An Economic Analysis of the Impact of
Casino Gambling and
Proposed Legislation
on Kentucky’s Horse Industry
Alison F. Davis
Prepared for
Kentucky Equine Education Project
March 4, 2008
The University of Kentucky
Cooperative Extension Service
Department of Agricultural Economics
1
Executive Summary
As a result of proposed legislation, this analysis investigates the impacts of casino
gambling on the racetrack industry and the influence of racetrack owned casinos on the
equine industry. The original legislation states that $175 million would be distributed
across horse-owners and throughout the equine industry. The distribution of the revenues
would be distributed in the following manner:

80% of the revenues would go towards purses
o 79% Thoroughbreds ($110.6 Million)
o 2% Quarterhorses ($2.8 Million)
o 19% Standardbred ($26.6 Million)

13% of the revenues would go towards Breeders Incentives Funds according to
the same percentages as listed above ($22.75 Million)

7% Non-Racing Breeds
o Breeder and Owner Prize Money ($7.35 Million)
o Facilities Improvements ($3.68 Million)
o KEEP Administration ($1.22 Million)
The results are summarized in the two tables below. The total income, or value-added, to
the economy would be $102.7 million and the creation of 2,395 jobs. If the racetracks
are not included in the casino legislation, it is likely that they will operate with substantial
losses, risking the closure of some racetracks.
Total Income Impacts after Incorporating the Impacts of Casino Gambling
House Bill
Effect of Gambling on
Horse Industry
Racing
$212.1 Million
($133.6 Million)
Breeders Incentive Funds
$34.5 Million
Max of ($29.7 Million)
Breeders and Owners Prize Money
$11.6 Million
No Change
Facilities Improvements
$5.8 Million
No Change
KEEP Administration
$2.0 Million
No Change
Total
$266 Million
($163.3 million)
Total Economic
Impact
$78.6 Million
$4.8 Million
$11.6 Million
$5.8 Million
$2.0 Million
$102.7 Million
Total Employment Impacts after Incorporating the Impacts of Casino Gambling
House Bill
Effect of Gambling on
Horse Industry
Racing
4,981 Jobs
3,136 Jobs lost
Breeders Incentive Funds
808 Jobs
Max of 694 Jobs lost
Breeders and Owners Prize Money
273 Jobs
No Change
Facilities Improvements
151 Jobs
No Change
KEEP Administration
12 Jobs
No Change
Total
6,225 Jobs
3,830 Jobs lost
Total Economic
Impact
1,845 Jobs
114 Jobs
273 Jobs
151 Jobs
12 Jobs
2,395 Jobs
2
Introduction
The current casino legislation under consideration proposes one possible scenario that
would provide casino gambling in Kentucky while at the same time protecting the
interests of the horse industry. The bill originally suggested that a certain number of
casinos would be located on racing sites and owned by the racetracks. The original
legislation states that $175 million would be distributed across horse-owners and
throughout the equine industry. The distribution of the revenues would be distributed in
the following manner:

80% of the revenues would go towards purses
o 79% Thoroughbreds ($110.6 Million)
o 2% Quarterhorses ($2.8 Million)
o 19% Standardbred ($26.6 Million)

13% of the revenues would go towards Breeders Incentives Funds according to
the same percentages as listed above ($22.75 Million)

7% Non-Racing Breeds
o Breeder and Owner Prize Money ($7.35 Million)
o Facilities Improvements ($3.68 Million)
o KEEP Administration ($1.22 Million)
This analysis will look at two scenarios. The first scenario assumes that the casinos will
not be located at the racetrack and that NO revenues will be funneled to the equine
industry. We will explore the losses and the potential devastation to the racing industry.
In the second scenario, we will explore the impact of the racetracks owning the casinos
and a portion of the gaming revenues distributed to the equine industry as discussed
above. The appendix provides a table summarizing the studies that have been completed
that examined the impact of casino gambling on racetrack wagering. We will take the
worst case scenario in both instances to provide a baseline measure.
Scenario 1
A number of studies have estimated the loss to the horse racing industry as a result of
casino gambling in close proximity to peri-mutual gambling. In most instances, the
losses are substantial, potentially large enough to shut down all of the racetracks. In
Lawrence and Thalheimer (1994) it was estimated that this scenario would result in a
maximum of 39% loss in handles at each of the tracks which would include a direct loss
of 6,657 jobs and a total of 14,199 jobs lost when accounting for indirect and induced
effects.1 In addition, there would be a direct loss of $260 million in racetrack
expenditures. In 1992, the net-income before taxes at the Kentucky racetracks was $3.7
million. A large reduction in handles would certainly put the racetracks in the red, and
without government intervention casinos would shut down.
1
These numbers are 1992 dollars and jobs. Newer data are not available.
3
Scenario 2
Under scenario 2, we assume that the racing industry and other related equine industries
will receive casino revenues as described above. In the same 1994 study, Lawrence and
Thalheimer estimated that there would be a 38% drop in live and ITW handles at
Kentucky racetracks. However, because purses are supplemented from casino revenues
and breeder awards are also funded out of casino wins, then the loss of handles at the
racetracks due to casino gaming would be much smaller, zero, or even potentially
positive.
The Racing Industry – Purses
The income impacts from 80% of the casino revenues being distributed as purses
according to the percentages on page one are presented in Table 1. The multipliers used
for the racing and show industries provided in the appendix and were derived from
Deloitte’s analysis of the Economic Impact of the Kentucky Horse Council provided for
the American Horse Council Foundation. $140 million would be distributed to owners of
Thoroughbreds, Quarterhorses and Standardbreds. As a result of the multiplier effect, the
total impact would be $212 million. The income effect can be thought of as changes to
the Gross Domestic Product (GDP) or value-added. The total employment impacts for
the racing industry as a result of purses from the casino industry are presented in Table 2.
In total, there would be 4,981 jobs created. It should be noted that the purse
disbursement under the current legislation is larger than 2005’s total purses in Kentucky
of $88.7 million.
Table 1 The Income Impact From Purses Derived From Casino Revenues, Racing
Thoroughbreds
Quarterhorses
Standardbred
Total
Direct Income Effect
$110.6
$2.8
$26.6
$140 Million
Total Income Effect
$171.4
$4.3
$36.4
$212.1 Million
Table 2 The Employment Impact From Purses Derived From Casino Revenues, Racing
Thoroughbreds
Quarterhorses
Standardbred
Total Jobs
Direct Employment Effect
2,228 Jobs
12 Jobs
286 Jobs
2,526 Jobs
Total Employment Effect
4,300 Jobs
69 Jobs
612 Jobs
4,981 Jobs
Breeders Incentive Funds
The bill suggests that $22.75 million would be directed towards racing breeders incentive
funds utilizing the same percentage breakdown for purses. This allocation is currently
higher than the breeders incentive funds awarded in 2006 ($19.4 million). No empirical
work has estimated the effect of casino gambling on breeders incentive funds however, in
this instance because there is already a positive difference of approximately $3.3 million,
clearly the economic impact of this portion of the bill will be positive. Table 3 highlights
4
the economic impacts from the breeders incentive funds for the different horse breeds. In
total, the direct income impact would be $22.75 million and the total income impact
would be $34.5 million. The results provided in Table 4 suggest that direct employment
effects would equal 410 jobs and there would be a total impact of 808 jobs.
Table 3 The Income Impact of Breeders Incentive Funds
Thoroughbreds
Quarterhorses
Standardbred
Total Income
Direct Income Effect
$17.97 Million
$0.46 Million
$4.32 Million
$22.75 Million
Total Income Effect
$27.85 Million
$0.71 Million
$5.92 Million
$34.48 Million
Table 4 The Employment Impact of Breeders Incentive Funds
Thoroughbreds
Quarterhorses
Standardbred
Total Jobs
Direct Employment Effect
362 Jobs
2 Jobs
46 Jobs
410 Jobs
Total Employment Effect
699 Jobs
11 Jobs
98 Jobs
808 Jobs
Breeder and Owner Prize Money
The remainder of this section discusses the impact of the remaining 7% ($12.25 million)
of the casino revenues committed to non-racing breeds. 60% of these funds are allocated
for breeder and owner prize money based on show results. For this category, we utilized
multipliers from the Showing category provided by Deloitte. The income and
employment impacts are presented in Table 5 and 6 respectively. The impacts are
modest compared to the racing industry. However, because it is expected that there
would not be large negative impacts from the casino industry on the show industry, these
impacts should not be influenced by the presence of casino gambling.
Table 5 The Income Impact From Purses Derived From Casino Revenues, Showing
Thoroughbreds
Quarterhorses
Standardbred
Total Income
Direct Income Effect
$4.41
$1.03
$1.91
$7.35 Million
Total Income Effect
$6.88
$1.60
$3.08
$11.56 Million
Table 6 The Employment Impact From Purses Derived From Casino Revenues, Showing
Thoroughbreds
Quarterhorses
Standardbred
Total Jobs
Direct Employment Effect
111 Jobs
8 Jobs
12 Jobs
131 Jobs
Total Employment Effect
188 Jobs
29 Jobs
56 Jobs
273 Jobs
5
Facilities Improvements and KEEP Administration
The last $4.9 million is devoted to improvement of facilities and for administration of the
Kentucky Equine Education Project (KEEP). Again, these figures should not have any
negative offsetting impacts from the casino industry, thus the impacts provided in Tables
7 and 8 would not be affected by casino gambling.
Table 7 Income Impacts from Facilities Improvements and KEEP Administration
Facilities Improvements
KEEP Administration
Total Income
Direct Income Effect
$3.68 Million
$1.22 Million
$4.90 Million
Total Income Effect
$5.78 Million
$2.00 Million
$7.78 Million
Table 8 Employment Impacts from Facilities Improvements and KEEP Administration
Facilities Improvements
KEEP Administration
Total Jobs
Direct Employment Effect
119 Jobs
5 Jobs
124 Jobs
Total Employment Effect
151 Jobs
12 Jobs
163 Jobs
Summary
The final impacts of the casino/horse legislation, under the second scenario, after
considering the impacts of casino gambling on the horse industry are presented in Table
9. The second column in the table is a summary of the numbers discussed throughout the
previous section. The third column is a summary of the estimated impacts of casino
gambling on the horse industry. We estimated that there would be a 38% reduction in
handles for live and ITW wagering.2 This translated into a total economic loss of $133.6
million, including indirect and induced effects.
Table 9 Total Income Impacts after Incorporating the Impacts of Casino Gambling
House Bill
Effect of Gambling on
Total Economic
Horse Industry
Impact
Racing
$212.1 Million
($133.6 Million)
$78.6 Million
Breeders Incentive Funds
$34.5 Million
Max of ($29.7 Million)
$4.8 Million
Breeders and Owners Prize Money
$11.6 Million
No Change
$11.6 Million
Facilities Improvements
$5.8 Million
No Change
$5.8 Million
KEEP Administration
$2.0 Million
No Change
$2.0 Million
Total
$266 Million
($163.3 million)
$102.7 Million
No one has yet to analyze the expected impact of casinos on breeders incentive
funds thus we do not have specific numbers detailing the potential impacts. The worst
case scenario would suggest that no awards would be allocated as a result of losses due to
casino gambling. We assumed that the direct effects of $19.4 million (KY Breeders 2006
awards) would disappear thus resulting in a negative income impact of $29.7 million).
However, the casino/horse bill specifies that the breeders incentive fund would be funded
with $22.75 million with a total economic impact of $34.5 million. Thus the worst case
2
In 2006, the total Live and Intertrack wagers accounted for $232 million.
6
scenario would be a total gain of $4.8 million. We anticipate that there would be
insignificant effects from casino gambling on the current breeders and owners prize
money (showing), facilities improvements, and KEEP administration. Thus the total
income impact from the proposed legislation after considering the impacts of casino
gambling would be approximately $102.7 million.
Table 10 follows the same methodology as described above but provides the
summary employment effects after considering the influence of casino gambling on the
horse industry. As a result of the proposed legislation a total of 2,395 jobs will be
created.
Table 10 Total Employment Impacts after Incorporating the Impacts of Casino Gambling
House Bill
Effect of Gambling on
Total Economic
Horse Industry
Impact
Racing
4,981 Jobs
3,136 Jobs lost
1,845 Jobs
Breeders Incentive Funds
808 Jobs
Max of 694 Jobs lost
114 Jobs
Breeders and Owners Prize Money
273 Jobs
No Change
273 Jobs
Facilities Improvements
151 Jobs
No Change
151 Jobs
KEEP Administration
12 Jobs
No Change
12 Jobs
Total
6,225 Jobs
3,830 Jobs lost
2,395 Jobs
References
Lawrence, R., & Thalheimer, R. (1994). An economic analysis of the effects of casino
gambling on the Kentucky race horse industry. The Front, Department of Equine
Administration, University of Louisville.
Kentucky Horse Racing Authority Calendar Year 2006 Annual Report
The Economic Impact of the Kentucky Horse Industry, Deloitte Consulting, American
Horse Council Foundation, 2005
7
APPENDIX
Income and Employment Multipliers
The multipliers are derived from Deloitte’s analysis of The Economic Impact of the
Kentucky Horse Industry.
Table 1A Employment Multipliers
Employment Multiplier
Thoroughbreds
Quarterhorses
Standardbred
Racing
1.93
5.75
2.14
Showing
1.69
3.62
4.67
Racing
1.55
1.55
1.37
Showing
1.56
1.55
1.61
Table 2A Income Multipliers
Income Multiplier
Thoroughbreds
Quarterhorses
Standardbred
Literature Summary
Table 3A Summary Effects of Gambling on Wagering
Study
Thalheimer and Ali (1992)
Illinois (Fairmount Park Thoroughbred)
Estimated Impact
-34%
-31% to -34%
Illinois (Fairmount Park Standardbred)
-34%
Illinois (Quad City Downs)
-37%
Iowa (Prairie Meadows)
-34%
Type of Study
Econometric Study
Evidence from a casino
near a racetrack
Evidence from a casino
near a racetrack
Evidence from a casino
near a racetrack
Evidence from a casino
near a racetrack
8