Editor's Note: New Jersey's horse racing industry has been hammered for years by declining attendance and shrinking purses. It sees slot machines at racetracks as its best chance to survive.

Atlantic City's casino industry has been paying millions in "subsidies'' to the state's tracks for years to forestall the arrival of racetrack slots.

State government is trying to resolve this knotty conflict involving two powerful and influential gaming industries. This month, a state commission began meeting to study the problem.

Press special reports writer John Froonjian has been looking into the issue for months. He's examined studies and reports and analyzed the two gaming industries and their seemingly irreconcilable concerns, and he's spent time talking to people with a stake in the outcome.

Through his research, two things became clear:

- Attempts by the state to reverse the racing industry's falling fortunes have failed miserably.

- As the commission begins looking at options, the stakes have been raised. This time, the consequences of failure could reach beyond racetracks and gaming halls.

An impending battle to allow slot machines at state racetracks could end Atlantic City's 33-year monopoly on casino-style gaming in New Jersey.

Gambling revenue at the state's racetracks has dropped by a half-billion dollars since 2000 as the number of racetrack visitors dwindles each year. The track owners and racehorse breeders want slot machines to generate purses, the money paid to winning horse owners.

The horse industry and some lawmakers blame the casinos for racing's problems. Under pressure, the casino industry began subsidizing purses in 2004 in two deals to keep slots out of New Jersey's racetracks. The casinos are obligated for $176 million in cash and investment credits over seven years. The casinos are paying $30 million per year even as they lay off thousands of workers.

Casino officials say subsidies will end with the contract in 2011. They oppose racetrack slots as potentially devastating in-state competition.

The battle over expanded gaming at tracks will be played out as a 15-member commission named by Gov. Jon S. Corzine studies how to save racing.

Analysis by The Press of Atlantic City shows that while bigger purses may help horse owners, they do not attract more people to the tracks to bet on horses.

- Track attendance and betting revenue have continued to drop despite casino subsidies. The subsidies go to the two state-owned tracks - Meadowlands Racetrack and Mon-mouth Park - and previously went to Freehold Raceway, which took $8 million in the first four years.

- Analyses of winners on randomly selected Meadowlands racing days show that two-thirds of the top purse money is won by out-of-state horse owners. A casino analysis shared with The Press shows that even in recent races in which New Jersey horses were given an entry preference, state-bred horses took the top winnings less than half the time.

- Betting on horses has continued to decline in states where racetracks already have slot machines, according to reports.

State residents and officials may not have cared that casinos were subsidizing racetracks; the money did not come out of taxpayers' pockets. However, the subsidies effectively divert millions of dollars from programs that benefit senior citizens and handicapped residents to finance winnings for horse owners.

In return for the subsidies, the state granted casinos a tax break on credits provided on slot machines to let gamblers play for free. The break could save casinos $15 million to $20 million per year on money paid into the state fund for seniors and handicapped residents.

Casino supporters, such as state Sen. Jim Whelan, D-Atlantic, question why one industry should have to subsidize another.

"Boxing used to be hugely popular," said Whelan, a former Atlantic City mayor. "Are you going to go to the (NFL) and say, 'You're more popular, so you're expected to subsidize boxing'?"

Racing advocates point to a Rutgers University study that said the horse industry generates $1.1 billion per year and has created 13,000 direct and indirect jobs.

Records show that the casinos provide many times that in economic benefits.

Horse farmers and breeders threaten to move to states where they can earn more money if racetrack purses do not remain high. Their farms could be sold to developers, with the state losing open space.

Anthony Perretti, of Perretti Farms in Monmouth County, said farmland-preservation programs will not work unless there's business to support horse farmers. Slot machine revenue would keep the horse industry healthy, he said.

Advocates of both the casino and horse industries point to another revenue source that has not been developed.

In 2001, the state authorized New Jersey racetracks, including Atlantic City Race Course, to run off-track wagering centers. The facilities, including businesses in Toms River and Vineland, are economic bright spots for horse racing. They produced more revenue last year than was bet in person at the state's tracks.

But only three have opened so far. Critics charge the racetracks would rather take casino subsidies - or casino-style gambling - than help themselves.

The governor's study commission, with members from both the horse and casino industries, must weigh all of these arguments. The panel's report, due in July 2010, could dramatically change the nature of gaming in Atlantic City and throughout the Garden State.

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