ASSESSING THE TELEVISION RATINGS FOR THE 2018 TRIPLE CROWN

Television ratings for the 2018 American Triple Crown races did not stack up favorably with those of previous years, yet a compare and contrast with other 2018 May and June sports events yields a more optimistic conclusion.

First, a review of the TV ratings for the just-completed Triple Crown races:

  • The Kentucky Derby experienced its lowest rating in 12 years with a metric of 8.5 and an audience of 14.9 million viewers.
  • The Preakness Stakes had a television rating of 4.9 and 7.9 million viewers, the second-worst performance since NBC acquired the TV rights in 2001.
  • The Belmont Stakes earned a rating of 8.1 with an audience of 12.7 million viewers (compared to a rating of 3.2 and an audience of 4.9 million in 2017 when no Triple Crown was on the line.)  The number of viewers for the 15-minute segment of the telecast encompassing the actual race increased to 15.3 million.  When American Pharoah won the Triple Crown in 2015, the television rating was 12.3.

Sports Media Watch provided insightful historical context for the 2018 rating for the Belmont telecast by pointing out that…”it is not unprecedented for a sporting event to fall off after the end of a long drought [referring to American Pharoah’s Triple Crown feat in 2015 that ended a 37-year hiatus].  When the Red Sox won the 2004 World Series, ending an 86-year drought, their sweep of St. Louis averaged 25.4 million viewers.  Three years later, their sweep in the 2007 World Series lost a third of the 2004 audience, averaging 17.1 million.”

For additional context, consider how several other May/June 2018 sporting events fared in terms of TV ratings and viewers in the United States.

  • The Indy 500 on Memorial Day weekend earned its lowest TV rating since the race was first broadcast live in 1986, with a rating of 3.4 and 4.91 million viewers.  NASCAR’s Coca-Cola 600, held in the evening on the same day as the Indy 500, had a rating of 2.83 and an audience of 4.1 million.
  • The National Basketball Association Finals averaged a 10 rating and an audience of 17.7 million viewers, the worst numbers in 11 years due largely to a sweep of the series.
  • The closeout fifth game of the National Hockey League Finals had a rating of 3.9 and a TV audience of 6.6 million viewers.
  • The FIFA World Cup is averaging 1.86 viewers.
  • The French Open Finals in tennis had a rating of 1.1 and an audience of 1.62 million viewers.
  • The PGA’s U. S. Open had a rating on the final day of 3.6, the worst number on record for the event.  By contrast, the World Cup soccer match between Mexico and Germany earned a 4.3 rating on Telemundo.

While horse racing is a niche sport in the United States, television ratings for the Triple Crown races typically exceed the ratings for marquee events in other niche sports held in the spring of the year, including in years when a Triple Crown sweep is not possible.  Even the 2018 Preakness, which had the lowest ratings of the Triple Crown races, produced a rating and an audience size that bested the closeout fifth game of the 2018 National Hockey League Finals, and the NHL is considered to be one of the four major sports leagues in the United States.

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IS JUSTIFY WORTH $75 MILLION?

When American Pharoah won the Triple Crown in 2015, Ashford Stud (a subsidiary of Coolmore Stud in Ireland) announced a stud fee for 2016 of $200,000.  However, some mare owners reportedly were able to negotiate a lower stud fee and American Pharoah’s stud fee was subsequently listed as “private.”  American Pharoah’s book has consisted of over 200 mares per year.

Coolmore Stud also purchased the breeding rights to Justify.  Although the figures have not been confirmed, Coolmore may have agreed to a purchase price of $60 million with another $15 million added on if the colt won the Triple Crown.  If this is accurate, what is the likelihood of the $75 million outlay turning out to be profitable?

Following are five “what-if” models, each with its own set of assumptions pertaining to cash flow.

Model 1–Assumptions and Payback-Period Calculations:

Based on what Coolmore Stud did with American Pharoah, Justify will be bred to over 200 mares.  If he can get, say, 85% to 90% of them in foal at an average stud fee in the range of $125,000, Coolmore would show a strong positive net present value return on investment by year 5, assuming a discount rate of 8% (see note at end of article) to account for the cost of capital, the diminishing value of money over time, and the risks that come with investing in a live asset, such as fertility problems, injury, or death.

Now consider four additional models, three of which have far more conservative assumptions and yield less rosy projections.

Model 2

Justify gets 130 mares in foal at an average stud fee (not the listed stud fee) of $100,000.  At a 8% discount rate, it would take slightly over eight years to recoup $75 million paid in full in 2018.  The net present value of Coolmore’s investment would turn positive in year 9, when Justify would be 12 years old.

Model 3:

Justify gets 130 mares in foal annually.  His stud fee averages $100,000 for three years and then drops to $50,000 based on the disappointing appearance of his foals.  In this case, at a discount rate of 8%, it would take over 17 years for net present value to be positive…and Justify would be 20 years old.

Model 4:

Justify gets 130 mares in foal annually.  For the first three years his stud fee averages $150,000 and then rises to $200,000 based on the outstanding looks of his foals.  At a discount rate of 8%, the Coolmore investment would have a positive net present value during year 5.

Model 5:

Justify is sterile (as was the 1946 Triple Crown winner Assault) or gets a low percentage of mares in foal.  In this case, collect the insurance money (and likely take a substantial loss) as the late Allen Paulson did with Cigar.

In conclusion, Coolmore’s chances of turning a hefty profit on an investment of $75 million look encouraging, especially since Justify’s offspring won’t be running in races until mid-to-late year 4 and after that year’s breeding season is over.  Thus, even if his offspring are not particularly talented as racehorses, it would take at least four years to find this out and have that fact reflected in a markedly lower stud fee.  And if Justify sires a relatively high percentage of graded stakes winners and remains fertile, cash flow and profits will soar and $75 million will look like a bargain.

In addition to income from stud fees, Coolmore will be able to race or sell Justify’s foals from the mares Coolmore breeds to him.  This will assist in shortening the payback period.

Copyright © 2018 Horse Racing Business

Note:  Some analysts would apply a higher discount rate than 8% because of the risky nature of cash flow from an asset that is subject to injury and premature death.

SUMMARY OF 2018 TRIPLE CROWN BUSINESS PERFORMANCE

Now that the 2018 Triple Crown is in the books, how did it perform on the metrics of attendance, wagering, and television ratings?   In spite of the rainiest Kentucky Derby in history, rain and thick fog at Pimlico for the Preakness, and a 20-minute-long malfunction on the TwinSpires betting platform immediately preceding the Derby, the answer is that, on balance, the Triple Crown did very well on all three measures.

On-Track Attendance

Official attendance at Churchill Downs for the Kentucky Derby was 157,000 people, the eighth-largest crowd in the race’s history.

A reported 134,487 people showed up at Pimlico for the Preakness Stakes, the third largest crowd in the history of the race.

Belmont Park capped attendance at 90,000 and the reported attendance was 90,327.

Wagering

All-sources wagering (on-track betting plus off-track betting) on the Derby itself and the Derby-day card broke all records.  Betting on both the Derby ($149.9 million) and Derby-day card ($225.7 million) rose 8% over the previous records set in 2017.  The $311.2 million bet during the 6-day Derby week was also a record, up 9% from 2017.  The Kentucky Oaks card on Friday saw a record-breaking 14% increase in betting handle over 2017 and handle on the Kentucky Oaks race soared 18%.

Betting on the Preakness card was $93.66 million–which was the third best ever—and came notwithstanding small field sizes, including the eight-entry Preakness with a strong favorite in the mix.  The Preakness itself set a betting record with a handle of $61.97 million, up $600,000 over the previous record set in 2016 and up 2.9% over 2017.

All-sources wagering on the Belmont Stakes 13-race card was nearly $138 million, the second largest amount (behind the 2014 Belmont card) in the history of the New York Racing Association.  Wagering on the Belmont Stakes itself was $72.7 million, which fell short of the money bet on the Triple Crown attempts of California Chrome in 2014 and American Pharoah in 2015.  Betting handle on the 3-day Belmont Festival was almost $169 million, up 35% over 2017.

Television Ratings

The Derby telecast had an overnight rating of 9.1% (down by 13% from 2017) with a 21 share (down 8.7% from 2017).  The race portion of the telecast had a rating of 10.9 and a 25 share.  (A show’s rating is the percentage of all possible TV households or viewers in the country and its share is the percentage of households or viewers actually watching TV at the time.)  The Derby telecast had the best Saturday television rating since a Winter Olympics telecast on February 17, 2018.

The Preakness had a television rating of 5.5 and a share of 12.

The Belmont telecast had a rating of 8.1 with a share of 19.  The actual race portion was better, with a rating of 9.9 and a share of 23.  These figures were below the ratings for California Chrome’ s failed effort to win the 2014 Belmont and American Pharoah’s successful run in 2015.  However, NBC Sports said the 2018 Belmont telecast was likely to be the highest TV rating for the weekend.

Copyright © 2018 Horse Racing Business