Los Angeles Times turf writer John Cherwa described the 23rd horse death in 2019 at Santa Anita: “Arms Runner, a 5-year-old gelding, fell on the dirt track crossover of a 6 1/2-furlong race on the hillside turf course. He appeared to suffer a catastrophic injury to his right front leg.”

Pretend you are a disinterested party with no background in horse racing and don’t have the cognitive biases of industry insiders. Assume as well that you are provided with some indisputable facts from the Jockey Club’s Equine Injury Database, as follows:

Fact: The unsafest surface at Santa Anita is the downhill turf course (the track has two turf courses) with 2.58 fatalities per 1,000 starts in 2018 and over 3.0 per thousand starts in 2017.

Question: In view of 23 recent horse deaths, why is Santa Anita still holding races on its riskiest surface?

Facts: In 2009, races on the main track at Santa Anita were run on a synthetic surface. Ownership tore out the synthetic surface in mid-2010 and replaced it with the dirt surface that has resulted in the majority of horse fatalities in 2019. On the newly-installed dirt surface, the number of horse fatalities spiked in 2011 to double digits and continued to remain high (compared to the fatalities on the older synthetic surface) every year since, escalating to 23 horse deaths so far in 2019.

Question: If horse/rider welfare really comes first at Santa Anita, as management asserts, what was the logic in 2010 of knowingly replacing a racetrack surface with one that is not nearly as safe? (The Equine Injury Database shows that horse fatalities per thousand starts at North American racetracks–from 2009-2018–averaged 1.20 on synthetic surfaces compared to 1.47 on turf and 1.97 on dirt.)

If the answer to this question is that North American bettors prefer dirt races, as does the Breeders’ Cup, then horse/rider safety is not the most important consideration in track-surface selection.

If you were that unbiased outsider just looking at the facts, what conclusions would you draw about Santa Anita’s actions?

Little wonder that the Equine Injury Database reveals that Santa Anita from mid-2010 to the present has been and continues to be one of the worst racetracks in North America for horse safety. And the distinction is largely self-inflicted.

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After Santa Anita Park experienced 22 horse fatalities in early 2019, the track’s owner, The Stronach Group (TSG), temporarily closed the track and announced reforms, including the phasing out of the race-day medication Lasix. Since then, some owners and trainers have pushed back by indicating they may move their stables to other states. The North American Association of Racetrack Veterinarians has also voiced disagreement with Santa Anita’s decision on Lasix.

Regardless of one’s personal views on this dispute, an objective assessment leads to the conclusion that TSG is in an almost insurmountable power position vis-à-vis owners and trainers because of the superior business alternative it has to horse racing: real-estate development.

TSG’s website lists its five business segments and one of them is real-estate development: “TSG’s real estate development team is expanding our footprint and revitalizing our properties across North America, focusing on developing the lands surrounding our race tracks to create live, work and play communities.”

At least four of TSG’s seven racetracks are located on prime land that could easily be further developed for commercial purposes: Gulfstream Park (near Miami), Golden Gates Fields (San Francisco), Laurel Park (outside Washington DC in Maryland), and Santa Anita Park (Los Angeles).

TSG would likely be better off from a strictly financial point of view if they were to develop the land on which the four racetracks stand as opposed to continuing to operate racetracks. Gulfstream Park, for example, is already part of an upscale shopping facility and casino.

While TSG is deeply involved in horse racing and breeding, the commitment may not be as strong with current president Belinda Stronach in charge as it was with TSG’s founder, Frank Stronach. Forbes magazine’s special issue on “World’s Billionaires 2019” identified Frank Stronach as a “notable former billionaire” with a net worth of “at least $200 million” and wrote:

“In October, Stronach sued his daughter, Belinda, claiming she has mismanaged the clan’s Ontario-based Stronach Group, of which she is president. (The suit revealed that Stronach had earlier given up most of the conglomerate when he put it into trusts in which he had no interest.)”

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Churchill Downs, Inc. (CHDN) at the end of February released its operating results for 2018 (SEC Form 10K). It reported net revenue of just over $1 billion for 2018 compared to nearly $883 million in 2017. Racing and racing-related online operations accounted for 29% of total net revenues with most of the remaining 71% coming from casinos. In 2018, CHDN had net income of $353 million versus $141 million in 2017. Diluted earnings per share were $4.39 in 2018 and $2.55 in 2017.

At the conclusion of 2018, CHDN had six wholly-owned racetracks: Arlington Park (IL), Calder Race Course (FL), Fair Grounds Race Course (LA), Presque Isle Downs and Casino (PA), Ocean Downs (MD), and Churchill Downs (KY). All of them conduct Thoroughbred racing except for Ocean Downs, which is a Standardbred track. Calder Race Course is leased to the Stronach Group and is known as Gulfstream Park West, although the associated casino retains the Calder name.

Online operations encompassed TwinSpires, United Tote, and Bloodstock Research and Information Services (BRIS). TwinSpires accepts bets via internet and phone, United Tote manufactures pari-mutuel betting machines, and BRIS provides handicapping information for bettors.

During 2018, CHDN pari-mutuel handle increased by 8.3%, largely due to betting on the Kentucky Derby and Kentucky Oaks, and would have been even better had there not been a large decrease in handle at Arlington Park near Chicago. CHDN launched 900 historical racing machines in 2018 at Derby City Gaming in Louisville, Kentucky. It also started BetAmerica Sportsbook at its two Mississippi casinos, for sports betting, and plans to expand to other states that have or will legalize betting on college and professional sports.

CHDN in 2018 owned eight gaming operations located in seven states (MS, FL, LA, ME, PA, MD, and OH). The facilities had some 9,500 gaming positions.

CHDN stock increased by 35.2% in 2018 in comparison with the S & P 500 that decreased by 6.59% or negative 4.75% if reinvested dividends are included. Institutions such as mutual funds and pension systems own around 88% of CHDN stock outstanding. The top ten institutions own 42% of the stock and the top 20 own 55%.

As of this writing, CHDN has acquired two additional casinos in 2019 (in IL and PA). CHDN has split its stock three for one and the share price is up in 2019 by about 5%.

(Disclosure: William L. Shanklin is currently a CHDN shareholder).

Copyright © 2019 Horse Racing Business