HHR: Old Races, New Riches
As popularity and revenues increase, the industry is trying to determine if Historical Horse Racing machines are slot machines or an extension of pari-mutuel gambling.
The Bulletin Board
THE LEDE: HHR Machines overshadowed by broader gambling expansions.
ROUNDUPS: Kambi’s new partner; Unregulated sites in Google searches; L&W’s billion-dollar acquisition.
NEWS: More and more casinos are going smoke-free.
VIEWS: New Jersey is the latest state looking to increase online gambling taxes.
AROUND the WATERCOOLER: Another retail sportsbook pulls the plug.
STRAY THOUGHTS: The facade of moral superiority.
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The Lede: Don’t Sleep on Historical Horse Racing
On March 5 and 6, the Maryland legislature will discuss sweepstakes prohibition bills. Also on the agenda are bills (SB 982 and HB 1048) that would approve historical horse racing machines at the state’s off-track-betting facilities.
This week’s episode of the STTP Talking Shop podcast features Alyse Cohen, owner of Long Shots (an OTB and a licensed Maryland sports betting venue). Cohen supports the legalization of HHR machines in Maryland and discusses the legislation and the case for HHR machines in general.
My research turned up six states where HHR machines are expressly legal:
Alabama
Kansas
Kentucky
New Hampshire
Virginia
Wyoming
Louisiana legalized HHR machines at OTB parlors in 2021. However, a March 2024 court ruling found them unconstitutional without parish-by-parish voter approval. The machines are still available as the case plays out. Idaho, Oregon, and Minnesota have legalized HHR machines and then banned them.
The overarching question around HHR machines is one the industry is grappling with on several fronts: Are HHR machines a game of chance (a slot machine), or are they an extension of parimutuel wagering?
There isn’t much of a question about their popularity.
During the company’s recent earnings call, Churchill Downs CEO Bill Carstanjen mentioned HHRs (CDI refers to them as HRMs, Historical Racing Machines) no less than 35 times; two are listed below [bold mine]:
“We have enjoyed rapid growth in our Virginia operations. In 2024, our HRM venues contributed 20% of our nearly $1.2 billion of adjusted EBITDA, and that is with our Rose Gaming Resort opening deep in the fourth quarter.”
“We are confident that we will deliver strong growth in the coming years from our investments, including in our flagship asset, the Kentucky Derby, and from our HRM opportunities in places like Virginia and Kentucky.”
HHRs are even a topic of conversation in California. An article from the Paulick Report frames HHRs as a contentious yet potentially transformative option for California’s horse racing industry:
"HRMs could provide a supplemental revenue stream sufficient to prop up purses and bolster an industry that has seen declining purse levels, field sizes, and foal crops… The rub lies in California gambling law and politics, which dictate whether HRMs are viewed legally as pari-mutuel wagering or games of chance requiring voter approval or tribal nation agreement."
ICYMI: Kambi’s New Partner; Unregulated Sites in Google Searches; L&W’s Billion-Dollar Acquisition
Kambi scores a big partnership deal: Barring any hiccups, Kambi will soon be the platform provider for Ontario Lottery’s sports betting offerings. Per the press release, “Kambi has signed a novation agreement providing for FDJ Group to assign and Kambi to assume FDJ’s contract with Ontario Lottery and Gaming Corporation, enabling Kambi to replace FDJ as OLG’s long-term sports betting partner.” The agreement requires OLG approval. The OLG sports betting site has a 16% market share in Ontario.
Unregulated gambling sites are showing up in many Google searches: Matthew Bain ran an interesting experiment for an article at Sweepsy.com. The article's title says it all: I Did ‘Online Casinos’ Searches In All 50 States. Here’s What I Found. So what did Bain discover? There are a lot of sweepstakes and offshore gambling sites, even in legal online casino states.
L&W acquires charitable gaming company Grover Gaming in a $1 Billion deal: It’s a bit afield from my usual coverage, but a billion-dollar acquisition is hard to ignore. That’s precisely the deal Light & Wonder recently made for charitable gaming juggernaut Grover Gaming. Per Earnings+More: Light & Wonder is acquiring Grover Gaming in a $850 million all-cash deal. With a $200 million four-year earnout, the deal could be worth up to $1.05 billion. Grover provides e-pull tab gaming cabinets in five states: North Dakota, Ohio, Virginia, Kentucky, and New Hampshire.
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News: Smoke-Free Casinos Gaming Steam
An ongoing legal fight STTP has kept an eye on (that has nothing to do with online gambling) is the efforts to ban smoking at casinos.
There are currently more than 1,000 smoke-free gaming facilities in the US, including casinos, sportsbooks, bingo halls, off-track betting facilities, card rooms, horse racetracks, and dog racetracks. Several states, including New Jersey, Pennsylvania, Iowa, Kansas, and Rhode Island, are also working to add casinos to the list.
Per Casino Reports, two more casinos have added their names to the list: “Starting March 24, both Ojibwa Casinos in Michigan’s Upper Peninsula — in Baraga and Marquette — will become fully non-smoking (and vape-free, too).”
In a world where every indoor space is smoke-free, casinos are an outlier, as they were exempted from indoor smoking bans in some locales and have long resisted going smoke-free, fearing it would hurt business.
The evidence suggests otherwise, as CDC Gaming Reports noted:
“We’ve seen a significant increase in customer-satisfaction survey responses praising the smoke-free environment and very few criticizing the inability to smoke,” said Marc Oppenheimer, chief marketing officer at Parx Casino in Philadelphia. Early on, Parx added a non-gaming smoking patio with easy access to and from the casino floor.
“Employee satisfaction has increased greatly,” Oppenheimer said. “And we believe we’ve gained as many customers for being smoke-free as we’ve lost for not allowing indoor smoking.”
CDC Gaming Reports noted, “Some operators voluntarily ban smoking, pointing to health concerns for their employees and customers,” but there is still a long way to go.
“We’re going to see more casinos, particularly tribal, make this smart decision to go smoke-free,” Cynthia Hallett, president and CEO of Americans for Nonsmokers’ Rights (ANR), told CDC Gaming.
Hallett appeared on Straight to the Point’s Talking Shop podcast in October 2024, discussing past and current efforts to turn casinos into smoke-free environments.
News: NJ Gov.’s Budget Has Online Gambling Tax Hikes
New Jersey Gov. Phil Murphy released his budget on Tuesday. As expected, it includes tax increases on sports betting and online casinos, with both rates jumping to 25%. The current online casino tax rate is 15%, and online sports betting is taxed at 13%. There is also an additional 2.5% IAT tax on iCasino and 1.25% on online sports betting, which brings the rates to 17.5% and 14.25%.
Industry sources have indicated that the legislative appetite for a tax increase, particularly one that nearly doubles the sports betting rate, is low. As the budget progresses, the increase could become more modest.
However, there does seem to be a growing appetite for raising gambling taxes nationwide. New Jersey joins a growing list of states considering raising their sports betting tax rate this year:
Indiana: Indiana State Sen. Fady Qaddoura introduced a bill, SB 394, which would raise the tax on sports betting operators from 9.5% to 11%. An amendment to Rep. Ethan Manning’s now-defunct online casino bill would have raised the current online sports betting tax rate from 9.5% to 20%.
Maryland: Maryland is another state considering increasing its sports betting tax rate. Under Gov. Wes Moore’s budget proposal, the rate would increase from 15% to 30%.
Ohio Gov. Mike DeWine has proposed doubling the sports betting tax rate on operators from 20% to 40% in his latest budget. In 2023, he doubled the rate from 10% to 20%.
Massachusetts: Under a broader reform bill, SD 1657, sponsored by State Sen. John Keenan, the sports betting tax rate would jump from 20% to 51%.
To date, only two states have raised their sports betting tax rates post-launch, but five others have increased tax burdens on operators:
Ohio: Doubled its tax rate from 10% to 20% in 2023.
Illinois: Shifted from a flat 15% rate to a tiered tax rate of 25-40% in 2024.
In 2023, Tennessee shifted from a 20% revenue tax to a 1.85% handle tax, which can be construed as a tax rate increase.
Four states — Louisiana, Colorado, Maryland, and Virginia — have reduced the amount of promotional spending operators can deduct from their tax obligations.
iDEA Growth Co-Founder and General Counsel Jeff Ifrah (A previous guest on the Straight to the Point Talking Shop Podcast) released a statement calling the policy proposal “baffling” while pointing to the increasing number of unregulated options that exist:
“New Jersey’s legal online gaming and sports betting industry has been a national success story, generating billions in economic activity, supporting thousands of jobs, enacting regulation that protects consumers, and delivering significant tax revenue for the state. It is baffling why the Governor would seek to undermine this by imposing even more taxes on an industry that is already exceeding its economic promise. At the same time, competition is growing from unregulated alternatives, including CFTC-approved sports contracts that take bets from 18-year-olds, operate outside state laws, and pay no state taxes. Raising taxes only makes New Jersey’s market less competitive, driving players toward platforms that aren’t regulated and that the state can’t benefit from. Instead of undermining a proven model, policymakers should recommit to strengthening the legal market that has made New Jersey a leader in the U.S.”
The industry will use Ifrah’s points to counter these increases. Interestingly, the nebulous black market threat has morphed into an “unregulated” threat that includes prediction markets — which is a much better argument in my opinion.
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Around the Watercooler
Social media conversations, rumors, and gossip.
Retail sports betting is a tough business.
I previously noted that Churchill Downs was closing its retail sportsbook at its eponymously named flagship property in Kentucky, and now we have the end of the FanDuel Sportsbook at Audi Field in DC:
Upcoming podcast guest Alyse Cohen (mentioned in the Lede above), the owner of Long Shots in Maryland, discusses the difficulty of operating a retail sportsbook in the podcast, which will be available on Saturday.
Stray Thoughts
"The gambling known as business looks with austere disfavor upon the business known as gambling." ~ Ambrose Bierce
You write: "The overarching question around HHR machines is one the industry is grappling with on several fronts: Are HHR machines a game of chance (a slot machine), or are they an extension of parimutuel wagering?"
This is only a question if you have never seen people playing these machines. Nobody plays them as a skills game. No one looks up information about the horses to choose a horse to bet on. Attendants can't even explain how that works. Everyone hits the button and watches the reels spin. Over and over. Like a slot machine. That's why they were thrown out of Idaho.