The Kansas Racing and Gaming Commission regulates state-owned casinos to ensure compliance with state and federal laws. The Kansas Racing and Gaming Commission must approve any changes to a casino’s internal controls or table games. Some of these requests likely affect revenues (slot machine and table game changes) making it important for Racing and Gaming staff to respond timely to these requests. We found that about 70% of slot machine requests and 23% of table game change requests were not approved in a timely manner. In addition, 34% of the remaining internal control change requests were not approved within three months by the Kansas Racing and Gaming Commission. Finally, unlike Kansas, other states that we reviewed use a risk-based approach for reviewing change requests.
We identified several areas where Kansas’ gaming standards required more review or were more stringent than several other states. These areas include slot machine payouts, review of table games changes, and approval of advertising and promotional materials. Also, we found that Kansas has not adopted the most recent electronic gaming standards recommended by its contractor, Gaming Laboratories International.
Expanded Gaming: Reviewing the Reliability of Estimates of Potential Revenues That Might Accrue to the State From Allowing Slot Machines At Race Tracks (100-hour audit)
In connection with legislation that would authorize slot machines at Kansas racetracks, we identified 5 recent estimates of annual net revenues from those machines ranging from $270 million to about $400 million. The estimates for which we could review the methodologies were based on reasonable but different methods. All but one of those estimates tended to cluster around a figure of $325 million. The other estimate reflects a more optimistic assessment of how well the Kansas City track would be able to compete in its market. Based on these estimates, the State could receive between $54 and $82 million for other State programs, a smaller percentage than that retained by most of the other states we reviewed. People we spoke with generally urged some degree of caution in dealing with the estimates because of the uncertainty involved and because it would take some time for net revenues to reach their eventual levels.
Reviewing Funding of Gaming-Related Background Investigations Conducted by the Kansas Bureau of Investigation (100-hour audit)
For fiscal years 1996 and 1997 (through March 26), lottery and racing moneys were used to pay an estimated $600,000 in costs for activities of the Bureau’s Gaming Unit related to tribal gaming. (Starting the day after we began the audit and until the field work was finished, a total of $310,000 in tribal moneys had been paid to the Bureau, but it had reimbursed its lottery and racing fund account for only a portion of that amount.) By not billing the tribal casinos up-front or on a periodic basis, the Bureau essentially guarantees that racing and lottery moneys will be used to fund tribal gaming costs for a portion of the year. In addition, the Bureau isn’t billing at all for some of the costs associated with tribal casino work. Unless some significant changes are made in the way the State budgets for gaming-related activities, and in the way the Bureau figures its costs for each type of gaming, then the three types of gaming won’t be paying their fair share of these costs.
Summary Report on the Audits of Parimutuel Racing In Kansas
This report contains a summary of the findings, conclusions, and recommendations from six performance audits of the racing industry in Kansas conducted by the Division and by certified public accounting firms. The audits summarized include: Reviewing the Operations of the Woodlands, Reviewing the Operations of Wichita Greyhound Park, Reviewing the Operatios of Camptown Greyhound Park, Reviewing the Computerized Betting Systems Operated by United Tote Company at Three Kanas Racetracks, Reviewing the Regulatory Activities of the Kansas Racing Commission, and Reviewing the Impact of Parimutuel Racing On the Horse and Greyhound Breeding Industries and on Agribusinesses that Serve the Breeding and Racing Industries.
Reviewing the Impact of Parimutuel Racing In Kansas On the Kansas Racehorse and Greyhound Industries
We estimated that the total impact of parimutuel on breeders and associated agribusinesses was about $21.6 million in 1995. About $1.4 million of that amount was estimated to come from the sale of Kansas-bred racehorses and dogs to supply parimutuel racetracks in Kansas. Another $15.2 million was spent with Kansas agribusinesses such as food suppliers, veterinarians, and animal trainers for goods and services related to raising, training, and racing race animals. The remaining $5 million was comprised of $4 million in prize money paid to Kansas residents, and about $1 million in purse supplements and breed awards provided by the Kansas Horse Breeding Development Fund and the Kansas Greyhound Breeding Development Fund. Kansas residents received about 47% of the total prize money paid out in 1995.
Reviewing the Regulatory Activities of the Kansas Racing Commission
The Commission has adopted reasonable practices in a number of areas related to the regulation of parimutuel racing, but its enforcement in several areas--including timely completion of background reports, testing winning greyhounds for controlled substances, licensing of judges, having written policies and procedures, and oversight of oral contracts--was weak. Differences of philosophy among past Commissioners and Executive Directors, and the failure to fill some key positions, may have contributed to weaknesses in the Commission’s operations. Finally, the Commission had taken some actions that, in our opinion, conflict with the intent of the Legislature when it passed the Kansas Parimutuel Racing Act.
Reviewing Racing Commission Records Regarding Race Track Operations (100-hour audit)
The audit found that audited reports submitted by the tracks show they recently have begun to experience some financial difficulty, particularly the Kansas City track. The Kansas City track has reported declines in revenues since 1990, and has reported net losses in both 1993 and 1994. The Wichita track also has reported declines in revenues, but it is still profitable. The audited reports from the tracks also indicate that both tracks owe large amounts each year for principal and interest on their long-term debt, and that both tracks’ current financial needs significantly exceed their current financial resources. These last two factors could make it difficult for the tracks to continue operating comfortably in the event that revenues drop off significantly. The audited financial statements indicate that revenues for both tracks have, in fact, been declining.
Reviewing the Racing Commission’s Use of its Subpoena Powers (100-hour audit)
The Racing Commission has not unnecessarily used the subpoena powers the Legislature has granted it to aid in gathering information. During fiscal year 1994, the Commission issued investigative subpoenas on only one occasion––when it believed a licensee may have withheld essential information the licensee was required to report. When it issued the subpoenas, the Commission appeared to have followed unwritten procedures it uses to ensure that subpoenas are issued when the Commission thinks they are needed.
Audited financial statements submitted by the tracks show that the tracks have been profitable, but that their debt and cash flow situations could make them susceptible to financial problems very quickly if their revenues declined. This situation may have been aggravated by significant distributions of cash by the tracks to their stockholders. In addition, the reports show that the tracks have had a significant number of financial transactions with their own stockholders. Some of those transactions could have resulted in track expenses being higher than they would have been if those transactions had been with independent parties. Within the scope of this audit, we did not attempt to determine if track expenses actually were higher than needed. The audit recommends improvements in the Racing Commission’s oversight of race track operations.