How did Prairie Meadows go from a turkey to Polk County's golden goose?

Just curious: This occasional feature in the Des Moines Register aims to answer your questions about Iowa. Is there some place, event, lore, history or cultural quirk you're just curious about? Email your question to the Des Moines Register's Bill Steiden at wsteiden@registermedia.com.

As another season of live racing kicks off this month at Prairie Meadows in Altoona, you may wonder how Polk County became home to the only nonprofit “racino” in the country.

The county-owned facility has long been a cash cow. With record-breaking wagering last year, it generated more than $44 million in charitable grants in central Iowa, according to its annual report.

But the gambling facility also been a source of several fracases over the years. As live racing has operated in the red, legalized sports gambling has expanded and the IRS challenged its nonprofit status. Some also questioned salaries paid to executives that, in the case of CEO Gary Palmer, can amount to more than $1 million with his bonus.

Here's a look at Prairie Meadows' evolution.

How did Prairie Meadows get started?

The impetus for Prairie Meadows and other Iowa tracks came in 1983, when then-Gov. Terry Branstad, serving his first term, supported a gambling bill in the Legislature that allowed betting on horse and dog races. Branstad said he was swayed by arguments that the horse industry would help Iowa's struggling farm economy.

"I wasn't too enamored with gambling, but people said it's a voluntary tax; we'd rather have this than have the state involuntarily raise taxes," Branstad told the Des Moines Register in a 2009 interview. "It was originally the horse industry and what it would do for agriculture. We were just coming out of the Farm Crisis."

The track opened March 1, 1989, before a sellout crowd.

But long before that first race, former Iowa Cubs owner Ken Grandquist, the track's original developer, had difficulty lining up financing amid questions about whether it could make a profit. So the Polk County Board of Supervisors voted, without holding a countywide referendum, to have taxpayers back the $40 million in bonds issued to build Prairie Meadows.

That’s how Polk residents became investors in a gambling operation, and the county became the racetrack's landlord.

When and why did Prairie Meadows become a casino?

After the track's inaugural races, betting was far under consultants' initial projections. The track started with a $4 million cash reserve, spent $2.5 million before it was even open, and the rest was gone within its first couple of months.

The track stayed open for the next two years by borrowing $8.8 million from Polk County, contending it was less costly to keep operating than it would be to close.

Prairie Meadows filed for Chapter 11 bankruptcy Nov. 27, 1991, and horse racing didn't resume until May 17, 1993. To bail out the track, the Iowa Legislature approved a bill in 1994 to permit it to become the first horse track in the nation to install slot machines, which were also allowed at struggling greyhound tracks in Council Bluffs and Dubuque.

How did that work out?

Prairie Meadows unveiled 1,100 slot machines April 1995 and they proved a huge success, allowing the combined racetrack-casino to make $50.4 million that year. Gamblers swarmed to Prairie Meadows and by December 1996, it had paid off a total of $89.3 million in debt to Polk County.

Prairie Meadows became a full-fledged casino in December 2004 when Iowa's racetracks were allowed to install table games such as blackjack, craps and roulette.

An expansion of racetrack gambling followed a lawsuit filed in 1998 challenging much higher state gambling tax rates imposed on racetrack casinos in comparison to tax rates for riverboat casinos. The court battle reached the U.S. Supreme Court in 2003, when the high court reversed a ruling favoring Prairie Meadows and two other racetracks. But the legal case ended in early 2004, when the Iowa Supreme Court concluded that the higher tax rates paid by racetrack casinos violated the Iowa Constitution.

In early 2007, Prairie Meadows added The Meadows Events and Conference Center and a steakhouse and buffet, and in 2009, a Register analysis concluded that Prairie Meadows, initially a white elephant, had raked in more than $1.1 billion in the years since adding slot machines in 1995.

The state and Polk County benefited the most, pulling in more than $780 million, while horse racing purses and charities were next in line. Almost all of that money came from customers who lost money at the casino or racetrack.

In March 2012, Prairie Meadows opened a 168-room hotel.

Why did the IRS get involved?

In May 2016, the U.S. Internal Revenue Service said it planned to strip Prairie Meadows of its tax-exempt status following an 18-month audit investigation. The IRS audit determined the facility was operating more as a business than “exclusively for social welfare purposes.”

It also found the operation lacked oversight from Polk County, which was a stipulation for its approval as a casino.

“The only difference in the operation of Prairie Meadows Racetrack and Casino and a for-profit casino is only that (Prairie Meadows) does not pay taxes,” the IRS report stated.

But Prairie Meadows appealed the finding and in an IRS review, was allowed to keep its tax-exempt status after agreeing to make some concessions to the IRS.

What's happened since then?

In 2019, the Iowa Legislature passed a law allowing legalized sports betting through casinos, expanding Prairie Meadows' profits.

In 2022, live greyhound racing ended at the state's only remaining dog track, Iowa Greyhound Park, part of Q Casino in Dubuque, so Prairie Meadows now is the state’s only live pari-mutuel racing venue.

While Prairie Meadows says it has paid more than $2.2 billion in grants and taxes, concerns persist about its oversight.

Last year, Palmer, whose contract expires in 2026, received another large raise, 9%, bringing his base salary to about $725,000, up from $664,000 in 2023. In good years, his annual bonuses ― yet to be decided this year ― have exceeded his base pay.

And last year, the head of the Iowa Racing and Gaming Commission, the state’s top gambling regulator, announced he would take a high-level job at the racino. Brian Ohorilko is now a senior vice president overseeing racing, human resources and food and beverage.