Is the Red Mile/Keeneland gamble on historical wagering paying off?

A year ago, when Keeneland and the Red Mile debuted their joint instant racing parlor at the harness track in Lexington, expectations were high. The $42-million facility was expected to eventually average $1 million a day in wagering from more than 900 slots-like instant racing machines.

So far, according to state figures, the facility apparently has generated about $12 million in gross revenue from instant racing.

At six months, both tracks said the machines were meeting expectations and that handle would begin to approach $25 million to $35 million a month by the end of the year.

But in June, betting dropped almost 20 percent from May’s $21.7 million to just over $18 million. In July, the handle rebounded to $20.5 million and gained a little more ground in August to almost $21 million, but was still below the hoped-for level of betting.

Shannon Cobb, Red Mile chief financial and operating officer, said last spring that they expected total handle to be around $220 million by the end of the first year — which would be mid-September — but that almost certainly hasn’t materialized.

Final figures won’t be available from the Kentucky Horse Racing Commission, which regulates historical wagering, until the end of September. But through the end of August, about $197 million had been wagered at the facility.

Market studies, Cobb said earlier this year, had indicated that handle could be well above $35 million a month. Kentucky Downs in Franklin, which put in historical wagering Sept. 1, 2011, set a monthly record last month of $40.7 million, with a one-day record of $3.5 million bet on Aug. 27.

“We have been pleased with the first year of business, and we could not ask for better partners in this venture than Keeneland,” Cobb said in a statement. “Given that instant racing is a new product in the area, we all had very little information from which to benchmark. Having said that, our results have certainly been in the range of our expectations.”

Vince Gabbert, vice president and chief operating officer of Keeneland, said that they are happy with the growth trajectory compared to that of Kentucky Downs.

“If you track where Kentucky Downs was in its first 12 months, our growth patterns almost completely mimic each other. I don’t know that we’re short of where we want to be. We are happy with it,” Gabbert said. “I do think we’ll get to Kentucky Downs’ range. We are a couple of years away from hitting $40 million a month.”

The growth model for historical wagering, in which winners are allegedly determined by the outcome of a previously run horse race rather than an algorithm, is slower than that of traditional gaming, Gabbert said.

The first year has been a learning experience for both the tracks and the players.

“This is not a product where you just open the doors and everybody just pours in. You have to grow that,” he said. “This is not a slot machine, not a table game. That was some of the learning experience for us.”

And for players, who don’t always understand the nuances and differences, he said. He hopes the next generation of games, which the tracks are likely to seek approval for in the next four to six months, will have better graphics.

To attract players, Red Mile has run promotions: They gave away washers and dryers; lawn mowers in early summer … added fried chicken and steak nights to pull in a crowd. And focused on making the place fun.

“It’s not different than live racing,” he said. “They (those betting) want a decent meal, they want to have fun, hang out with friends.”

Cobb, in an email, said that the games “are still experiencing a high volume of new players that are just discovering instant racing for the first time. A very large percentage of these turn out to be repeat customers. We know through surveys that our guests are enjoying our friendliness and the novelty of having a faster-paced wagering activity that supports the equine industry here in Kentucky.”

The crowds at the facility have built gradually, Gabbert said. “Weekends are always fairly crowded,” he said. “But we built the facility for what we hope to achieve at some point in the future. There are times, during the day and early afternoons, when it does seem like not a ton of people are there.”

The gambling parlor also gave Keeneland and the Red Mile a venue for a joint simulcast betting facility that has allowed the tracks to stem the flow of betting dollars to online wagering hubs.

“Since 2005, we’ve seen significant dips. This is first year we’ve stayed steady. We haven’t seen the decreases we’ve seen in other years,” he said.

Eventually, the tracks hope the machines will generate significant revenue for purses.

“We’re already seeing that to some degree,” Gabbert said. “And that’s our continual goal.”

Collectively, betting at Kentucky Downs, Ellis Park in Henderson and Keeneland’s half of the Red Mile generated more than $4.2 million for the fiscal year 2016 for the Kentucky Thoroughbred Development Fund, which boosts purses at all Thoroughbred tracks. The Red Mile also generated $777,155 for harness purses last fiscal year.

Since historical wagering began, bettors have wagered almost $1.9 billion, most of which was returned to them in the form of winnings. About $28 million was generated in Kentucky excise tax and almost $8 million for the Kentucky general fund.

The legality of historical wagering has been challenged by the conservative Family Foundation, which contends it is not parimutuel. The case is pending in Franklin Circuit Court. No new trial date has been set.

This story was originally published September 11, 2016 at 10:34 AM with the headline "Is the Red Mile/Keeneland gamble on historical wagering paying off?."