HORSE RACING BUSINESSES STRUGGLE TO FIND EMPLOYEES

A March 15, 2021, article on HorseRacingBusiness.com explored the potential negative impact that a $15 minimum wage would have on many racehorse trainers and other racing businesses.  Another glaring issue is that it is increasingly difficult for small businesses to find employees.  This has always been a problem in horse racing because of the long work hours, travel, and relatively low pay and benefits.

Now the problem has been exacerbated by the federal government’s pandemic-related rescue packages that, in effect, compete with private-sector hiring.  In fact, the National Federation of Independent Businesses (NFIB)–the largest advocacy organization for small enterprises in the United States–reports that 40 percent of small business owners could not fill job openings in February 2021, a seven percent increase from January.  This resulted even though 25 percent of small businesses boosted compensation to attract job-seekers.

The scarcity of job applicants comes in the midst of a recovering economy with around 10 to 18 million people counted as unemployed.

The Foundation for Economic Freedom (FEF) asked: “So, where are the workers?”

The answers include the lack of childcare for families whose children are being schooled remotely as many schools are either not open or are using a hybrid schedule.  FEF also said that people with pre-existing health conditions could be fearful of resuming work outside the home.

FEF went on to say:

“But all things considered, the federal government’s increase and extension of jobless benefits is likely playing an outsized role in the decision many Americans are making to stay home.

Prior to the pandemic, the average person on unemployment received $378 a week, and most states offered these benefits for a period of 26 weeks or less. But in response to the lockdowns (that the government itself implemented), Congress began passing ‘relief’ packages in 2020 that vastly expanded those numbers.

At the height of the pandemic, individuals were paid $600 a week by the federal government, giving the average collector a weekly rate of $978 for an extended period of 39 weeks.

Under the new [2021] legislation, out-of-work Americans can collect benefits through September of this year (depending on the program) and will receive between $300-$400 additional federal dollars per week.”

While unemployed Americans need help in this difficult time, the federal government’s efforts to address pandemic-related unemployment have had an adverse effect on employers.  Until herd immunity from COVID-19 is attained and the economy returns to a pre-pandemic sense of normalcy, small businesses will struggle to have enough employees to serve their customers.

An unknown percentage of horse-racing businesses will have to at least temporarily curtail the size of their operations and some may go out of business altogether.

Copyright © 2021 Horse Racing Business

A POTENTIALLY DISRUPTIVE NEW PLATFORM FOR BETTING ON FUTURE EVENTS

A brand-new federally regulated betting exchange called Kalshi (the Arab word for “everything”) is up and running and lets people trade on disparate event outcomes.  Kalshi, founded by two twenty-something entrepreneurs with M.I. T. backgrounds, has already raised over $36 million from prominent investors.  A Kalshi user is able to buy a “yes” or “no” contract on a wide range of topics, regarding their belief that a future event will or will not occur.  (Per federal law, events must preclude war, terrorism, assassinations, or gaming.) 

A contract will pay $1 if the user makes the correct yes-or-no prediction.  The user will purchase a contract for between $0 and $1, depending on where the market is trading at a given time.   A Kalshi user will be able to exit a trade before the outcome of an event is determined.  For instance, suppose in June 2020 someone had bought an existing contract for 40 cents that would pay off if a COVID-19 vaccine would be approved by the FDA before the end of 2020.  As the prospects grew brighter for vaccine approval by late 2020, the user could sell the contract for, say, 80 cents.

A few of the current events open on Kalshi are:

Will the real GDP increase this quarter?

Will the Toyko Summer Olympics be cancelled?

Will the CPI increase this month?

Will the high in Central Park, NY be above 100 degrees this week (August 1, 2021)?

If Kalshi proves to be successful, look for competitors to come into the market.  Whether Churchill Downs, Inc., Penn, and other major players in the racing industry could get regulatory approval for a Kalshi-like operation is unknown.  Certainly, for instance, Churchill Downs could not post an event that management can control, such as:  Will the Kentucky Derby in 2022 be run with attendance at Churchill Downs limited to less than 80% of capacity?  But other events could be crafted that would permit “yes” or “no” betting:

Will the winning time for the 2021 Kentucky Derby be 2:02 minutes or less?

Will all-sources wagering on the 2021 Kentucky Derby race itself surpass $160 million?

Will the high temperature in Louisville, Kentucky on Kentucky Derby day 2021 exceed 74 degrees fahrenheit?

Copyright © 2021 Horse Racing Business

HOW A NATIONAL $15 HOURLY MINIMUM WAGE WOULD AFFECT AMERICAN RACING AND BREEDING BUSINESSES

There is strong sentiment in the U. S. Congress to mandate a national minimum wage of $15 per hour under the Federal Labor and Standards Act.  This would supersede state minimum wage requirements and have a deleterious impact on many but not all horse trainers and horse breeders.

In New York City, the minimum wage is already $15 an hour and a racehorse trainer must pay at least $15 per hour and $22.50 for overtime. In 2019, a prominent New York City-based trainer was fined over $1.6 million for numerous labor violations, including failing to pay overtime and lax time keeping of employee hours worked. Another top-tier New York trainer quit, citing the cost of doing business.

Minimum wage laws vary considerably.  In New York state outside New York City, Long Island, and Westchester, the minimum wage is $12.50 per hour, whereas in Kentucky the state minimum wage is $7.25 hourly, and in California the minimum wage is $13 for employers with 25 employees or less and $14 for employers with 26 employees or more. The minimum wage in California is scheduled to increase to $15 per hour by 2023 regardless of number of employees and Florida voters in November 2020 passed a constitutional amendment raising the hourly minimum wage from $8.56 now to $15 by 2026.

Exemptions are written into minimum wage laws.  For instance, agricultural workers are exempt from overtime requirements and employers can make adjustments for meals and lodging provided to employees.  Exceptions are made as well for tipped employees and some student workers.

According to the Congressional Budget Office, a federally-mandated minimum wage of $15 per hour by 2025 would lead to a loss of 1.4 million U. S. jobs, but lift 900,000 people out of poverty. 

The flaw in a federal minimum wage is that it does not account for marked cost of living differences across the country.  For instance, a trainer at Belmont Park or Santa Anita likely has a day rate that accommodates a $15 per hour minimum wage, whereas a trainer at Mountaineer Park or Ellis Park would have a day rate that would not. 

Living on $15 per hour while working as a groom at Golden Gates Fields in San Francisco is a challenge no doubt, but $15 per hour would go much further at Oaklawn Park in Hot Springs, Arkansas.  As for farm workers on racehorse breeding farms, they are generally exempt from overtime provisions and are often compensated partly with housing.

A federal hourly minimum wage of $15 would have little effect on stables located in high cost-of-living areas but would be onerous for stables in low cost-of-living venues.  All trainers are classified by the federal government as operating small businesses, as determined by the number of people employed…and many and perhaps most small businesses would struggle to survive with a $15 federal minimum wage. 

Copyright © 2021 Horse Racing Business