State Politics

Florida pari-mutuel industry’s slot machine gambit is no sure bet

A man plays on a slot machine at the Magic City Casino in Miami, June 17, 2014.
A man plays on a slot machine at the Magic City Casino in Miami, June 17, 2014. AP

For years, the owners of the dying dog and horse racing industries have seen salvation in the cherry-spinning fortunes behind slot machines.

Their vision was to convert their vast real estate into bold entertainment venues with blue-lighted rooms lined with slot machines, some offering dog racing as a novelty, or thoroughbred derbys as a nostalgic draw.

But as Florida legislators decide whether to ratify a deal with the Seminole Tribe that cements into place the parameters of gaming in the state for the next 20 years, no one is talking about one thing: Slot machines are declining, too.

Market research studies show that the massive Millennial generation, those 21- to 34-year-olds who outnumber Baby Boomers, consider slot machines boring and table games only slightly more appealing. The studies show they prefer theme parks and restaurants, adventure travel and games of skill. And, the researchers warn, unless the gaming industry finds a way to capture this tech-savvy generation with online gambling or games delivered to their homes and offices through smartphones, even the games the industry is hoping will rescue it will die.

“We can’t assume, as we have in previous generations, that as people enter prime gaming age they are going to gravitate to the same games their predecessors did. It’s just not going to happen,” said Michael Pollock, managing director of the gaming-research company Spectrum Gaming. “Slot machines, as they are presently constituted, are clearly vulnerable.”

The Legislature must ratify any gaming compact with the tribe but, even Jim Allen, CEO of the Seminole Tribe’s gaming empire, acknowledges that for any compact to win enough votes to pass the House and Senate, the pari-mutuel industry must be offered a lifeline.

There is no hope for the pari-mutuels to ever become what they once were.

Dave Jonas, Casino Miami owner

The industry wants a lower tax rate for its existing slots casinos, an end to the requirement that horse and dog tracks run races to keep their gaming licenses — known as decoupling — and an expansion of slot machines in select communities.

Legislation moving through the House would ratify the compact and allow for some decoupling, a lower tax rate, and two additional slots licenses — one in Palm Beach County (intended for the Palm Beach Kennel Club,) and another in Miami-Dade County (likely sought by Genting, the Malaysian company that bought the Miami Herald’s bayside property, or the Fontainebleau Miami Beach).

Last week, the Senate Regulated Industries Committee agreed to ratify the compact, but it also passed a bill offering up a massive expansion of slot machines in Florida.

Decoupling ahead

SB 7072 would not only authorize decoupling and lower the tax rate on slot machines from 35 percent to 25 percent, it would also authorize slots licenses in Palm Beach and five other counties that have passed countywide referenda to bring slot machines to dog and horse tracks. The bill also opens the door for more than 30 other counties to do the same.

The impetus for this is that owners of the state’s once-vibrant pari-mutuel industry admit they have reached a point of no return.

“There is no hope for the pari-mutuels to ever become what they once were,” said Dave Jonas, the owner of Casino Miami, home to one of the state’s last jai-alai frontons.

“I don’t believe pari-mutuels can be saved,” said Izzy Havenick, vice president of his family-owned Magic City Casino and owner of greyhound tracks in Miami-Dade and Lee counties.

“It’s slow. It’s boring. If you live in Florida, it’s hot and rainy,” Havenick said. “Most people under 40, they will never go outside and look at the racetrack. Unless there is some way to make dog, horse racing or jai-alai exciting again, I don’t see the pari-mutuels surviving as tracks.”

While Magic City has slot machines at its Miami track, ushered in by the statewide referendum of 2004, the family and its lobbyists are working aggressively to bring slot machines to their Bonita Springs dog track near Naples.

In 10 years I don’t know if we will look back and say this was the right fight to have or not, but right now our only salvation is to have these machines.

Izzy Havenick, vice president of Magic City Casino

But Havenick, who at 38 is the youngest of the pari-mutuel operators in Florida, sees the irony in the request to save a fast-dying industry with a slow-dying industry.

“Maybe I’m the young, naive one in the group, or maybe I’m the only one who sees the world differently than they do, but we might be mortgaging the future to save ourselves in the present,” he said. “In 10 years I don’t know if we will look back and say this was the right fight to have or not, but right now our only salvation is to have these machines. Do I think it’s shortsighted? Yes. But the problem is we’re not being given much of a choice. . . . Our hand is being forced.”

Research by Spectrum Gaming, MMGY Global, and the Boston Consulting Group show that in 10 years the gaming market in Florida and the nation will be very different.

Because Millennials have grown up with the Internet and mobile devices, they are accustomed to gaming online, including daily fantasy sports and team competition games like Call of Duty, the research shows.

Millennials total about 84 million, compared to 78 million Baby Boomers, and the Boston Consulting Group predicts that while the younger group will spend about $1.3 trillion a year on travel and entertainment, gambling ranks low on its list.

According to MMGY’s 2015 Portrait of American Travelers, only 9 percent of Millennials took a vacation primarily to gamble last year, but 21 percent took a theme park vacation and 12 percent took a cruise. 

“The emergence of the millennial generation, as it comes of age — and it’s going to be happening very quickly and very visibly — is going to put pressure on the entire gaming industry,” said Pollock of Spectrum Gaming. “Will lotteries and casinos cease to operate in their respective silos or will they converge with some form of online offering? These are things a lot of states are grappling with.”

Already seeing change

Jonas of Casino Miami says the shift from slot machines to other entertainment options has already begun.

“If you go to Las Vegas, nobody is playing slot machines,” he told about 100 gambling officials from around the nation at the annual Florida Gaming Congress in January. “The pools are packed. The restaurants are packed. The nightclubs are packed. The slot floors look like you can shoot a cannon through them.”

Even Allen, the tribe’s gaming chief, acknowledges that the popularity of slot machines may be at its peak. He holds up his iPhone and notes that the generation that “knows how to work this better than all of us, 10 years from now, when they’re at the legal age, they’re going to look for some form of entertainment associated with this.”

The compact negotiated between the tribe and Gov. Rick Scott in December, allows the Seminole Tribe exclusive operation of slot machines outside of Miami-Dade, Broward and Palm Beach counties and the exclusive right to play blackjack, craps and roulette at its seven casinos in exchange for $3 billion in guaranteed payments to the state over seven years.

Although the compact is written for 20 years, the tribe is willing to guarantee payments for only seven years. Allen said he is confident that slots and table games will be popular during the years of the guarantee but the question of whether they will sustain much longer than that “has merit.”

During the seven-year payment period, the tribe hopes to make the most of its monopoly status by using the proceeds of its expanded gaming empire to build a $1.8 billion expansion at its complex near Hollywood, complete with an 800-room, 36-floor silver hotel, shaped like the body of a guitar, and second, 500-room hotel tower, at its Hard Rock Casino in Tampa.

Jonas warns that by agreeing to the compact the state could prevent any flexibility that the pari-mutuel industry needs to evolve and rebound.

“I’ll argue in 10 to 15 years, if we allow the compact to lock us out, slots will become dinosaurs,” he said. “We’ll be left without an industry.”

For the free-market advocates in the Florida Legislature, it’s an uncomfortable question: Should the state continue to give the tribe a monopoly and artificially prop up the pari-mutuel industry with a product also on the decline, or does it stand down and watch pari-mutuels, one of the state’s oldest industries, disappear?

“A lot of us feel they should go out to the free marketplace and survive,” said Rep. Richard Corcoran, R-Lake O’Lakes, who will be House speaker starting next year. “If they don’t, they don’t, and if they do, great. But I don’t think they should keep coming to us for some sort of statutory benefits. That just doesn’t work.”

Flexibility is required

Pollock of Spectrum Gaming and pari-mutuel leaders say that if the state wants to preserve the jobs associated with gaming, its approach to regulation must be more limber and flexible.

“It’s going to require states and operators to talk to each other more,” Pollock said. “There must be an ability to approve new games that respond to new technology,” and that includes “more flexibility in tax policies.”

For example, Pollock suggests that if the state lowers the tax rate, it should also demand that the lower tax rate result in economic activity that “makes the state better off than it otherwise would have been with a higher tax rate.”

“It requires a different type of thinking and a lot more thoughtfulness,” he said.

Dan Adkins, owner of Mardi Gras Casino in Hallandale Beach, said the state is at a crossroads — either respond to gaming with more flexibility or watch the industry, and the state revenues from it, decline.

“If you are going to allow an industry to grow, you have to let them make choices,” he said. “Dog racing is dead, but should it be my choice to stop it without having to subsidize somebody? At the same time, if there’s a new product out there, I should be able to take advantage of that evolving technology. That’s how businesses grow.”

“By getting rid of dog racing, I can free up all that land, and I can put in a new facility and put in the amenities that will attract people into my building,” he said. He added that Mardi Gras is trying to appeal to the Millennial generation by creating free online slots games on its website, in return for coupons.

“You play it for free and we offer you incentives to get you in the building,” he said. “We’re taking advantage of technology.”

In the end, Pollock believes that gambling won’t disappear.

“One of our critical points is that human nature doesn’t change, technology changes,” he said. “People are social creatures and are going to look for places to be entertained. And risk taking is not going to go away. But providing the right offering to the new ways of thinking will be the key.”

Mary Ellen Klas: and @MaryEllenKlas