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.

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