A HOUSE DIVIDED GRAVELY THREATENED BY CASINO GAMBLING, HORSE RACING CAN'T DECIDE WHETHER TO RUN WITH ITS RIVAL OR STAY ON A DIFFERENT TRACK

Early in 1994, on a cold February afternoon in the Kentucky
state capital of Frankfort, the aminence grise of the Bluegrass
breeding establishment, James E. (Ted) Bassett III, arrived at a
hearing room to settle this thing: this divisive, prickly matter
of riverboats and racetracks. Bassett is the chairman of the
Keeneland Association, through which he runs not only the
world's swankiest thoroughbred auction house but also that
pretty little racecourse off Versailles Road. And over the years
no one has come to represent more loyally the Kentucky breeder's
state of mind--where hopes and fears exercise together in a
gymnasium of the status quo--than this courtly U.S. history
graduate of Yale.

For weeks lobbyists representing a consortium of the state's
eight other tracks, which Keeneland had declined to join, had
been buttonholing state lawmakers, particularly members of the
House Tourism Committee, pressuring them to place a
constitutional amendment on the November ballot that would allow
casino gambling at racetracks in Kentucky. Three of the seven
states that border Kentucky--Illinois, Indiana and Missouri--had
already legalized riverboat casinos, and the mounting fear was
that the Bluegrass State would soon be rimmed by floating slots
and blackjack tables draining pari-mutuel dollars from the
windows of its tracks. Only Illinois actually had any boats in
the water, with four on the Mississippi, but Illinois and
Indiana share the Ohio River with Kentucky, and several Indiana
counties bordering the river were lining up for licenses to
launch a boat.

And so, with the barbarians perceived to be at the gates--nay,
about to scale the battlements--the racetrack consortium arose
under its boosterism banner, KENTUCKY TO THE FRONT. Since the
size of any track's purses is a direct reflection of the money
it handles in bets (a certain amount, usually around 7.5%, is
skimmed off the top for purses), and since casino competition
invariably cuts into a track's handle, thereby reducing purses
and thus the quality of the fields, the consortium proposed to
augment the diminished pots at the tracks by sharing 5% of
casino revenues. One by one, track executives and owners preened
before the committee in a show not without theater. An editorial
in the Louisville Courier-Journal noted that former governor
Julian Carroll "ranted and raved like a revivalist preacher
urging legislators to stand up and declare their belief in
casino gambling...."

A few lawmakers were leaning favorably toward the consortium's
view when the 73-year-old Bassett, who had waited until the end,
made his way to the witness table and sat down. In calm,
measured tones, he struck all the most reverent and familiar
chords, speaking of how Keeneland had striven for 60 years to
preserve "the traditions of racing," of how it had been
"chartered as a showcase for the breeding industry," and of its
hope of keeping the sport as it was meant to be. "We feel at
this time that it would be injudicious, incompatible and
injurious to implement casino gambling," Bassett said quietly.
And then: "We are not going to cave in to the hypothetical
threat of a mythical armada cruising down the Ohio from Ashland
to Paducah under the disguise of a legislative act that has yet
to be passed in most of our neighboring states...."

This was the coup de grace, the moment that "Kentucky to the
Front" became "Casinos to the Rear." That was 17 months ago, but
even today it is remembered as the Mythical Armada Speech, the
one that killed casinos dead in Frankfort. This struggle was not
played out in some racing outback of the Republic, but rather at
the very spiritual and ancestral home of the sport, in a state
where a little chestnut colt named Aristides won the first
Kentucky Derby in 1875, where Man o' War and Count Fleet and
Secretariat stood at stud and are buried now, where the breeding
and raising and racing of horses, the fastest on earth, are
forms of human endeavor quite as firmly rooted in the fabric of
things as the oaks that grip the rolling earth along the Paris
Pike. That this nettlesome business of riverboat casinos should
stir such a maelstrom, right there at the heart of a whole way
of life, revealed how transpiercing an issue it had become.

It is everywhere. Reins flapping, blinkered and riderless, it is
the loose horse in racing's clubhouse, kicking over silver tea
sets and crunching toes. From South Florida across New Orleans
to New Mexico, from Southern California across Nebraska to the
Great Lakes, from New England south through New Jersey and
Atlantic City to the old Maryland circuit, no single subject
raises more foam and fury than that of the marriage, whether
proposed or already consummated, of casino gambling and
thoroughbred racing.

"It is the most terrifying thing that I can imagine happening to
our sport," says Kentucky breeder Josephine Abercrombie, the
owner of Pin Oak Stud near Versailles. "This is the one thing
that could single-handedly do our sport in."

Ah, but wait. "There's no place in the world where casinos and
pari-mutuel racing have ever coexisted, but that doesn't mean we
can't!" says Richard L. Duchossois, who poured $200 million of
his own money into rebuilding Arlington Park, a palace of a
racetrack outside Chicago, but who now expects to take a 35% hit
in his handle this season. Last fall a giant floating casino
called the Grand Victoria--with 977 slot machines, 39 blackjack
tables, seven roulette wheels, eight craps tables and room
enough for 1,736 people--opened for business on the Fox River in
Elgin, just 12 miles from Arlington's front door.

Duchossois beseeched the state legislature for the right to open
a casino, and he threatened to padlock his doors this year when
it refused. He backed off that dime, but only after the state
allowed him to cut his 1995 racing dates, and hence his losses,
from 131 days to 55. Still hinting darkly that this might be
Arlington's final year unless he can get relief to compete with
the boat, Duchossois intends to continue his quest for a hybrid
creation that he calls a racino. "Casino and racing can
coexist," he says. "If "they can't, the racing and breeding
industry is going to self-destruct."

If casinos today constitute what prominent owner and breeder
John Ed Anthony calls "the greatest threat to our industry in
modern history," they are merely the latest to rock a sport
whose decline has been linked to its failure to deal
intelligently with other perceived threats to its survival. The
paradox is that most of these so-called dangers--simulcasting,
lotteries and the exploding influence of television--might have
helped revive the sport had its leaders recognized soon enough
the potential for harnessing them. That some industry leaders
are now strongly resisting casinos suggests to many that the
sport is once again turning against, rather than embracing, a
source of strength.

The whole idea of such a coexistence, the creation of this
mutant racino gene, is blasphemy to the purists in the sport.
"Racing can't be married to casino gambling," says California
horseman Eddie Gregson, the trainer of 1982 Kentucky Derby
winner Gato Del Sol. "That will be the death of this sport. The
casino gambler has nothing to do with the real racegoer. Racing
cannot compete with casino gambling. No way! Racing will be
piggybacked along and be no better than a lounge act."

Such strongly held opinions make for an unusually toxic issue,
and how it plays out may well govern the conditions and extent
of the sport's survival. All across the land, caught amid a
furious growth in casinos, racetrack operators are bawling to
states for relief. In Hot Springs, Ark., at the prosperous
little resort track of Oaklawn Park, owner Charles Cella last
year failed in a legal effort that was aimed at allowing him to
build a racino at Oaklawn, which would have given him the weapon
to battle the dozens of riverboats on the Mississippi operating
out of such places as Tunica, Miss., and Helena, Ark.

"Racetracks and casinos cannot exist as rival entities," Cella
says. "It's not a level playing field.... I am not a casino guy.
I have a passion for racing. I would never get into the casino
business if it weren't for racing. Casino gambling, if it
augments purses, I'm all for it. That's the only reason I'm
interested in them. Casino to me is a bad word. But if we don't
get one, Oaklawn could very well go under."

Several racetracks have already installed slot machines or a
variant of them--such as video poker machines and video lottery
terminals. At the venerable Fairgrounds in New Orleans. At
Louisiana Downs. At Mountaineer Park in West Virginia. And, most
spectacularly, at Prairie Meadows in Iowa, a little track
outside Des Moines that was virtually driven under by riverboats
and then resurrected this April 1 by the introduction of 1,100
slot machines. Twenty-four hours a day, seven days a week,
thousands poured in to play the slots, and by the end of the
first month they had pumped in $126 million. The profit for the
month was $9 million, and the track boosted purses by nearly $1
million, raising them from $20,000 to $35,000 a day for the
62-day meet.

It is no wonder tracks in need of similar fixes are pleading
with states to give them slots. Faced with Native American
casinos nearby, officials at historic AKsarben in Omaha say the
track might not survive next year unless it gets machines.
Ruidoso Downs in New Mexico is begging for them. So is Woodlands
in Kansas City, devastated by riverboats on the Missouri.
Detroit Race Course, whose handle plummeted 18% after a glitzy
casino opened across the river in Windsor, Ont., is too. "It's
been a disaster," Bill Bork said before leaving his job as
executive director of DRC in May to become CEO of Penn National,
a thoroughbred track in Grantville, Pa. "In four hours of racing
we get in 10 races, whereas a casino can get in 3,000 pulls of a
slot machine and god knows how many plays on a blackjack table.
We just can't compete with the speed."

Of all the racetracks attempting to bring casinos to bed,
however, none is being watched more carefully than Hollywood
Park. Its chairman, R.D. Hubbard, has been the sport's most
ardent tub-thumper on the issue since he first issued a warning
to a convention of racing commissioners five years ago. "I told
them that gambling is spreading-and a lot faster than you
think," says Hubbard. "Indian casinos are coming, and racing had
better get a piece. You're not going to be able to stop it."

Hubbard was a newcomer to the sport, and he was considered a
renegade seeking a pact with the devil. When he sought to enlist
the support of a group of Southern California horsemen to open a
card club at Hollywood Park, they rebuffed him. "Our game is not
for sale," they told him. So he went off on his own, pulled all
the right levers and last year opened the card club himself.
Today, in two large rooms on the ground floor of a six-story
pavilion on the racetrack's clubhouse turn, under banks of TV
screens showing races from around the country as well as from
Hollywood Park itself, card players sit playing hold 'em and
draw while bet runners sweep around the tables taking wagers on
races.

By the time Hubbard had opened his club, his prophecy had come
true. There were Native American casinos opening all over the
land, Iowa had launched the first riverboat (in 1991), and now
there were nearly 50 boats in American waters. Ted Bassett had
delivered his Mythical Armada Speech in Frankfort, and racetrack
executives everywhere were talking about the need to marry
racing and casinos. The questions this raised were as unsettling
as they were ubiquitous.

Should racetrack operators, under the threat of casino
competition, rush a la Duchossois to build casinos of their own,
arming themselves to fight fire with fire? Or is this really
fighting pyre with pyre?

What of the racetrack entrepreneurs who promise to devote a
portion of casino profits to improving purses diminished by the
inevitably shriveling handle? What of the tracks that are
publicly owned; will not future shareholders, scrutinizing the
bottom line, demand to know why their small, wildly profitable
casinos, with so very little overhead, are supporting vast,
labor-intensive racetracks? Is it not true that the subsidized
purses ultimately go to the care and feeding of these expensive
horses, each of whom costs at least $25,000 a year to keep in
training, while the sedentary slots, geldings all, eat only
coins?

John Hamilton, the executive director of the Thoroughbred Owners
and Breeders Association, says that the battle is being joined
not along traditional lines but between those who run the tracks
and are facing the threat of the casinos, and the thoroughbred
owners and breeders, who see in racinos a threat to the survival
of the arenas themselves and hence of live racing. The fewer
places to run, the less the demand for the horses they raise and
sell.

"It is not divided between the haves and have-nots," Hamilton
says. "It is divided, unbelievably, between those who produce
and own the live animal and want to go watch it run versus those
who own the arena and want to profit from its running."

Like everyone else involved in this sport today, Hamilton lives
in a house sharply divided. "I can give you a list of people who
feel that the party's over," he says, "that we're a dinosaur,
that nobody wants to come to nine live races and sit there for
five hours, and that the only thing to do is join up and put
alternate forms of gaming in there. Well, I disagree. The tracks
say that if you don't get on that casino train, you'll miss the
mother lode. That issue is making everybody's nerves tense on
every issue. The casino issue is one that the whole country's
going to have to grapple with, not just thoroughbred racing. It
just happens to be biting on us right now."

The issue surfaced just as the sport was starting to right
itself after 10 nightmarish years of drift and ennui--a decade
that saw the flameout of the bloodstock business in the middle
of the go-go '80s, when the 1986 Tax Reform Act eliminated most
of the tax benefits of owning horses. The decline continued
through the recession that ensued.

By 1987 the speculative bubble had burst--the average price of a
yearling at the Keeneland July select sale had dropped from
$537,000 in 1985 to $372,000 in '87--and the tax incentives had
vanished. But in 1993 a rally in the bloodstock business
started, fueled in part by the end of the recession in the early
1990s. Racehorses had suddenly become more valuable as
racehorses rather than as tax write-offs.

"Have you seen the size of the purses some tracks are giving
away today?" trainer LeRoy Jolley asked this spring. "They're
huge! Don't tell me this is a sick game."

The spotty appearance of healthy purses notwithstanding, Jolley
is wrong. Racing is ill, but it has also undergone a revolution
in the way tracks present and sell their wagering product. This
revolution goes by the name of simulcasting, and through the
medium of television it has not only enriched the purses and
coffers of many tracks, especially the larger ovals with premium
TV signals to sell, it has also spared some smaller ones from
bankruptcy. Through simulcasting a track sells the TV signal of
its races to some combination of betting outlets that might
include other tracks running live meets, sports books in Las
Vegas or OTB satellites everywhere.

And so, sadly, the tiny horse bounding across the TV screen has
replaced the supple 1,200-pound bay who ground the bit between
his teeth, rolling his eyes as he drifted past you in the
paddock that autumn afternoon at Keeneland not so long ago.
Indeed, except as this image in miniature on a screen, the
living horse is gradually disappearing from racing. In 1990,
$6.8 billion was wagered at flat tracks on live races, $4.6
billion at venues such as card clubs and OTB parlors. Last year
$7.8 billion was bet on nonlive races and only $4.3 billion at
live meets. "There has been a dramatic turnover from on-track
wagering to off-track," says Tony Chamblin, president of the
Association of Racing Commissioners International. "And it's in
its infant stages."

Simulcasting is the chief reason Gulfstream Park has been able
to sell its signal to so many outlets that its average daily
purses rose from $234,000 in 1992 to $293,000 in 1994. "It's
been huge for us," says Gulfstream president Doug Donn. "It has
resulted in much bigger pools for people to bet into and bigger
fields. With larger purses, we've attracted better horses, and
they're running more often."

As Jolley said, the purses have indeed been staggering. Little
Keeneland, which runs just 31 days a year, is able to squirrel
away money for purses by showing simulcasts during the rest of
the year, and this spring offered a record $388,000 in pots each
day-a sum just shy of that given away by mighty Santa Anita,
which beams its signal to as many as 400 sites, including
outlets in Panama and Colombia. "We'll be getting our signal
into more countries," says Cliff Goodrich, the CEO of Santa
Anita. "That just goes right to the bottom line: found money.
There's going to be an effort to make it more convenient than
ever for people to wager on horses."

Until recently, making life convenient for the horseplayer was a
notion as alien to the average racetrack executive as it was
familiar to the casino operator, the smoothie who not only knew
the names of his highest rollers but also plied them with free
rooms and refreshments and tickets to the best shows. Compared
to them, high-rolling racetrack habituas have come and gone with
virtual anonymity. "The customer's never had a say," says Donn.
"So many selfish interests were at work-horsemen, tracks,
jockeys, mutuel clerks-that the customer was never the focus of
attention. It's sad." It is more than that. Neglect of players
has been a curse upon racing for years, and like most of the
sport's other acts of self-destruction, it sprang from a
mentality so ingrained that only the threat of extinction could
shake its hold.

"Thoroughbred racing had a monopoly on legalized wagering for so
long that it grew not just indifferent to but downright
contemptuous of its customers," says Steven Crist, a former
racing writer for The New York Times and now the director of
communications and development for the New York Racing
Association (NYRA). "The feeling was, Open the gates, the vermin
will come crawling in, and all we have to do is count the money
at the end of the day. What a great business! And how did they
reward these people for coming out and betting? Charged them too
much to get in and too much for food and drink, and had surly
mutuel clerks telling them to ---- off if they asked a
question. The elitist attitude was nationwide, but it was
probably at its worst in New York. That was when you had 30,000
guys with hats coming out here every day to bet, and there
wasn't much else to do. This was pre-NBA, pre-Atlantic City.
Racing was the only legal betting game in town."

Most of the troubles afflicting racing can be traced to the
arrogance and laziness that characterize all monopolies. In
fact, it was precisely these attitudes that led to two of the
most destructive developments in the annals of the sport. In the
late 1950s and early 1960s, as the burgeoning medium of
television was discovering sports and looking to cultivate them,
it approached racing. And how did the sport respond? Says Crist,
"The reaction of the racing industry was, 'Oh, no, we don't want
our product on television. Nobody will come to the racetrack
anymore, and hot-dog sales will decline.'" Besides, with that
monopoly going for it, who needs television anyway? So the
networks turned to other sports.

"Every other sport that has flourished has flourished because of
TV, not in spite of it," says Crist. "You now have people who
should be racing fans who grew up without ever knowing what in
the world it was because it was not on TV regularly. And the
decision-makers in the medium, they grew up without seeing it;
so they consider it a marginal sport, like bicycling or
yachting."

"Racing didn't want anything to do with television," says
Hubbard. "To me, this was the single biggest mistake."

If there was a second blunder that has haunted the sport, it
surely sprang from New York racing's decision to fight the
creation of the off-track betting bill in New York when it could
have had a hand in forming and controlling it. In the early
1970s, when the fight was being waged, NYRA was the power center
of U.S. racing. It was, typically, run by the blue bloods of the
sport-men who barely acknowledged that there was gambling on the
grounds. When the OTB bill passed, says Crist, New York City
officials paid a call on NYRA: "They said, 'Look, we want to set
up this thing called off-track betting. We need to raise
revenue; we have a budget crisis. But we don't know anything
about horse racing and gambling. We'd like you to run it.'
NYRA's response? 'We're not in the bookmaking business. We want
nothing to do with it.'"

So, essentially, NYRA lost forever the opportunity to make book
in one of the largest cities on earth. "We've been paying for it
ever since," Crist says. "If NYRA ran OTB in this state, we'd be
offering $80,000 purses every day. It's enough to make you cry.
But again, the mentality not that long ago was, 'We're not in
the gambling business. We stage athletic contests to improve the
breed. And there are these people, not very likable people, who
come through our gates and engage in some form of low-class
gambling activity.' I mean, they had to know that betting was
creating the purses for the Metropolitan Handicap and Belmont
Stakes, but maybe they didn't. Maybe they thought they were just
trading gold cups among families."

When New York City OTB began opening its betting parlors,
attendance at NYRA tracks began its slide. The betting monopoly
was over in New York, and thousands of its long-neglected and
abused horseplayers simply abandoned the racetrack for the
parlors.

Hell hath no fury like a vermin scorned. The OTB system
gradually evolved into this outsized patronage cow with a
zillion teats. "A huge jobs program," Crist says. And New York
racing, for years the flagship of the national sport, has been
listing hard to port ever since, turning in slow circles. The
only leading it has done is by example, and the most valuable
example it has offered other racing jurisdictions is of the
perils inherent in allowing an independent OTB system to grow
up--uncontrolled, politically untouchable and adversarial--right
outside the gate. "The tail wags the dog," says Crist, "and
racing suffers."

However racing ultimately copes with its new competition, the
sport will certainly emerge far leaner than it has been
throughout its modern existence. Casinos will undoubtedly
strangle some marginal tracks, driving them to abandon live
racing altogether rather than limp along in a costly competition
with tables and slots. With the advent of simulcasting, the
smaller ovals will certainly be tempted to cut away the enormous
overhead involved in maintaining barns and a racetrack, sell off
the excess land for development, turn the grandstand into a
commodious sports palace and open the gates for a year-round
television show. Or some may go the way of Canterbury Park
outside Minneapolis.

Before Bork took over at Detroit Race Course, he was general
manager at Canterbury, which was surviving well enough with
5,825 customers a day and the $678,000 handle they were
generating. One day in 1992, Bork says, a snarling traffic jam
developed outside Canterbury's front gate. A Native American
casino had just opened about three miles down the road, but Bork
did not connect the jam to the casino until he went outside to
investigate. "I said, 'This can't be. There must be a mistake. A
car accident up the road,'" Bork says.

No, it was the new neighbor. "The traffic to the casino was so
heavy that they were blocking the entrance to my track," Bork
says. "They shut us down in seven months. Attendance went to
2,900 a day and the handle down to $203,000. We couldn't
survive." (With Canterbury and DRC in his rasuma, Bork qualifies
as America's leading witness to the predatory nature of casino
competition.) "The only way you can compete with a casino is
with another casino," Bork says. "If anyone tells you
differently, tell him to talk to me."

As for Canterbury, it has been sold twice since it shut down. It
did seven months of business as a simulcasting outlet last year,
and of the $36 million generated in handle, $2 million was set
aside to grow purses for a live meet this spring that began on
May 19. Old Canterbury used to run a 125-day meet without
simulcasting, but the new owners have wisely scaled that down to
55 days. So, in its new incarnation, Canterbury will run fewer
than half the live races that it did before, but it expects to
give away a respectable $65,000 a day in purse money. And doing
it with a casino nearby. Canterbury's recent history illuminates
how a modest, struggling racetrack, adjusting itself to the new
marketplace, was able to raise purse money, pare costs and put
on a live show.

Change is inevitable. Even staid old Keeneland, facing the
prospect of riverboats 70 miles away on the Ohio, is altering
course. Bassett has sent his entire staff, from middle
management on up, to Disney University in Orlando, a kind of
finishing school in public relations. "Not only to increase our
efficiency," he says, "but to become more responsive to our
customer base." Bassett even sent himself. "I didn't think a
Neanderthal like me could change his attitude," he says, "but it
was a revelation."

Bassett remains as inflexibly opposed to getting involved with
casinos as he was when he made his Mythical Armada Speech. And
he is not alone: No constituency feels more imperiled by casinos
than racehorse owners and breeders, those who buy and sell
horses and who thus rely on live racing to showcase animals. In
a sport obsessed with pedigrees, purists regard the mating of
casinos with racetracks as a blasphemy--like coupling a high-born
mare with something akin to a zebra--and that view is not without
some basis: Experts say that casino gambling, with its
high-speed churning of money, is far more addictive than the
more leisurely paced days spent at racetrack windows.

"We believe in the next five to 15 years there's going to be a
moral outcry against the rapid expansion of casino gambling,"
says Hamilton of the breeders' association. "And when that moral
outcry comes along, and they start to slip back, you slip back
with 'em. We cannot join them."

Neither, though, can racing stay idle, as it did for so many
years--to its everlasting regret. Racing finds itself in a
quandary: Do you embrace casinos and risk being cannibalized? Or
do you turn your back on them and risk getting devoured in the
marketplace? Back in the Bluegrass State, Churchill Downs has
applied for a license to operate a riverboat on the Ohio River.
Out at Hollywood Park, the biggest symbol of change is a sign, a
giant neon sign atop the card club, with six letters 30 feet
high. It lies right under the flight path to Los Angeles
International Airport, is visible at an altitude of 20,000 feet,
and what it spells is casino. What it says is that the old days
are gone. That nothing in this oldest of American sports may
ever be the same again.

COLOR PHOTO: DAVID WALBERG PRAIRIE MEADOWS Nearly destroyed by riverboat gambling, this Iowa track got a leg up by adding slots to horse racing. [Jockey on racehorse behing row of people playing slot machines]

COLOR PHOTO: BILL FRAKES CHURCHILL DOWNS Even America's most famous track has applied for a license to operate a floating casino. [Horse race at Churchill Downs] COLOR PHOTO: BILL LUSTER TED BASSETT The blue-blood chairman of Keeneland is opposed to pairing racing with casinos but not to improving the luster of the service at his track.

COLOR PHOTO: LAYNE KENNEDY MYSTIC LAKE CASINO Seven months after this Native American casino opened down the road from Canterbury Park outside Minneapolis, the track closed. [Wooden Indian at Mystic Lake Casino]

COLOR PHOTO: PETER READ MILLER R.D. HUBBARD In 1994 the renegade chairman of Hollywood Park opened a card club on the track's clubhouse turn. [R.D. Hubbard]

COLOR PHOTO: ROBERT BECK [See caption above--Hollywood Park Casino]

COLOR PHOTO: LAYNE KENNEDY CANTERBURY PARK The beleaguered racetrack came back to life last year by becoming a simulcasting outlet. [People watching racing simulcasts on multiple TV screens at Canterbury Park]COLOR PHOTO:DAVID WALBERG PRAIRIE MEADOWS The move to trackside slots is no token gesture. [Prairie Meadows gaming tokens]