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California horse racing, now in danger of shutting down, could have put itself on solid footing more than a decade ago when it explored the idea of adding electronic machines that allow gamblers to bet on replays of horse races at its tracks.
The facilities, individually, were in favor of installing the devices known as Historical Horse Racing (HHR) machines. The Native American tribes, which control non-pari-mutuel gambling in the state, were willing to become partners. All that was needed was consensus within the California horse racing industry.
Louis Cella, Chuck Winner and Scott Daruty went to Sacramento to solve the problem.
“We … lobbied them and we were very close to coming to a resolution on HHR in California,” said Cella, whose family owns Oaklawn Park in Arkansas and were the first to install HHR-like machines. “But then you had the conflicting views from the Northern tracks and the Southern tracks and the management in between couldn’t agree on anything. It became moot. It could not be solved.
“It got so far that the Native American tribes were saying, ‘If you can solve that problem, we’ll play that game and let you go.’ We were going to save racing in California. But then special interests took over. … I don’t see how that’s getting resolved.”
Cella could not remember the exact year the meeting took place. Winner, who was on the California Horse Racing Board (CHRB) between 2012-2019, died on March 24, 2022. Santa Anita owner The Stronach Group (TSG), for which Daruty works as a senior executive, denied a Times request for an interview.
Outside the room was Steve Keech, who worked for TSG at the time and now works in technology at the Horseracing Integrity and Safety Authority (HISA).
“When they came outside, they said, ‘So and so wants another couple points [of the profits],’” Keech recalled. “… The game doesn’t work where it’s an infinite amount of money. You keep cutting it up and just about everybody wanted that one more point.
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“[Northern California and Southern California] couldn’t agree on anything, [especially with separate simulcasting regulatory groups running the north and south]. It was all, who wants this piece or that piece [of the money]? [The tribes] were willing to play because they were going to get a piece.”
The Northern versus Southern issue has been resolved, with Northern tracks closing.
But the question remains whether California can approve the use of HHR machines to help save the sport.
Most in the industry agree that if California doesn’t get HHR or some other form of supplemental income to boost purses, racing in the state will not continue much longer.
Santa Anita is having a good start to its current meeting with mutuel handle up. The track says attendance is up, but Santa Anita is notorious for its inaccuracy in this area.
“CHRB long ago stopped providing attendance numbers in the annual report that were provided by racetracks because those numbers were and still are highly inflated for publicity purposes,” the CHRB stated in a September email to commissioners and executives.
But the Santa Anita mutuel handle appears to be up, benefiting from simulcast money that was originally supposed to go to Northern California. The track just announced an increase in purses of about 20%.
California racing has some of the lowest purses in the country for tracks the size of Santa Anita and Del Mar. Horsemen find racing elsewhere so much easier and more cost efficient. Kentucky has heavily subsidized racing purses because of its use of Historical Horse Racing machines. New York has casino gambling backing its purses. Oaklawn remains one of the most successful tracks in the country and it is tied to a casino.
Survival rests on getting owners to bring their horses to California to run for competitive purses. Higher purses attract more horses, which means larger fields, which leads to more money being bet, all of which brings more money for everyone in racing.
The maiden races at Churchill Downs in Kentucky pay twice what they do in California. While many East and Midwest tracks run stakes approaching $1 million, California stakes are usually run at the bare authorized minimum of $300,000 for Grade 1s, $200,000 for Grade 2s and $100,000 for Grade 3s.
In 1986, the Santa Anita Handicap was a $1-million race. This year it is being run for $300,000.
A lawsuit filed by former Santa Anita public relations director Mike Willman accuses track executives of lying during the 2019 horse fatality crisis.
The urgency is well known within the community.
There are four point people tasked with finding that solution — Aidan Butler, chief executive of 1/ST Racing, which owns Santa Anita; Josh Rubinstein, chief operating officer at Del Mar; Bill Nader, chief executive of the Thoroughbred Owners of California; and Keith Brackpool, a former CHRB chairman and TSG executive, who is working as a consultant.
While there are occasional discussions among the leaders, there are no set meetings or information shared with the public.
Butler, Nader and Rubinstein, who did return messages from The Times, all declined to speak about specifics or their efforts. TSG denied a Times request to talk to Brackpool and he did not respond to a phone message.
The principals involved in the HHR effort have all been asked to sign non-disclosure agreements, people with knowledge of the talks told The Times.
The Tribal Nation’s control of California gaming is well established both legally and culturally. In 1988, Congress passed the Indian Gaming Regulatory Act and ceded all authority over gaming on tribal lands to the states in which they reside.
California, in turn, passed laws that allowed only five types of gambling. There are Indian casinos, which are allowed to have Las Vegas-style table games (except roulette) and slot machines; card clubs; charitable gambling (church bingo); the state lottery; and pari-mutuel wagering connected to horse racing.
In 2000, voters passed Proposition 1A, which exclusively gave the right to use slot machines to the tribes.
In 2004, a state ballot initiative that would have allowed the expansion of non-tribal gambling was defeated 84% to 16%.
The Northern California racing experiment will be coming to an end this week, effectively killing racing in the northern part of the state and having an impact statewide.
So, it seems that the law is on the side of the tribes. But racing interests say that HHR is not a game of chance but skill and is connected to a pari-mutuel hub. The problem is that everything about HHR screams slot machine.
Multiple people with knowledge of the situation told The Times there has been no formal contact between the tribes and racing interests to find common ground.
“We are very concerned about possible efforts to bring Historical Horse Racing gaming machines to California,” said James Siva, chairman of the California Nations Indian Gaming Assn. “These machines would seem to violate tribal exclusivity as they operate as de facto slot machines. While these machines have features that are cosmetically different from slot machines on both the back and front ends, for players the difference is imperceptible.
“In the past few years, the attorneys general in the states of Oregon and Arizona quelled efforts in their respective states to install these machines at non-tribal gaming facilities. We will be discussing the issue and looking at options as this matter continues to evolve.”
Some on the edges of finding an HHR machines solution not authorized to discuss it publicly say there are between four and six plans.
Conversations with more than a dozen people with knowledge of the process painted a picture of the problems faced and decisions being made in regard to HHR. Most people interviewed did not want their name used for fear of upsetting the strategy.
Here is a sampling of courses of action that have been or will be considered:
— Negotiate with the tribes for a split in income from the machines. The machines would be located on track and be open seven days a week. This is the most seamless solution to the HHR dilemma. But it can’t happen without conversations with the tribes.
After 83 years, Sunday is the last day of racing at Golden Gate Fields. The track will be missed for its inclusiveness and place in California racing history.
— Roll out a few machines, maybe 40, after approval of the CHRB but with no agreement with the tribes. The thinking was this few number of machines would not be threatening to the tribes. It was then determined that the tribes are likely to sue the track regardless of the number of machines involved. So, this plan was placed on the back burner.
— Roll out a lot of machines, perhaps as many as 1,000, get ready for litigation and make a fair amount of money while things work their way through the courts.
— Hold tight for now but seek redress from the Legislature. In short, change the law so that HHR would be allowed on racetrack grounds. This now becomes a battle of the lobbyists and the tribes don’t lose often. It could be a negotiating point. HHR is not believed to be a serious concern of the tribes as the amount of money, in the grand scheme, is not that much. The tribes have opposed any form of gambling it doesn’t control for fear of the “slippery slope” of adding more gambling it does not control. But the tribes may be willing to allow HHR if they can gain concessions in the Legislature on internet gambling, which remains their No. 1 concern.
— The tracks negotiate with just a single tribe, not the consortium of all of them, to allow HHR on their property. A representative of the tribes told The Times that no individual tribal entity could negotiate on their own. But … there are 109 tribes in California and 76 California Indian gaming casinos (and five mini-casinos). Total revenue is $9 billion. This could set up infighting in the tribal community that could strengthen the tracks’ position, only because there is not an enormous amount of money at stake. Again, if the tribes were to get something in return, such as concessions on internet wagering, the equation could change.
This may eventually end up in the wheelhouse of Rob Bonta, the California attorney general. His office, when contacted by The Times, referred the question about HHR to the CHRB, which is in favor of HHR. But it is unclear whether the attorney general endorses that position or simply was declining to discuss it publicly.
The specter of HHR in California has been there for a while. But it exploded when CHRB chairman Greg Ferraro told the New York Times in November that HHR machines would be in California tracks shortly and that the CHRB would approve it.
“I guess the cat is out of the bag,” one CHRB commissioner told The Times.
But Ferraro’s comments seemed premature as months passed without HHR machines appearing on the CHRB agenda.
Beneath all the politics, how quickly tracks can use HHR machines likely hinges on whether they are considered games of chance or skill. If it is skill, and proved to be a pari-mutuel product, then the path to success is much easier. If it is shown to be a game of chance, such as slot machines, then it would be nearly impossible to use the machines without tribal cooperation.
The Times played the 1/ST Racing HHR machine, powered by PariMAX, and the Churchill Downs product under the name Exacta. Representatives of both products were willing to exhibit their products at the Global Symposium in Tucson, but declined to publicly discuss the machines.
There is little doubt that the machines are designed to provide fast action with a payout that is clearly better than horse racing. Takeout on horse racing gambling — the fee immediately withheld from any winnings — is usually in the mid to late teens but can exceed 20%. The average take on a slot machine is 82% to 95%.
People familiar with California horsemen’s sentiments told The Times that they probably would accept an 8% takeout, with at least one point (of 100) going to breeding, at least two or three for purses and the remainder split between the track and the tribes.
Kentucky has about an 8% takeout, which is far superior to what bettors get if playing the horses.
Playing the HHR machines is identical to the experience of playing a slot machine. You can play as fast or slow as you want and your eyes are transfixed on the middle of the machine where you see the traditional symbols of cherries, dollar signs and jackpot payoffs.
You can hit another button and get minimal handicapping information that, essentially, is worthless to someone who really wants to play horse racing.
If you pull the handle, or push the button, the wheels spin until the result of traditional slot symbols is final. Then at the top of the machine, you get about the last second or two of the race. No more. There is an option to view the full race, but few use it.
“We just discovered that people don’t want to watch the race, they just want the action and that the race slows things down,” said a vendor representative who said they could not be quoted on any issue.
Raging Torrent, a winner in four of seven races this year, won the Malibu Stakes on the first day of racing at Santa Anita. Mystik Dan finished last.
HISA’s Keech helped develop the first HHR machines and his name is on the original patent.
“When you go to play a slot machine, it’s like going to a movie, there’s a particular experience you’re looking for,” Keech said. “As a player, what you want in the experience is not watching horse racing. Sorry, it’s not. But it’s a way for horse racing to monetize historic content.
“It’s OK for movies to do that, it’s OK for singers to do that, it’s OK for all these other industries to do that, so why is everyone wigged out that horse racing wants to monetize its content. … I have some disagreements with some of the designs of things, but no, it is 100% not a slot machine. If you look at a slot math model and then look at an HHR math model, they aren’t even close.”
If you wondered how HHR can crank out as many races as it can and still build a mutuel pool, it’s because of a model that you aren’t just playing people in the same room as you, but all over the country.
Santa Anita believes it has the infrastructure ready to go. In late November, the track rolled out the machines and plugged them in on the third-floor grandstand. At the time, Butler said the machines were at the track since at least 2019 when he joined the company. HHR experts looked at pictures of the machines and verified they are very old models. Butler was angry that word of the machines had leaked and when The Times inquired about them, he ordered the machines to be shut off and put back in storage.
If Santa Anita were to add machines, they would probably be newer models produced by the company that owns the track.
Unless an agreement can be reached with the tribes, the use of HHR machines in California is likely to be decided by the courts.
And perhaps the question of whether HHR is a game of skill or chance will favor horse racing, despite some obvious challenges.
“You know the old saying, ‘If it walks like a duck and quacks like a duck?’” said Marc Guilfoil, HISA’s director of state racing commission relations. “Well, we call those swimming chickens.”
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