OSRC Sets VLT Rate to be Paid to Horsemen at Belterra Park

On June 27, 2018 the Ohio State Racing Commission passed resolution 2018-05 which set the percentage of VLT revenue to be paid to horsemen at Belterra Park at 9.95% thus ending a more than three year push by the Ohio HBPA for the commission to establish the rate.

The history of the percentage of revenue horsemen receive from video lottery terminals at Ohio’s three thoroughbred and four standardbred tracks dates back much further however.

In 2011 Ohio Governor John Kasich issued a series of executive orders authorizing VLT’s at Ohio’s seven racetracks. While the executive orders spelled out the licensing fees and taxes the racino operators would pay to the state the share of the VLT revenues horsemen would receive was not spelled out.

In 2012 the Governor’s office set up a series of meetings between representatives of Ohio’s seven racetracks and the two recognized horsemen’s groups in the state under the Interstate Horseracing Act, the Ohio HBPA and the Ohio Harness Horsemen’s Association with the purpose being to establish what percentage of VLT revenue the horsemen would receive.

Ohio HBPA executive director Dave Basler represented the thoroughbred horsemen in these meetings while OHHA president Steve McCoy represented the standardbred horsemen.

The Governor’s office in consultation with Moelis and Company, which had been hired as consultants on gaming issues by the state of Ohio, listened to arguments presented by the tracks and the horsemen and ultimately determined that the horsemen’s share of VLT percentage at each track would be based on a sliding scale based on the total investment the permit holder made on capital expenditures to improve the facility for VLT’s. The scale was such that a total of $200 million or less in horsemen would receive 11% of the net win for each additional $10 million dollars in capital expenditures the horsemen’s share would be reduced .15%. So at $210 million in capital expenditure the rate paid to horsemen would receive would be 10.85%, $220 million the rate would be 10.70% with the minimum rate that could be paid to horsemen being capped at 9.00% when capital expenditures met or exceeded $340 million for a facility. These numbers would only come in to play if there wasn’t a contractual agreement between a track and the recognized horsemen’s group which otherwise spelled out the percentage of VLT revenue to be paid to horsemen.

This proved to only be a starting point rather than a final resolution to determine the percentage of VLT thoroughbred horsemen in Ohio would receive.

After more than six months of extensive negotiations on March 7, 2014 the Ohio HBPA entered into a ten year agreement with Thistledown Racetrack LLC. which set the percentage of VLT revenue to be paid to horsemen at Thistledown at 10.6%.

On March 10, 2014 the Ohio HBPA entered into a 19-page ten year agreement with Beulah Park Gaming Ventures which set the percentage of VLT revenue to be paid to horsemen at Mahoning Valley Race Track at 10.3% for the first 24 months of the agreement and at 10.64% for the final eight years of the agreement.

Both of these contracts had “favored nations” provisions whereby the Ohio HBPA couldn’t enter into a contract with any other racino for a lower percentage of VLT revenue unless that percentage was set either by law or by rule of the Ohio State Racing Commission. The tracks insisted on these provisions as they didn’t want to be the first to sign a contract and then have other track operators use their rate as a starting point to negotiate lower rates.

Pinnacle Gaming which owns Belterra Park has insisted throughout the process that they were entitled to a lower VLT rate than the other two tracks based upon their capital expenditures. For this reason as well as the “favored nations” provisions in the previously signed VLT agreements the Ohio HBPA and Pinnacle Entertainment were unable to reach a VLT revenue sharing agreement for Belterra Park.

Unfortunately while the law said that the VLT rate must be set by the Ohio State Racing Commission if there wasn’t an agreement in place between the recognized horsemen’s organization and the permit holder within six months of the beginning of VLT operations this was far from what actually took place.

The racing commission began drafting a rule to determine the percentage of VLT revenue to be paid to horsemen in 2016. This process ended up taking well over a year to complete as both the tracks and the horsemen presented various legal arguments objecting to portions of the proposed rule language.

A series of meetings took place over the course of many months working through draft after draft with all of the interested parties before the commission officially introduced and adopted final language on rule 3769-2-43.

This rule established that the Ohio Facilities Construction Commission would verify the capital expenditures made by a permit holder necessary to build the video lottery sales agent facility which the racing commission would plug into the sliding scale chart discussed earlier which was also a part of rule 3769-2-43 to establish the VLT percentage paid to horsemen when the permit holder and horsemen’s organization couldn’t reach agreement.

Pinnacle Gaming began the process of verifying their capital expenditures to build the video lottery sales agent facility at Belterra Park with the Ohio Facilities Construction Commission late in 2017 and provided that commission several thousand pages of invoices and contracts for construction and other work done at the track.

In all Pinnacle Entertainment submitted claims for $318,066,015 in expenditures. Ultimately after extensive review of all documentation the Ohio Facilities Construction Commission determined that $272,340,029 of the submitted expenses were allowable. This is the number the Ohio State Racing Commission used in setting the VLT percentage to be paid to horsemen from VLT revenue at Belterra Park at 9.95%.