Audit finds Oregon Racing Commission is disorganized, faces lax oversight

Little oversight, a disorganized office and an uncertain future are just a few issues plaguing the Oregon Racing Commission, a state audit finds. The agency, which oversees animal racing in the state, generates little state revenue compared to the Oregon Liquor & Cannabis Commission and the Oregon Lottery. Ian Green is the audit manager with the Oregon secretary of state’s Audits Division. He joins us to share his team’s findings.

This transcript was created by a computer and edited by a volunteer.

Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. We end today with the Oregon Racing Commission. It’s a small state agency. It has fewer than 15 employees, but it manages an industry that’s handled more than $6 billion in bets last year alone. At the same time, a new audit by the Oregon Secretary of State’s office found that the agency has suffered from disorganization and a lack of oversight. What’s more, it’s dealing with broader problems because state laws have not kept up with major changes in the betting world. Ian Green is an audit manager with the Secretary of State’s Audits Division, and he joins us in the studio. It’s good to have you here.

Ian Green: Thank you, Dave. It’s a pleasure to be here.

Miller: Why did you do this audit? I mean, horse racing is less central to the public’s experience of state government than say, having safe drinking water, which was a recent one, or the foster care system, a subject of audits for years. Now, why this Racing Commission?

Green: One of the reasons is we hadn’t audited the racing commission in a number of years. Another reason is we got a request from a number of Tribal governments, to look at the Racing Commission and some of the issues around the Flying Lark.

Miller: OK. That’s an issue that we’re gonna get to. We talked about that two years ago when there was an effort to create a new gambling center there. But let’s not skip ahead to that, because I want to get more of a grounding, first of all. And so to help us understand this, what does the Oregon Racing Commission do?

Green: So the Oregon Racing Commission was founded in 1933 and it is responsible for overseeing and regulating all animal racing in the state of Oregon as well as the pari-mutuel wagering system. There are many elements of their oversight. One of them is live horse racing in the state conducted at county fairs and commercial racetracks. The Racing Commission provides a veterinarian to ensure the health and safety of those animals as well as compliance with limitations on performance enhancing drugs.

Another element of their oversight involves gambling technology related to pari-mutuel wagering, which was the first form of legalized gambling in the state. And there’s two forms of technology that we highlight in our audit report. One is historic horse racing machines which are very similar to video lottery terminals, but the underlying math is based on historic horse races rather than random luck.

Miller: But the people who play those games, they’re not truly betting on horses where they know the horse or the pedigree or the trainer or the jockey. It’s been so randomized and so reliant, correct me if I’m wrong, on horse races that happened 30 years ago, chopped up and put into an algorithm that it has always struck me as very different from betting on a horse race.

Green: When they were first implemented at Portland Meadows, it was a lot more akin to betting on a horse race. Certain information was masked in terms of what the horses’ names are, but bettors were provided some information. And even today on the new technology, they still have that… the user interface has changed, where it looks like a traditional casino game, as opposed to betting on horse races.

Miller: How much has live horse racing in Oregon declined from its peak a few decades ago?

Green: Quite a lot. There used to be hundreds of race days in the state and now we’re down to a few dozen. In terms of revenue, the state had relied on the Oregon Racing Commission for a number of decades. In the thirties and forties, it generated comparable revenue to the state lottery today on a percentage basis, it reached a peak revenue generation in 1978 of $27 million per year on an inflation adjusted basis. But today, it’s less than a million dollars per year that the Racing Commission contributes to the state revenue.

Miller: What are the reasons for the decline in actual races taking place in our state?

Green: There’s a number of factors. One of the reasons for the decline was the legalization of the lottery system. So there’s more competition for different gambling options…

Miller You can see a direct line between that. So in other words, I mean, the inescapable conclusion that I take is that what was most interesting to people was betting, as opposed to horse racing, at least for some subset of people who would go to horse races. If there was an easier way to gamble, they took it.

Green: Yes, I think that’s a reasonable conclusion.

Miller: OK. So that’s one thing, it’s just a competition in the form of a lottery. What else?

Green: Recently there’s been a legalization of sports betting. So that’s been another competition. There’s also been concerns from the public about the health and safety of the animals, both horse racing and especially greyhound races, which are non-existent in the state.

Miller: But at one point they were not insignificant in terms of popularity.

Green: Yeah, they were extremely popular because it was the first form of legalized gambling in the state.

Miller: So, even though horse racing here has declined, there is still a lot of betting on horse racing, either actual races that are done outside of Oregon, or the kind of historical, casino-style games you’re talking about. Where does most of the money come from right now that the Racing Commission is managing?

Green: Most of the taxes that are generated are from advance-deposit wagering companies which allow bets to place bets over the internet.

Miller: And these people who are playing, they could be anywhere?

Green: Yes, they could be anywhere. They could be in Oregon, they could be betting on races anywhere in the world.

Miller: And Oregon actually figures prominently globally in managing this money?

Green: Absolutely. As live horse racing and greyhound racing was in decline, the Racing Commission was an early pioneer in this technology in terms of regulating it and adopting it. And it was a way to offset some of those declines in revenue that we are seeing from live horse racing.

Miller: And that early adopter status has stayed – something like half of internet horse racing is managed by the Oregon Racing Commission, nationally?

Green: Absolutely. One of the things that Oregon brings to these companies is if they get licensed in our state, they’re able to have multi-jurisdictional licenses in other states.

Miller: And that’s something that we still have a kind of regulatory advantage of? I mean, there’s a reason that companies want to do this because other states still don’t offer that?

Green: Exactly. There’s few states with Racing Commissions in place. There is one other state that has a prominent Racing Commission, but our regulation and oversight is very prominent. So other states trust the work we do.

Miller: How much money does Oregon actually get for managing over $6 billion in bets?

Green: So in terms of revenue generation for the general fund, it’s less than a million dollars per year, but they also collect several million dollars that’s used to support the horse racing industry and subsidize that industry as well.

Miller: So money that comes from online betting, that comes largely from out of state, some of that small bit of it goes to the general fund, but some of it goes to prop up the in-state horse racing industry?

Green: Yes, through both horse associations as well as prizes for the county fair races and the commercial tracks.

Miller: You wrote that there is limited oversight or transparency in terms of how the money that is approved and distributed by this Commission...how all of that happens. What exactly did you find?

Green: So when my team was looking at how those funds were distributed, there was a lack of information in the meeting minutes and the materials that were discussed to make those decisions.

Miller: Meaning… a couple hundred thousand dollars, say, is going to some county fair for them to manage a race, but it wasn’t clear how it was decided or even how much money would go? I mean, I’m wondering how little information there was?

Green: It was fairly limited. You know, our team really needed to dig into that to get those details. One of the challenges, too, was that how the money was allocated was one issue, but also how it was spent and reported back to the Racing Commission.

Miller: Without that information, can you know if money is being spent in legal ways or in ways that are in accordance with state rules?

Green: That’s one of the challenges, where the transparency of that information is really critical.

Miller: How much money are we talking about?

Green: Several million dollars, per annum.

Miller: So, what are you suggesting or saying should change in terms of these disbursements?

Green: The recommendations we made to the Racing Commission was to improve the transparency of those funds, posting more information on their website and their meeting packets associated with those decisions. We also recommended that the Racing Commission improve their policies and procedures, both how they regulate these industries as well as how they report out to the public. And I must commend the Racing Commission Director, Connie Winn. She’s been really receptive to our audit recommendations and findings and proactively implementing those.

Miller: Yeah, I should note at the end of this audit, as we see in almost every audit, the head of the agency or the entity who was audited has a response. This was a short one, basically saying, ‘Yes, we agree with all of your recommendations. And here’s a timeline for when we say we will implement your recommendations, and the furthest out implementation date is about a year from now.’ So they’re saying that within a year, they will comply with your recommendations.

I wanna go back to the historic horse racing machines. What’s the legal status of them in Oregon right now?

Green: They’re allowed. But one of the key things that must be understood is the state constitution has a prohibition on the state authorizing casinos to operate. The only casinos that are allowed to operate in the state are those that are run by sovereign Tribal nations. So just like the Oregon lottery is authorized to have video lottery terminals, the number that can be in an individual location is limited. If historic horse racing machines are installed on the location, there needs to be a limit.

On the Flying Lark issue, they tried to install over 200 of those machines in one venue.

Miller: This was a proposal in Grants Pass, from the founder of Dutch Bros Coffee Company and it led to a real conflict, a difference in understanding of state law on the part of members of the Oregon Racing Commission and other parts of the Oregon Executive or the Department of Justice, and former Governor Kate Brown’s administration, who said, ‘No, this shouldn’t go forward.’

The Oregon Racing Commission said, ‘Yes, we think it could.’

What stood out to you in that disagreement?

Green: The Oregon Racing Commission felt like they had the authority to grant the license for these historic horse racing machines. In the past, they had been installed at Portland Meadows, although in fewer numbers at that location, whereas the Oregon Department of Justice, under Attorney General Rosenblum had given advice to the Racing Commission that that would violate that constitutional prohibition on casinos if that many devices were installed in one location.

Miller: So what are you suggesting would give more clarity going forward now?

Green: The State Constitution doesn’t define what a ‘casino’ is. So we make a recommendation to the Oregon legislature to define in state statute what constitutes a ‘casino,’ so it’s more clear on where that boundary is.

Miller: Are you actually giving them directions for what you think makes sense, or you’re just saying that the state would benefit from more clarity no matter what that clarity means?

Green: Yeah, we don’t take a position on what that specific number is. That’s ultimately a decision for policy makers.

Miller: One of the problems that you identified has to do with the composition of the Commission itself. The, theoretically, five members of this Commission. What has the Commission actually looked like in recent years?

Green: In recent years, there’s been a number of vacancies. During the audit, there were three out of the five members on the Commission. In order for the Commission to make decisions and hold quorum, they must have three members present and it’s a good practice to have a full Commission because if the Commissioner is ill or for some reason is absent, they can’t make a decision if only two members are present. So we recommended to the Governor’s office to not only ensure full Commissions for the Racing Commission, but all boards and commissions that have broad decision making authority.

Miller: Why have some of those positions gone unfilled for years?

Green: I think it wasn’t a priority under Governor Brown’s administration – that particular commission. Another challenge is the individuals that are interested in serving on the Racing Commission is a relatively small pool of people in the state.

Miller: This is related to another…sort of the flip side of vacancies, is that you point out that one commissioner has been in their position for more than 15 years, another for nearly 12 years. That’s not what I’m used to in terms of oversight commissions for the Department of Transportation or, say, the Environmental Quality Commission, people aren’t there, in general, for 15 years. How do you explain this?

Green: The lack of appointees to replace them is really ultimately why they’ve been on.

Miller: So this is about governors, not just Kate Brown, but going back to, I guess, three governors back now, not prioritizing taking this commission seriously?

Green: Exactly.

Miller: When you boil all this down, what has this meant in terms of the oversight of racing in Oregon? That was the purpose of this Commission, when it started almost 100 years ago… this was before historic racing machines that are sort of like casino machines. But what has this lack of oversight meant when there are horse races in Oregon?

Green: So the actual live horse races in Oregon are very well regulated. The Racing Commission provides a veterinarian on site to ensure the health and safety of the animals. There’s good financial controls at these live races that are overseen by the Racing Commission. So I think the live racing aspect has not changed.

Miller: As I noted, the head of the Racing Commission has said that they’ll be implementing all of your recommendations within the next year. Can you remind us what happens after that? What kind of follow up is there from your office to ensure that those recommendations are actually undertaken?

Green: Yeah. So approximately a year after we complete all of our audit work, we will follow up on the status of the recommendations and based on that follow up work, we’ll determine if we need to go back in and re-audit a program or do additional detailed follow up.

Miller: How often does that happen? How often do agencies or whatever entity you’re auditing, do they just not do what they say they’re going to do?

Green: Our agreement rate with our recommendations is fairly high, it’s 80 or 90%. In terms of when we go back and check on the status, it’s lower than that, but generally speaking, the agencies will try to adopt our recommendations.

Miller: Ian Green, thanks very much.

Green: Thank you very much, Dave.

Miller: Ian Green is an audit manager with the Oregon Secretary of State Audits Division.

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