Follow the money.  That adage does not always prove true in discerning outcomes but it is often a reliable guide of things to come.  For instance, betting sites are usually a more accurate predictor of who is going to win an election than expert forecasts and public opinion polls.  Bettors have “skin in the game” and therefore more closely research and weigh possible results. 

Follow the money is my preferred context for evaluating the possible effects on the American horse racing enterprise of yesterday’s expose by Joe Drape in the New York Times.  In capsule, Triple Crown winner Justify turned up positive for the performance-enhancing drug scopolamine after his win in the Santa Anita Derby.  Tests by two different laboratories came back positive.  Moreover, the California Horse Racing Board and Justify’s trainer Bob Baffert may have covered up the violation.  (The Racing Board attributed the presence of scopolamine to jimson weed, which could have been in straw used for stall bedding, and Mr. Baffert professes his innocence.)

The New York Times story understandably provoked plenty of comments from readers of newspapers and online reports.  PETA, as expected, was quick to condemn. The majority of the feedback was harsh and accusatory as to where the blame lies.  And in some cases, the comments were along the lines of “the world as we know it is coming to an end.”

Meanwhile, down in the Bluegrass of Kentucky, in Lexington, the September sale of yearlings is in full swing.  On the very same day that the New York Times story was published, a filly sold for the highest price ever, $8.2 million.  This followed a colt going for $4.2 million the day before.  In fact, the market is so buoyant that a $1 million sale is hardly worthy of mentioning.

If one follows the money, Mr. Drape’s report does not seem to phase deep-pocketed investors and speculators in Thoroughbred horses.  If the people buying horses at Keeneland are worried about the future of horse racing, their bidding behavior sure doesn’t show it.

So, there is a parallel universe of sorts and time will tell who is correct.  The view here is that while negative publicity is detrimental, the public has become inured by almost daily scandalous news.  In this era of social media, cable TV, talk radio and scandals de jour, a failed drug test of a racehorse will be of little or no interest or concern to the vast majority of people…or to bettors. Then too, polls show that public trust in mainstream media is at an all-time low.

The social psychology phenomenon known as the “spotlight effect” is that we tend to believe that other people are paying more attention to us than they are. Folks in the niche sport of horse racing are no exception.

Mr. Drape’s story would ordinarily have received more attention than it did.  But a bombshell incident involving the National Football League dominated the day and crowded out other news. Media reports and radio/TV shows were consumed with the civil-suit filing against an already high-profile and controversial New England Patriot player.  His former personal trainer said he sexually assaulted her.

Most people with a financial stake in horse racing, or an ardent fan’s interest, want the sport/business to adopt a uniform medication policy with a strict enforcement mechanism.  The folks buying yearlings at Keeneland s seem to be betting on that outcome, or that it does not matter.

Copyright © 2019 Horse Racing Business

On September 18, Horse Racing Business will publish a fact-based analysis of the California Horse Racing Board’s actions after Justify tested positive for scopolamine in the Santa Anita Derby.


For the first time ever in May 2019 New Jersey took in more money on sports betting than Nevada (Las Vegas has had sports betting since 1949). In May, New Jersey surpassed Nevada $318.9 million to $318.3 million. By July 2019, the disparity had grown with New Jersey taking in $251 million and Nevada $235 million.

This performance was not unexpected because sports betting became very popular in New Jersey soon after the state legalized it in June 2018 following an enabling U. S. Supreme Court decision. For the first year in operation, New Jersey had $3.2 billion bet legally on sports with 75 percent of the total coming via bets made online.

Eighty-three percent of New Jersey sports bets in June 2019 were online and 17 percent were made at a physical facility, which reflects the fact that more online betting sites are being added in New Jersey. For instance, customers at Buffalo Wild Wings will soon be able to place bets on BetMGM through the restaurant’s app in New Jersey and other states where sports betting is legal.

At this writing in early September 2019, twelve states have up-and-running sports betting operations, and five of these have mobile betting—Iowa, Nevada, New Jersey, Pennsylvania, and West Virginia. Mobile betting is legal in three additional states but it is not yet operational. Four states confine sports betting to a physical location. 

Interestingly, Tennessee permits sports betting but has no casinos; thus sports betting in the “Volunteer state” will be entirely online.

At least six states are considering legislation to legalize sports betting. Sports betting is already legal in states with significant horse-racing enterprises—New York, Pennsylvania, Delaware, New Jersey, Arkansas, Indiana, New Mexico, and Iowa, with California considering legalization. Kentucky is unlikely to be included.

Geographical expansion of legal sports betting is both an opportunity and a threat to horse racing. It is an opportunity to the extent that sports bettors crossover to bet on races, similar to how table-game players and sports bettors crossover. Sports betting is a threat to horse racing if people who support the pari-mutuel product divert cash away from racing and racing does not receive compensatory crossover betting in return.

While sports betting is a low-margin business (about 5% before expenses), it attracts customers to casinos and racinos. Whether horse racing will benefit is a question that will be answered soon.

Copyright © 2019 Horse Racing Business


A retired low 7-digit millionaire in her 70s recently told me that her instructions to the wealth manager investing her family’s portfolio is “just don’t lose any of our money.” Of course, a reputable and candid wealth manager can’t possibly guarantee such an outcome, unless he/she puts all of the family’s money into government-insured certificates of deposit. Even then, returns from CDs are unlikely to keep up with inflation, so they are subtly “losing money.”

Risk aversion and loss aversion are behavioral characteristics inherent in any type of activity in which assets can appreciate or depreciate. For instance, the activity can be investing/speculating in stocks, bonds, real estate, or commodities…or betting on sporting contests and horse races. Research in behavioral finance has yielded quite clear findings on people’s propensity for risk aversion and loss aversion whenever there is money on the line and there can be winners and losers.

Risk aversion refers to people’s usual emotional preference for safety and certainty. Given the choice between a 75% chance to win $100 and a 50% chance to win $150, most people would select the former, notwithstanding that the choices have an identical expected value of $75.

Loss aversion is a form of risk aversion but is not the same. The website The Emotional Investor succinctly sums up the difference: “Loss aversion is not just the desire to reduce risk; it is an utter contempt for loss.” The woman who instructed her wealth manager not to lose any money is extremely loss averse…and unrealistic.

The vast majority of horse racing bettors are not loss averse or they would not be betting on horses at all. Bettors who consistently wager on favorites are risk averse, whereas other bettors are venturesome and take chances on longshots. Adept bettors closely adhere to the concept of underlays and overlays and try to capitalize on the latter, much like an investor seeking a value common stock.

It would be informative to do behavioral-finance type research among people who breed racehorses and buy and sell them at public auction as weanlings and yearlings. People who engage in these highly speculative ventures (such as pinhooking) almost certainly have a much more tolerant risk profile than the overall population. They would probably fall into the same category as the most risk-taking entrepreneurs, like frackers and funders of Broadway plays.

Copyright © 2019 Horse Racing Business