Track and yield

As evidenced by a summer season featuring more than three dozen races next month alone, it’s clear that the Keystone State has a rich history with the Sport of Kings – and not just because of native equine royalty like Smarty Jones, Afleet Alex and Barbaro – all winners at the highest levels of horse racing, including memorable triumphs in Triple Crown races. 

Horse racing in Pennsylvania dates back to at least the 1800s, when harness races took place at agricultural fairs. At county fairs, so-called “speed trials” with standardbred horses became commonplace as a way to measure the quality of breeding stock. 

Today, 65 years after legislation was passed making harness racing and thoroughbred racing the state’s first form of legalized gambling, horse racing takes place at six racetracks in Pennsylvania: The Downs at Mohegan Sun Pocono in Wilkes-Barre, Harrah’s Philadelphia Casino & Racetrack in Chester, Hollywood Casino at Penn National Race Course in Grantville, Hollywood Casino at The Meadows in Washington, Parx Racing at Parx Casino in Bensalem, and Presque Isle Downs & Casino in Erie. 

Since then, the ties between the industry and the state have only grown more intricate – and lucrative. In the past two decades, billions of dollars in tax revenue have been directed toward horse racing. Twenty years later, despite attempts from politicians to redirect that money to other uses, including education, Pennsylvania continues to send monies to the industry.

Casinos, horse racing and state regulation of the industry are inextricably linked, with a tax on slot machine revenue providing a major source of funding for three main uses: purses (the prize money awarded to owners of race horses); several horse breeding funds; and health and pension benefits for horsemen.

“Back when we were first talking about casinos coming into the state, that was part of the deal – the slot money would go to help support the horse race industry in Pennsylvania, because they were building most of the casinos at the racetracks at the time,” state Sen. Elder Vogel, who chairs the chamber’s Agriculture & Rural Affairs Committee, told City & State in an interview.

Between 11% and 12% of that gross terminal revenue from slots goes into the state’s Race Horse Development Fund, which was created in 2004. It provides hundreds of millions of dollars each year to help stimulate the industry, according to state financial data and both critics and proponents of the industry.

“It was seen as a way to provide a new revenue source for horse racing to help stimulate the agribusiness, the breeding of racehorses, the prize money for the races,” said Christopher McErlean, the vice president of racing at Penn Entertainment, the parent company of both Hollywood Casino at Penn National Race Course in Grantville, Pennsylvania, as well as Hollywood Casino at The Meadows, located in Washington, Pennsylvania.

“Several states surrounding Pennsylvania had adopted a similar approach,” McErlean continued. “Most notably, Delaware, New York and a few other states … that had racetracks and gaming locations coexisting and providing revenue for horse racing.” 

“By being able to put slot money into the racetracks … you got more breeders to come to the state. There were more horses … more horse people coming into the state buying property, buying feed, using veterinary services, et cetera,” Vogel added.

According to a report from the Times Union, a New York newspaper, the Empire State directs a fraction of revenues from video slot machines to tracks and horse breeders, with the state providing $2.3 billion in subsidies between 2008 and 2021. Additionally, per a report by the nonprofit organization Education Voters of Pennsylvania, Delaware directs revenue from slot machines, table games and wagers to the three existing racetracks in the state. Maryland also supports racing through taxes and revenue from table games and slot machines.

In the commonwealth, in addition to the money directed toward horse breeding and the health and pension benefits of those working in the industry, a 2017 report from Pennsylvania’s Joint State Government Commission highlighted that larger purse sizes generally translate to better competition, which can lead to more wagers on racing, which leads to increased state coffers.

Vogel concurred. “By raising the purses, you get better horses and you’re able to race a lot more days,” he said.

According to the state’s Independent Fiscal Office, which tracks state spending on tax credits and other financial incentives, in the 2018-19 fiscal year, $231.9 million was allocated from the fund to the industry. That amount dropped to $164.3 million in the 2019-20 fiscal year, and rose to $177.3 million in fiscal year 2020-21. 

In the 2021-22 fiscal year, $205.8 million was allocated from the fund, while the 2023-24 allocation fell to $197.7 million. The IFO estimated in January that state spending from the Race Horse Development Fund will hover around $221.4 million for the 2023-24 fiscal year.

The state’s ongoing commitment to horse racing is evident in this year’s state budget, with $5.3 million alone dedicated to the Pennsylvania Veterinary Laboratory System.

Proponents of the industry say the Race Horse Development Fund money has had a positive economic impact that ripples across the state.

“We’re responsible – the breeding and racing industry – responsible for approximately 23,000 jobs in Pennsylvania, $1.6 billion in economic impact and hundreds of thousands of acres of open space,” said Brian Sanfratello, the executive director of the Pennsylvania Horse Breeders Association. He added that the association maintains a positive working relationship with members of the Pennsylvania House and Senate Agriculture & Rural Affairs committees, as well as the State Horse Racing Commission.

“We try to try to get everybody going in the same direction,” Sanfratello added. “What’s good for racing is good for agriculture, is good for the state.”

McErlean emphasized that horse racing provides a slew of economic benefits that can be easy to miss at first.

“There’s an incredible underpinning of other businesses tied in with horse racing that a lot of people don’t see or realize … which is important,” he told City & State. “Pennsylvania is a fairly big agricultural state, as are several other states that have horse racing. Open space is obviously a big issue – green space, maintaining that. That’s something which I think is probably one of horse racing’s biggest strengths – that agribusiness aspect to it – to promote not only jobs but open space and that entire sub-industry of other businesses that go along with it.” 

Even with the guaranteed revenue stream from the state, the industry is facing a welter of challenges. 

McErlean noted that horse racing was one of the first options available for legal, online wagering in the 1990s and early 2000s. With the expansion of new types of online gaming options – like sports betting – and the proliferation of unregulated and untaxed skill games, he said that horse racing wagers haven’t been spared from consumers having more easily accessible gaming options at their disposal.

“There’s just a tremendous amount of competition for the gaming and … entertainment dollar. Gaming is entertainment and disposable income for most people, so with so much competition now, certainly racing has been impacted in terms of popularity of its product … the amount of wagering on horse races has definitely been impacted by that growth (in) competition,” he said.

Per the Joint State Government Commission analysis, between the 1960s and 1980s, attendance at horse races in Pennsylvania, on average, hovered at around 1.5 million per year, though by the early 2010s, attendance dropped to around 800,000 spectators per year. 

Data from The Jockey Club, an organization that seeks to promote and improve thoroughbred breeding and racing in the United States, also shows the number of Pennsylvania-bred registered foals dropping significantly over the last two decades. From 2005 to 2011, more than 1,000 registered foals were bred in the state in each year, but that number has fallen below 1,000 in each year following 2011. In 2022, the most recent year for which data is available, just 515 registered foals were bred in the commonwealth.

Vogel also said a decline in slot revenue shows a potentially troubling trend. “The slot revenue is declining because of online gaming – basically, people don’t go to the racetracks,” he explained.

The sport – and the industry – is not without its detractors: Animal rights activists have long protested horse racing at both the state and national levels, and some within the Pennsylvania political landscape have also separately argued that the state should devote money currently spent on the racing industry to other needs, like education.

That was the goal of then-Gov. Tom Wolf, who, during his second term in office, developed a proposal that would have redirected $204 million from the Race Horse Development Trust Fund to create the Nellie Bly Tuition Program.

The program, which was pitched to state lawmakers as part of Wolf’s 2020 budget proposal, would have provided needs-based scholarships for students attending colleges and universities in the Pennsylvania State System of Higher Education. The scholarships would have covered tuition, room and board, books, supplies and graduation expenses. 

While the idea was largely celebrated by some Democrats, students and educators, it received immediate pushback from the horse racing industry. In February 2020, just weeks after Wolf unveiled the first iteration of the scholarship plan, the Pennsylvania Horse Racing Commission unanimously approved a resolution opposing Wolf’s plan. 

According to the commission’s meeting minutes, Commissioner Thomas Jay Ellis stressed that the commission was not opposed to the scholarships themselves, but rather to the dynamic that the program presented, as it pitted the horse racing industry against the education system.

Ultimately, the scholarship program never came to fruition, and the money dedicated to horse racing stayed put.

Industry advocates say a 2017 law – signed by Wolf himself – is proof enough that lawmakers shouldn’t horse around with money dedicated to the racing industry.

Act 42 of 2017 turned the Race Horse Development Fund into a trust fund and included language establishing protections for the use of the money. The law states that daily assessments collected or received for the fund “are not funds of the Commonwealth,” with the statute going on to state that: “The Commonwealth shall not be rightfully entitled to any money described under this section …” 

Sanfratello said the mere threat of using Race Horse Development Trust Fund money for other purposes reverberated through the industry. He said if large sums were taken out of that account for other uses, it would have devastating results.

“What that does is, people that have their horses in Pennsylvania move them to neighboring states because the breeder awards that we pay out – and when those horses race, the purses that are paid out – will diminish drastically. The number of racing days will go down,” he said. “It’s not like our business is a brick-and-mortar business where people have to build a new building somewhere. All they do is put their horse on a van and take it to Maryland, or take it to New York. It’s fairly easy to do that.”

But some public education advocates, along with animal rights activists, have argued that the state shouldn’t be in the business of putting tax revenue toward the industry at all. 

Sharon Ward, a senior fellow at Education Voters of Pennsylvania who authored the organization’s 2021 report on horse racing, and who served as director of the governor’s budget office under Wolf, argued that the industry’s economic impact doesn’t justify the amount of money directed toward horse racing.

“The Race Horse Development Fund is the state’s single largest annual economic development program. Yet racing’s economic footprint is small – much smaller than the rest of the equine industry – not to mention the agricultural industry as a whole. It creates just over 1,700 full-time track jobs and fewer than 10,000 direct jobs overall,” Ward wrote, citing data from a Delaware Valley University study commissioned by the State Horse Racing Commission.

“It’s time for the Commonwealth’s subsidy to end,” Ward continued. “We recommend eliminating the PHRDF and reinvesting these funds into the state’s future workforce through pre-K, public school funding, and/or public higher education.”

Patrick Battuello, the founder and president of Horseracing Wrongs, a nonprofit devoted to ending horse racing across the United States, was in agreement with the industry on the impact of funding, saying the allocations are pivotal to keeping the racehorse industry alive in Pennsylvania and across the country. 

“It would collapse,” he said of the industry if Race Horse Development Fund disbursements ever dried up.

“It’s not like during the Great Recession … the financial sector was bailed out because you could make a reasonable argument that this would collapse our economy,” Battuello said. “It’s laughable to even posit that regarding horse racing; it’s obviously an industry that the American public has largely rejected.”

So what, exactly, does all of this mean for the future of horse racing in the commonwealth?

Sanfratello said that horsemen and the industry largely have a positive working relationship with state lawmakers and that he hopes they continue to see the value the industry brings to Pennsylvania.

“I don’t want this to sound like it’s a fight between us and the state, because there are a lot of great legislators that have been helping us throughout the years and they understand the business,” he said. “I’d like to see them be able to not try to take money from a Race Horse Development Trust Fund. I can tell you (that once the) Race Horse Development Fund was put into a trust, breeding increased drastically from 2017 to 2020.” 

That lines up with state-level data from The Jockey Club. In 2017, 581 thoroughbred foals were born in Pennsylvania; that number increased to 635 foals in 2018, 667 foals in 2019 and 747 foals in 2020, before dropping in the following two years.

“People said, ‘Oh, good, the money’s in a trust. Now nobody’s going to touch it. We now think that money is going to be there three, four years down the road when we breed our horses,’” he added.

McErlean, meanwhile, said given the complexities surrounding horse racing – from the wagering side of it to the economic arguments in favor of it – he hopes to see the industry remain competitive. 

“The competitiveness for the gaming product, for the entertainment product, has become much more intense. What’s happening in Pennsylvania is not unlike what’s happening around the country. From that standpoint … stability is a big thing,” he said. “Trying to have racing remain … competitive with any other competition that comes along, put it on even playing field – I think that’s probably the biggest thing.”

At the legislative level, Vogel said there haven’t been detailed conversations about how to further help the horse racing industry, but noted that lawmakers could look to online gaming as a potential solution. 

“I think it’s something we need to look at,” he said. “Obviously, with more online gaming, maybe we need to take some of the online gaming money, possibly, and direct that toward the racing industry. 

“We made a commitment to them,” he added. “I think we ought to stick with it.”