Archives for August 2011

Unfortunately, racetracks, farms, sales companies, and other businesses in the American horse-racing enterprise had best further batten down the hatches for the foreseeable future, given the uncertainty and trepidation about the U. S. and global economies and the most recent predictions for their direction.

A front-page article in today’s Wall Street Journal has this headline: “Central Bankers Worry Economy Still in Peril.”  It elaborates: “…the world’s central bankers are concluding that the global economy is still in a precarious position and the policy apparatus is ill-equipped to help. The mood here in the Grand Tetons, where central bankers and private economists from around the world gather each August, was distinctly gloomy.”

Contrast this state of affairs with the upbeat outlook among economists just 10 months ago.  For example, the initial Horse Racing Business article for 2011 pertained to the U. S. economy. It read, in part:

”In 2011, the consensus among economists is that Gross Domestic Product will grow by 3 percent, with a bias to the upside, or to about 3.5 percent. GDP is expected to pick up steam as 2011 progresses… A panel of economists polled by the Wall Street Journal in December 2010 put the probability of the U. S. having a double-dip recession at 15 percent.”

So far, the expert forecasts have been far off the mark and the prospects for the economy in the remainder of 2011 and into 2012 have taken a turn for the worst. In the first quarter of 2011, GDP had a pathetic 0.4% gain and in the second quarter GDP increased by a meager 1%.

Current computer modeling by Bank of America Merrill Lynch (released August 24, 2011) places a greater than 80% probability on a double dip recession. The Philadelphia Federal Reserve is predicting a pending recession with an 85.7% probability. Finally, the Thomson Reuters/University of Michigan consumer survey also puts the chances of a recession at 80%. The survey has not been this pessimistic since May 1980.

Of course, organizations like these are not infallible forecasters by any means and have been wrong before, most recently for the first half of 2011. Nonetheless, even if the U. S. does not slip into a technical recession (i.e., two straight quarters of negative growth), the economy is likely at best to be very slow growth for the rest of 2011. Tepid or negative growth will mean a continuation of the high unemployment rate and will continue to be a damper on consumer spending. Housing should also continue in the doldrums.

This means that the downturn in pari-mutuel wagering is likely to persist and perhaps accelerate because consumers will have less money to spend on leisure activities. In fact, it is difficult to construct an economic scenario for the next 12 months that is favorable to discretionary outlays like wagering and buying bloodstock.

Copyright © 2011 Horse Racing Business

Surprising Headlines: Nixon Goes to China, 1972. Williams Accepts Alternative Gaming for Kentucky, 201?

In order not to offend readers of different political persuasions, Horse Racing Business scrupulously endeavors to avoid the subject of politics, except when it squarely impinges on the horse-racing industry. This is one of those times.

The following is not intended to promote any political candidate, but rather, is a dispassionate analysis of  a few possible scenarios for advancing the legalization of racetrack video lottery terminals, aka slots, in the Commonwealth of Kentucky.

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“Keep your friends close, and your enemies closer.” Sun-tzu 

For over a century, the Bluegrass region of Kentucky has been the undisputed center of the Thoroughbred breeding and sales industry in the United States and Louisville is home to America’s most famous race. The “undisputed” claim is imperiled, for two reasons. First, the U. S. foal crop is declining because of economic conditions in general and a precipitous decrease in pari-mutuel handle in particular. A downturn in the foal crop affects Kentucky the most of any state. Second, Kentucky law does not permit alternative gaming. As a result, racing states that offer slots-enriched purses and lucrative breeding incentive programs have increasingly been able to entice owners and breeders to move some of their stock out of Kentucky to greener pastures, so to speak.

The top elected official in Kentucky who is a proponent of alternative gaming is Governor Steven Beshear. In fact, expanded gambling was his principal campaign pledge in 2007 when he was running for office. By contrast, the major elected official in Kentucky who is an opponent of alternative gaming is Senate President David Williams. He has successfully blocked all legislative efforts to advance alternative gaming and, in so doing, has kept Beshear from fulfilling his campaign promise.

The mano-a-mano political fighting between Beshear and Williams has now moved to center ring: They are presently the nominees of the Democratic and Republican parties, respectively, for governor. The election takes place in November 2011.

Of course, the Kentucky racing and breeding industry is obviously behind Beshear and united in opposition to Williams. Not so fast, it is not that cut and dried.

During my recent stay in Saratoga, a Lexington-area horseman from a very well-known farm told me that he and “lots of others” in the racing enterprise are quietly supporting Williams’ candidacy. I replied that I was under the impression Williams was intensely disliked by the Kentucky racing fraternity. He said that is mostly correct but that the prospects for alternative gaming will be better with Kentucky racing’s enemy number 1 as governor than as senate president; in his words, “supporting Williams is just a business decision.”

He explained that if Beshear is re-elected, the slots stalemate will last at least another four years and maybe beyond because Williams (or someone with similar views) will be senate president. Kentucky’s racing industry, in his view, does not have four years to limp along without alternative gaming. Beshear’s win will turn out to be a Pyrrhic victory. On the other hand, if Williams wins, he will desperately need money to operate the cash-strapped state. Therefore, he will say that while he is personally opposed to slots, he will reluctantly accept them in the best interests of Kentucky…or at least agree to put the question to a referendum.

The more I thought about his counterintuitive reasoning, the less outlandish it seemed to be.

Later, back from Saratoga, I contacted a couple of Kentuckians actively engaged in the Thoroughbred business and asked them if they had heard this same contrarian  reasoning. Indeed, they had.

Here is the overriding question: Would the Kentucky breeding and racing industry be better off (or worse off) from 2012-2016 with David Williams as governor or as senate president?

It seems a leap of faith to imagine that a Governor Williams would be receptive to legalizing alternative gaming or putting it to a statewide referendum. Yet, a defeated and perhaps bitter Williams will almost certainly be opposed to alternative gaming if he remains as senate president and he will continue to be Beshear’s nemesis.

Kentucky horse-industry voters and money donors face a conundrum. If they don’t support Williams financially for governor and he loses, he owes no favors at all and may be vindicative. If they support him financially and he wins, he may well dash their hopes on the racino issue but he might not if the state budget is bleeding red ink. If they support Williams financially and he loses, there is at least some chance that he would reciprocate by removing himself as an obstacle to legalizing slots.

Reputable opinion polls predict a decisive Beshear win in November. However, Kentucky racing interests are  in a “choose your poison” position. If Beshear wins, the status quo most likely prevails (no slots) and if he loses Williams is no longer in the state senate but is governor.

Putting emotions and personal feelings about the candidates aside, a prudent hedge would be for slots proponents to box an exacta and generously donate to both campaigns because the most probable scenario is that Beshear and Williams will still be power brokers after the election. If not, Williams will be the new governor and Beshear will be retired.

Corporate executives and political action committees often contribute money to both sides of the political aisle for a very compelling economic reason. Sun-tzu’s sage advice continues to resonate in the 21st century.

Copyright © 2011 Horse Racing Business

Saturday is the 142nd edition of the Travers Stakes at Saratoga Race Course. It is the oldest major stakes race in the United States, with the first running held in 1864. The Travers is called “the Mid-Summer Derby” and is the highlight of the Saratoga season. Some of the greatest racehorses have won the Travers, including Man o’ War, Twenty Grand, and Buckpasser. The race is named for William Riggin Travers (1819-1887), one of the founders of Saratoga Race Course.

In 1863, the politician, gambling impresario, and former bare knuckles heavyweight champion John “Old Smoke” Morrissey conducted a four-day race meet at Patten and Cole’s trotting track across the street from today’s Saratoga Race Course. At the time, the Civil War was ripping apart the United States, with Gettysburg (July 1, 2, and 3, 1863) accounting for the most casualties of any battle in American history. Morrissey’s advertisement in the Daily Saratogian obliquely referred to the Civil War: “Running races! AT SARATOGA!… All sections of the North and West, and some portions of the South will be represented by their best horses.”

Morrissey’s financial backers were comprised of some of the country’s most successful businessmen, such as Cornelius Vanderbilt, John Hunter (the first chairman of the Jockey Club), Leonard Jerome (Winston Churchill’s grandfather) and William R. Travers.

The inaugural meet was so successful that Morrissey founded the Saratoga Association to build a new racetrack and supplied much of the capital. William R. Travers was the president, but Morrissey’s name was not listed among the patrician organizers because his background was unacceptable in elevated social circles. When Morrissey was a member of the U. S. Congress, he threatened “to lick any man in the House” (apparently there were no takers).

Travers in effect was the front man for Morrissey. Travers made his fortune on Wall Street and used some of his earnings on breeding (in Westchester County, New York) and racing Thoroughbreds. He owned (with John Hunter) Kentucky, the winner of the first running of the Travers in 1864. Kentucky is honored in the National Museum of Racing & Hall of Fame.

Copyright © 2011 Horse Racing Business