Patron at Derby City Gaming 1-30-19

Helga Easter, a retiree from south Louisville, plays a historical racing machine at Derby City Gaming on Jan. 30, 2019.  

LOUISVILLE, Ky. (WDRB) -- Steven Denny Jr. used to drive from his home in Louisville to Horseshoe Casino in Harrison County, Indiana three or four times a week.

But since Churchill Downs opened its Derby City Gaming facility off Poplar Level Road in September, Denny has made the trip to Horseshoe only once. Ads from the casino – free slot play, free meals, hotel discounts – have been piling up in his mailbox, he said.

“I haven’t been over there in a long time. They probably miss my money,” Denny joked on Wednesday as he tapped bet after bet on a slot-like machine called “Electric Nights” at Derby City Gaming.

The facility’s 900 “historical racing machines” look so much like slots that some patrons said they didn’t even realize they were actually betting on horse races. “It’s all smoke and mirrors; I don’t understand it at all,” Denny said.

While the pseudo-slot machines are the only casino-like games Derby City Gaming can legally offer, the new Louisville option for gamblers appears to be taking a bite into Horseshoe, the 20-year-old , full-fledged casino across the Ohio River in Elizabeth, Ind.

Horseshoe’s “Win” – or the amount of wagers kept by the casino – fell 10 percent in the September-December period, to $77 million, compared with the same four months in 2017, according to figures from the Indiana Gaming Commission.

To be sure, it was a tough year for the southern Indiana casino even before the new competition in Louisville.

Activity – as measured by Win, taxable revenue and the amount bet on slots and electronic gaming machines – dropped 34 percent in February, when the casino was closed for flooding between Feb. 22 and March 4.

Still, the 10 percent decline in Win from September to December – after Derby City Gaming opened -- outpaced Horseshoe’s full-year 2018 drop of 8 percent.

Commission figures also show that the amount bet in slots and electronic games like video poker at Horseshoe dropped 10 percent – to $600 million – compared with a year earlier following Derby City Gaming’s opening.

For the full year 2018, the “coin in” to slots and video games at Horseshoe was also down 10 percent, having plunged 34 percent in February and 13 percent in March during the flooding closure.

Indiana’s casino industry still hasn’t fully recovered from the Great Recession, a factor analysts attribute to an aging customer base and new competition in Illinois, Ohio and a tribal casino that opened last year in South Bend.

But Horseshoe was by far the worst performer of Indiana’s13 state-licensed casinos, on a year-to-year basis, in 2018. On the whole, the Win at the 13 casinos was flat at $2.2 billion, while “coin in” to slots dropped only 2 percent, to $20.2 billion.

Horseshoe spokeswoman Lizzet Verdi declined to comment for this story.

Horseshoe, a unit of Las Vegas-based Caesars Entertainment Corp., started construction last year on an $85 million land-based casino that promises a fresh, modern experience to replace its 20-year-old riverboat operation.

The 100,000-square-foot expansion, which will include retail, entertainment and dining options addition to the casino, is scheduled to open later this year.

Looking at Horseshoe’s publicly reported results, “It seems obvious on the surface that there is a significant impact from Derby City Gaming,” said Ed Feigenbaum, editor of Hannah News Service’s Indiana Gaming Insight, a newsletter that covers the Hoosier gambling industry.

But Feigenbaum said there are other factors at work, such as problems with the two-lane riverside highway that leads to Horseshoe.

He said some Horseshoe patrons could be biding their time while planning to return when the land-based facility opens, while it’s too soon to say whether Derby City Gaming’s traffic will last beyond customers’ initial curiosity.

“They are kicking the tires on the new gaming options in Louisville,” he said.

Business at Derby City Gaming, while growing, remains small in comparison to its cross-river competitor. Total handle, or the amount bet in the historical racing machines, was $152 million from October to December, according to the Kentucky Horse Racing Commission. That compares to $488 million at slots and electronic games at Horseshoe. 

While casino gambling remains illegal in Kentucky, the state horse racing commission first allowed racetrack owners to operate slot-like ”instant racing” machines in 2010. The machines are technically pari-mutuel racing on previously run horse races, though it’s hard to tell when sitting in front of one.

There are now about 2,700 historical racing machines at Derby City and three other locations in Kentucky.

So far, the legality of pseudo-slot machines has held up in court, but the conservative Family Foundation of Kentucky has asked the state Supreme Court to weigh in for the second time in an eight-year legal battle over the practice.

The appeal comes after a Franklin Circuit Court judge ruled in October that the machines comply with standards for pari-mutuel gambling, meaning patrons bet against each other and not against the house.

The foundation says the horse racing commission “has facilitated an unprecedented expansion of gambling in Kentucky without a law change.”

The racing industry argues the slot-like machines generate funds to prop up live horse racing.

Churchill Downs Racetrack President Kevin Flanery said Derby City Gaming, a $65 million investment for the Louisville-based company, has been a success so far.

“The public has embraced us with open arms,” he said in an interview. “… There was definitely demand for this type of facility.”

While some lawmakers are making a push to legalize sports betting, casino gaming isn’t on the table for Kentucky anytime soon. Gov. Matt Bevin said last week that potential tax revenue from gambling hardly offers a solution to the state’s public pension funding gap.

As it now stands, Derby City Gaming will continue to lack the full casino experience, including table games like blackjack, poker and craps that are offered at Horseshoe.

For Joy Furman, a pet groomer who lives in New Albany, the historical racing machines weren’t enough to break her loyalty to the southern Indiana casino. She called Derby City Gaming “a huge disappointment.”

“Everybody thought it was going to be like Horseshoe, a real casino setting,” she said.

Furman said she doesn’t like how smokers like her are sequestered in an enclosed patio at Derby City Gaming, a necessity to comply with Louisville’s smoking ordinance. She said waiters are more responsive at Horseshoe, and frequent players get better rewards.

Furman, Denny and others added that the payouts for the historical racing machines seem less generous than the actual slots across the river. “You’re able to win so much more (at Horseshoe) than at Derby City,” Furman said.

Regulatory reports show machines at both facilities pay about 90 percent of total wagers back to the public. A Churchill Downs spokesman did not provide a response when asked about payouts.

Jeffrey Ashby, a hotel worker and college student who lives in south Louisville, said he’s been impressed with Derby City Gaming and likes that he doesn’t have to cross an Ohio River bridge to get there.

“It’s vibrant, it’s energetic; the people are nice and friendly,” he said.

But Ashby also likes to play cards and other table games, which means he’s out of luck in Louisville.

“If they had tables here, I wouldn’t even bother with Horseshoe,” he said.

Reach reporter Chris Otts at 502-585-0822, cotts@wdrb.com, on Twitter or on Facebook. Copyright 2019 WDRB News. All rights reserved.

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Chris Otts reports for WDRB.com about business and economic topics, higher education and local / state government. He joined WDRB News in 2013 after seven years with The Courier-Journal. Got a tip? Chris is at 502-585-0822 and cotts@wdrb.com.