Originally posted on 6/12/2024 at theracingbiz.com, written by Nick Hahn.
One day before Seize the Grey seized the day in the 149th running of the Preakness Stakes, Virginia Governor Glenn Youngkin (R) stopped the gray.
Gray games, that is, the slot machine-like contraptions pushed by advocates as “games of skill.” Youngkin vetoed legislation that would have permitted thousands of these machines to proliferate across the state with only minimal regulation.
With his May 17 veto, Youngkin checked the advancement of a bill that could have done enormous damage to the economic model of Virginia’s thoroughbred industry, which has in the last five years become a true success story. Only an “unusual summertime session” of the Virginia General Assembly, as Graham Moomaw reports in the Virginia Mercury, would prevent Virginians from having a year to take a closer look of legalizing a form of gaming that would undercut a successful horse racing business model.
“I remain open to working with the General Assembly going forward on this subject,” Youngkin said in his veto statement.
Gray gaming machines look to the casual observer like slot machines. Advocates claim they are different because, while slots are purely games of chance – the player has no ability to affect the outcome – gray machines require players to engage with the game in various ways, which does affect the outcome.
That’s the “skill” element that advocates point to.
Opponents, including horse racing advocates, say the skill involved is minimal and exists merely to evade state law prohibiting games of chance but not games of skill. “Skill for idiots,” one player described the gray games.
Gray games proliferated in the first place because they are gray, legally speaking: they seek to exist in a gray area of the law. Then they were stymied by the state and gray machine operators – including the companies that make the machines and the bars and convenience stores that often host them – sought changes to state law to allow gray machines with very little regulation.
That irked racing advocates.
“The whole process needs to be slowed down and make sure gray gaming is good for Virgnia,” said Debbie Easter of the umbrella Virginia Equine Alliance. “There is no path to regulation of these gray games. There is no centralized regulation or some kind of oversight for gray gaming that would have tens of thousands of machines.”
Racing benefits from so-called historical horse racing machines (HHR), which also look like slot machines but are parimutuel in nature and use the results of prior horse races to generate winners and losers.
HHR is regulated by the Virginia Racing Commission under a set of provisions established by Virginia’s General Assembly to benefit a native industry of small business that accounts for over 5,000 jobs and has over a $500 million economic impact, according to a 2019 study.
The number of HHR terminals statewide is capped at 5,000. They’re permitted only in localities where a local referendum approved them, and in a facility licensed and regulated by the Virginia Racing Commission, designated to be away from churches, schools, and day care centers.
In addition, by law for every 100 HHR terminals in operation, the license holder – Colonial Downs – must conduct at least one day of live racing. In the last couple of years that has meant 27 days of live racing – soon to rise – with average daily purse money of over $600,000, a robust figure well above other Mid-Atlantic competitors. That generates jobs, income and multiple forms of revenue on and off the track, not to measure what horse racing brings to the souls of its participants.
“From feed, tractors, blacksmiths and trainers, we are large number of small businesses that comprise a large industry, one of the biggest in the Virginia,” Easter said.
HHR was approved by Virginia’s General Assembly in 2018 as part of the renaissance of Virginia horse racing, to restore live thoroughbred racing at Colonial Downs, which had been dormant since 2013.
The rise of gray gaming in Virginia grew out of the pandemic and was banned by the General Assembly in late 2020. After a Virginia court issued an injunction in December 2021 that voided the ban, gray gaming operated until the Virginia Supreme Court reinstated the ban once again in the fall of 2023.
Earlier this year, legislation to legalize gray gaming advanced through the General Assembly. The bill that was sent to Youngkin’s desk, SB 212, had few constraints on the machines. Though it did limit the number to four per convenience store and ten per truck stop, it did not require local referendum approval.
It also placed no statewide cap on the number of machines. It could have allowed many more machines than the 5,000 permitted HHR terminals, HHR advocates said.
That combination – a new and much more lightly regulated competitor allowed to proliferate throughout the state – led racing advocates and anti-gambling activists to fight back. Indeed, prior to the launch of HHR, racing advocates had considered and rejected a “gray games strategy,” deciding instead to enter through the front door, by working with the General Assembly.
So unbalanced was the legislation that voters in Manassas Park, who rejected off-track betting twice in its history, would have no say in the total number of gray games in their community or where they would be located.
These issues also bothered Youngkin.
“In recent years, the Commonwealth of Virginia has authorized casinos, sports betting, and parimutuel wagering, on top of longer-standing gaming options like the Virginia Lottery, horse racing, and charitable gaming,” he wrote in his veto statement. “When it comes to additional gaming options, such as games of skill, we must proceed with a robust set of safeguards.”
After the bill initially passed, Youngkin sent it back to the General Assembly, urging the legislature to adopt several such safeguards. Those included a higher tax rate and buffer zones around existing gambling facilities. Those amendments were rejected by the Senate, leaving the Governor no choice, faced with an all or nothing situation, other than to veto.
One source estimated that gray games could take a substantial bite out of HHR, and HHR has been, for racing and the businesses and communities that benefit from it, the goose that laid the golden egg.
Credit Governor Youngkin for exercising proper oversight.
The Virginia thoroughbred industry’s economic model has worked well since the onset of HHR and Colonial Downs’s reopening in 2019. The track itself has set handle records in its last two years. The Virginia Certified Residency Program, which encourages horse owners to house their young horses in the Commonwealth, generates nearly six dollars of economic impact for each dollar of investment, according to a study.
Last August 12 the Grade 2 Secretariat Stakes – named for the greatest-ever Virginia-bred horse, arguably the greatest horse, period, of all time – took place for the first time in Secretariat’s home state, at Colonial Downs.
Before an enthusiastic crowd, buoyed by the giant Secretariat statue, the big prize went to Gigante, himself a Virginia-bred and, at 22-1 the longest shot on the board.
Gigante was bred by Ann Mudge Backer and Smitten Farm. She is the widow of longtime Virginia breeder Bill Backer, advertising exec and inspiration for the TV series Mad Men.
It was, you might say, a gigantic win: among the biggest in Virginia’s distinguished racing history. And it was only possible because of the conditions created by the presence of HHR. For the racing industry, that’s what’s at stake.