Why Kentucky Downs says it raised takeout to pay for HISA

Franklin, Ky.

Kentucky Downs’s across-the-board, 1 percent increase in takeout this summer stirred a cauldron of discontent among prominent horseplayers. They used the stage of social media to criticize the track’s stated need to offset a big bill from federal regulators.

“I always had one major concern,” said Chris Larmey, a National Horseplayers Championship hall-of-famer who chairs its players committee. “It was the same concern most of my friends and fellow horseplayers had, and that was how was this going to get paid for? Our big fear was that, just based on our past experience, we would get stuck with the bill.”

While Larmey has been a prominent voice calling for a boycott of Kentucky Downs, the math is undeniable. On a per-start basis, the track that hosts only seven racing days a year will pay far more to the Horseracing Integrity and Safety Authority than any other racecourse in the country. For every horse who comes out of the gate during the current, seven-day meet, $968.71 was due to be paid to HISA, according to a document on the authority’s website. That was 45 percent more than Saratoga, the track paying the second most per start.

“It’s a tough pill to swallow, but we’re still the lowest takeout of any major track,” said Ted Nicholson, Kentucky Downs vice president of racing. “I’m being told that we were catching a little heat for it. But we’re still far below. And we have full fields. We have great purses, great horses, top jockeys, top trainers, so it’s frustrating to hear it.”

Nicholson said higher costs for running the boutique meet were the main factor in what he called “a pretty simple but painful” decision to raise takeout. The money owed to HISA in its first year of full-throttled enforcement of medication and safety rules turned out to be the big-ticket expense.

Using a formula based on starts, purses and handle between Oct. 1, 2021, and Sept. 30, 2022, HISA said it would charge Kentucky Downs $751,722 this year. Nicholson said that total, already adjusted once, was revised again to $640,000-$650,000. The current chart posted on the HISA website did not reflect that, and a spokesperson told Horse Racing Nation in a Sunday email that it would be looked into for a possible update.

Since the track’s all-sources handle was a record $80 million in 2022 and $74 million in 2021, the 1 percent takeout increase would come to $740,000-$800,000 if wagering was done at a similar rate. Half the takeout goes to horsemen, including purses. The other half goes to the house. Nicholson said Kentucky Downs would get its half through a matching increase in the host fee it charges simulcast and advanced-deposit wagering operators to take bets on its races.

In short, the 1 percent increase in takeout by itself will not pay the HISA bill.

“No, it does not cover the nut with HISA,” he said. “And it doesn’t cover the increase in paying employees, which is big. It doesn’t cover increases in prices for tents and everything. But I was firm. I didn’t want to go higher than a point (in higher takeout), and I think I was right. I really don’t think we should have gone higher than a point.”

At the same time, critics would be right to say the big HISA fee is a byproduct of lucrative purses the track has used to attract full, competitive fields to the country’s only all-turf Thoroughbred meet. Of the 62 tracks that literally have bought into HISA, Kentucky Downs ranked only 50th in total starts in 2021-22 with 776 but 13th in purse money at nearly $18 million. Its $23,019 per-start purse average was without compare in the U.S. and perhaps around the world.

For years Kentucky Downs has publicized its low rake almost as much as its rich purses. Not so long ago, it pointed with pride to having the lowest blended takeout in the country. Now that eyebrow-raising fees have come due from HISA, the track might consider itself to be a victim of the success it created.

“I would much rather that it be per start,” Nicholson said of the HISA billing structure. “That’s what we were told HISA was going to base it on. But they had some magical formula.”

Using total starts, purses and handle, HISA arrived at annual fees as much as $4.7 million from Gulfstream Park, which had nation highs in starts and purses, to as little as $18,494 for the six-day summer meet at the Humboldt County Fair in Ferndale, Calif. Per-start fees ranged from the $968.71 at Kentucky Downs to $78.38 for the 23 Thoroughbred-only dates at Los Alamitos.

Nicholson said he is a HISA supporter, but he wants a rewrite of the fee structure.

“I just don’t like the way it was formulated,” he said.

Just as Nicholson said HISA was not the only reason for higher takeout, he also conceded the opening of a new hotel last month on the property that includes the racetrack and the Mint Gaming Hall casino was one more asset that would help the bottom line.

“The hotel is good,” he said. “We over the years have been able to increase our sponsorship dollars and that type of thing to try and offset any additional expenses.”

Those are not the only income sources that Larmey used to build his call to protest the takeout increase by boycotting Kentucky Downs. He emphasized the glut of money rolling in with the spread of popular gaming machines based on historical horse racing.

“They got their slot subsidies, and they started swimming in cash, and they have these ridiculous purses,” said Larmey, an engineer from Kennewick, Wash. “You would think if anything, with all this money, they should be reducing their takeout. That’s their player-friendly brand, and they don’t need that money.”

It is, however, not as simple as reducing the size of a purse in order to reduce takeout. Slot subsidies in Kentucky are earmarked for purses and breeding, not for general expenses at racetracks. Larmey countered that Kentucky Downs still benefits from being a commuter track for shipped horses.

“They’re basically being subsidized by other tracks that train and stable those horses,” he said. “They just ship on the race days. So they’re getting subsidies not only for the purses but for the backside. It’s just not comparable.”

In the end, even with the 1 percent increase, Kentucky Downs still has takeout of 15-20 percent. By comparison, according to research Larmey posted at @derby1592 on X when it still was Twitter, the range is 15-24 percent at Saratoga and other New York Racing Association tracks, 14-24 percent at Del Mar and Santa Anita and 15-22 percent at Churchill Downs and Keeneland.

So what’s the beef at Kentucky Downs if it still has mostly lower takeout?

“The last track that should be using HISA as an excuse to raise takeout sets the precedent for using HISA as an excuse to raise takeout,” Larmey said. “It’s a horrible decision. It’s a precedent that has all kinds of long-term consequences. It throws gasoline on the fire of cratering retail handle. It sets this example that if Kentucky Downs can do it and gets away with it and doesn’t get called out on it, then everybody else is going to follow in line.”

Nicholson admitted that the optics of a takeout increase were hard to swallow both for executives and customers of Kentucky Downs.

“I know people are going to complain whenever you raise the price on French fries,” he said. “Somebody’s going to complain even though they’re the best thing since sliced bread.”