Aqueduct.
Any debate over gambling involves a dizzying maze of numbers.
Under state legislation, the operators keep 32 percent of the revenues, although they say the effective share is closer to 22.5 percent after they give about 9.5 percent of the revenues to the horsemen and breeders. The state, however, does give back up to 8 percent for marketing.
“You have to spend money on freebies, or they’ll get on the bus to Atlantic City or the Indian casinos,” Mr. Gural said.
In one sign of the industry’s health, New York racinos average the lowest daily win per machine — $177 a day — of the nine states on the East Coast that permit slot machine gambling, according to the April survey by Gaming Industry Observer.
The machines at the Delaware racetracks generated an average of $240 a day, compared with $264 at Atlantic City casinos and $352 at Foxwoods and Mohegan Sun in Connecticut.
Statistics tell conflicting stories. The Atlantic City casinos have the lowest effective tax rate, at 9.25 percent, but their win per machines lags well behind the Connecticut casinos, which turn over 25 percent of the slot revenues to the state.
But a comparison of New York and Pennsylvania suggests that lower taxes can lead to higher state revenues. Pennsylvania’s effective tax rate is 56.5 percent, compared with New York’s at roughly 78 percent. During the first full week of May, the eight racinos in New York, with a combined 12,679 machines, generated $7.97 million for education. But the four racinos in Pennsylvania, with far fewer machines — 7,929 — generated $9.6 million, or 20 percent more.
Nevertheless, Pennsylvania’s racino operators say the high tax rate leaves them with little cash for marketing and promotions.
Assemblyman Pretlow of New York says the operators got into the business with their eyes wide open. He does not want to be in a position of constantly adjusting the tax rate as their fortunes rise and fall.
But Senator Larkin said one more adjustment was necessary. “We’ll give them an opportunity to generate new revenue and establish these racinos as tourist destinations, which in turn would help the upstate economies,” he said.
But, he added, “We’re telling them that this is the end of the road.”
