WHERE NORTH AMERICAN HORSE RACING IS HEADED

Horse racing in North America persists on the path of downsizing as measured by the number of races held each year, the number of foals born and registered with the Jockey Club, and the amount of dollars wagered.  Making predictions about the future is always perilous but, if the malaise continues, following is what horse racing is apt to look like within another quarter of a century.

Racetracks will hold significantly fewer live races than today but will still be able to offer a full complement of races to bettors from racetracks around the world via simulcasting.  Advance deposit wagering companies will also have a full schedule of races, from early morning until late at night.

By contrast, the breeding side of the North American racing industry will likely see profound changes, for two reasons.

First, stagnation of pari-mutuel revenue and state decoupling of purses from slots revenues will make horse ownership less attractive economically, which will decrease demand for bloodstock.  As a result, there will increasingly be fewer mares bred…until an equilibrium in the foal crop is reached.

Second, the breeding industry will be dramatically transformed in terms of geographical dispersion, with the industry becoming far less centered in greater Lexington, Kentucky and Ocala, Florida.  Anyone who has periodically visited Lexington and Ocala can see that it is only a matter of time until most of the horse farms are lost to urban sprawl.  Lexington is a desirable place to live and do business and Ocala has become a destination for retirees.  A rapidly growing population of people and businesses generally does not bode well for agricultural pursuits, even when some land owners establish conservation easements for their property.

The latest statistics available from the Jockey Club (for 2014) show that 46.7% of all registered Thoroughbred foals were born in Kentucky (36.4%) and Florida (10.3%).  Moreover, the Kentucky and Florida foal crops are concentrated in Lexington and Ocala, respectively.  Five states accounted for 68.9% of the registered foal crop:  Kentucky, Florida, California (8.2%), New York (7.1%), and Louisiana (6.9%).

A streamlined or rationalized breeding industry will gravitate away from the high-land-costs of Lexington and Ocala to more rural venues in Kentucky, Florida, and other states like New York.  As the stallion population is dispersed geographically beyond the bluegrass, the Jockey Club may even allow artificial insemination to mitigate the costs of transporting broodmares.

In order for this scenario to be averted, pari-mutuel wagering would have to be rejuvenated so that horse ownership is more monetarily rewarding and Lexington and Ocala would have to become less attractive venues for individuals and businesses.  Both of these look like longshots.

Copyright © 2016 Horse Racing Business

DIVERGENT ECONOMICS OF THE RACING AND BREEDING ENTERPRISES

The North American registered foal crop has declined in the 21st century from 37,755 foals in 2000 to an estimated 22,500 foals in 2016.  The actual number of Thoroughbreds born is somewhat larger because owners do not register every eligible foal.

The number of races contested in North America for registered Thoroughbreds also declined—from 62,877 in 2000 to 43,949 in 2015.  The correlation between the number of foals registered and the number of races run over this period of time is .95, indicating that there is a close correspondence between the size of the registered foal crop and the number of races run.

Correlation does not confirm causality.  However, in this case it is reasonable to assume that a major reason the number of races run has decreased is because there are not enough entries to fill the races.  To check this assumption, I correlated the foal crop in each year since 2000 with the number of races run two years later.  With this time lag, the registered foals in a given year would have been 2-year-olds and the effects of declining foal crops would have been felt by racetracks looking to fill races.  Allowing for the lag effect, the correlation between the registered foal crop and the number of races run rose to .99.

The size of registered foal crops hinges on very recent economic conditions in the Thoroughbred industry, such as purses offered by racetracks , auction prices for bloodstock, and training costs to horse owners.

The number one economic risk or threat for the industry is the decoupling of slots revenues from horse racing purses, which is a trend as financially-strapped state governments seek any money they can find.  Exacerbating the situation is the fact that  pari-mutuel wagering is stagnant and therefore is unable to augment purses.

Racetracks and advance deposit wagering companies can continue to provide their customers with a smorgasbord of races from North America, Europe, South Africa, and Australia, even with a continuing decline in the number of races offered.  The racing-industry participants most in jeopardy are the horse breeders and the businesses that serve them–the auction companies, veterinarians and common carriers.

The downsizing scenario for horse breeders and supplier firms in the industry can be mitigated only through a revitalization of pari-mutuel wagering, which, to date, has been elusive.

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More on this next week.

Copyright © 2016 Horse Racing Business

HORSE RACING’S TIMELY COMPETITIVE EDGE

The USA Today headline on October 8th read “Sagging NFL TV ratings leave owners scrambling for answers.”  When the television ratings for America’s most popular sport drop that is a cause for concern for all sports.

Explanations for the ratings decline have been numerous, ranging from American’s focus on the presidential election to a glut of sports offerings.  But hard data indicate that viewers have increasingly been cutting back on watching sports on television and therefore the causality is not a temporary event like the election.  Indeed, ebbing viewership is a trend rather than an aberration.

For example, in 2010, ESPN had approximately 100 million subscribers.  By 2015, the cable network had 92 million subscribers for a decrease of 8%.  The downturn has picked up steam in 2016:  October was the worst month in ESPN’s history, when it lost 621,000 subscribers and had a 24% decline in ratings for its crown jewel–Monday Night Football.

What has happened at ESPN is plaguing most television programming, whatever the genre.  While several contributing factors are at work, the most prominent causality is that people are being inundated with information and their attention spans are shortening.  Why watch an entire NBA or MLB game when one can catch the highlights on a smartphone and also forgo the expense of paying for a sports channel on cable?

Horse racing is fortunate to have a format that fits well with the new reality.  Its showcase events–the Triple Crown races–each last in the vicinity of two minutes.  Tune in, say, at roughly 6:00 PM eastern time on the first Saturday in May and be done watching the Kentucky Derby shortly thereafter.  Similarly, a viewer can avoid the clutter of the marathon two-day telecasts of the Breeders’ Cup by accessing the telecast precisely at the post times for the races he or she wants to see.

A personal example:  On Saturday afternoon of Breeders’ Cup day, I looked up the post times for the races I most wanted to watch and did errands in between.  It takes the most patient and avid fan to sit in front of a television for hours on end watching any sporting event, much less one in which there are 30 or 40 minutes between races, as in the Breeders’ Cup.

Bettors with accounts on wagering platforms have a daily potpourri of races to wager on from racetracks around the world.  Someone in the eastern U. S. time zone can bet on and watch a race from Europe before breakfast and then head off to work, or take in a race or two from Australia before turning in for the night.

Events like the Super Bowl, the World Series, the World Cup, and the Kentucky Derby will attract a large television audience.  However, an NFL game on Thursday night, an NBA contest in February, or a third-tier college football bowl game are all swimming against the cultural tide in a society of fragmented audience interests and truncated attention spans.

Horse racing, as a sport and betting option, has structural and cultural weaknesses but its inherent characteristic of extreme brevity (in presenting races available at all times of the day and night) is its only inherent advantage in today’s milieu…but a valuable one.

Copyright © 2016 Horse Racing Business