Archives for November 2011


Dateline 2031. The horse racing enterprise in the United States has evolved dramatically in the past twenty years. About half the American racetracks that were in business in 2011 are no longer holding live racing; some are now exclusively simulcasting facilities and others are defunct. The foal crop is about 60 percent of what it was in 2011.

Racing twenty years ago had excess capacity—too many racetracks supplying too many races with too few starters. Its dilemma was similar to the commercial airlines, which addressed overcapacity with mergers and a substantial curtailment of the number of flights. Racetracks struggled to earn a profit because they were capital-intensive businesses–with money tied up in plant and equipment–trying to compete against comparatively low-overhead operations like off-track betting parlors, offshore sports books, and advance deposit wagering firms.

Back in 2011, with so many commodity-like simulcasting signals proffered, racetracks could not raise prices except for premium events such as the Triple Crown races. At the same time, racetracks were buffeted by cost pressures arising from their significant investment in bricks and mortar. Further, racetracks’ slim profit margins precluded them from markedly lowering takeout on handle to make the pari-mutuel product more competitive with other forms of gambling.

Almost all of the racetracks that remain in business in 2031 fill valuable market niches in their respective local markets and offer the caliber of races that attract both on-track patrons and off-track bettors. Del Mar, Gulfstream, Keeneland, Saratoga, and others with appealing value propositions are faring well. However, most of the winter racing in cold-weather locations has ceased. As a result, some racetracks have disappeared altogether, while others are relying on simulcasting and advance deposit wagering during the winter and limited live racing meets in the months with warmer weather.

Because there are so fewer racetracks, the ones left have been able to expand their simulcasting handle sufficiently to make running a capital-intensive operation much more profitable than it used to be. The enlarged revenue stream and the attendant economies of scale enabled racetracks to meaningfully cut their takeout percentages. This reduction provided an incentive for bettors. Racetracks were then able to augment purses and the subsequent increase in the number of starters per race also boosted wagering.

Initially, industry insiders were alarmed about all the racetrack casualties, wondering where racing’s new fans would come from. Then, they were apprised of a startling statistic: 90 percent of National Football League fans had never been to an NFL game. The NFL became the most popular American sport mainly through television exposure rather than live attendance. Racing took a cue and began to promote the sport aggressively on TV. Television created more fans all over the United States and the increasingly technologically connected American society was a boon to advance deposit wagering.

Originally published in the Blood-Horse. Used with permission.


Horse Racing Business pays tribute today to all of the men and women, living and dead, who have kept America free by serving in the U. S. Military. Many current and past participants in horse racing have also heeded the call of their country in times of peace and war. A small sampling is as follows:

James “Ted” Bassett III
Louis Beard
August Belmont Jr. (enlisted at age 65)
Stanley Bergstein (D-Day Invasion)
Elliott Burch
Cot Campbell
Robert N. Clay
Richard Duchossois
Terry Finley (West Point graduate)
Harry F. Guggenheim (WWI and WWII)
G. Watts Humphrey Jr.
Andrew Jackson (U. S. President)
Robert B. Lewis
Gene Markey
Jim McKay
Tom Meeker
Paul Mellon
Mack Miller
Bill Nack
Paul Oreffice
John Sherreffs
D. G. Van Clief Jr.
Alfred G. Vanderbilt (Silver Star)
C. V. Whitney (WWI and WWII)
John Hay Whitney (POW)
Charlie Whittingham
William T. Young

If you wish to honor a veteran from the horse racing industry, or any veteran for that matter, please do so by placing his or her name in the comments section.

Presidential Proclamation — Veterans Day, 2011




Today, our Nation comes together to honor our veterans and commemorate the legacy of profound service and sacrifice they have upheld in pursuit of a more perfect Union. Through their steadfast defense of America’s ideals, our service members have ensured our country still stands strong, our founding principles still shine, and nations around the world know the blessings of freedom. As we offer our sincere appreciation and respect to our veterans, to their families, to those who are still in harm’s way, and to those we have laid to rest, let us rededicate ourselves to serving them as well as they have served the United States of America.

Our men and women in uniform are bearers of a proud military tradition that has been dutifully passed forward — from generation to generation — for more than two centuries. In times of war and peace alike, our veterans have served with courage and distinction in the face of tremendous adversity, demonstrating an unfaltering commitment to America and our people. Many have made the ultimate sacrifice to preserve the country they loved. The selflessness of our service members is unmatched, and they remind us that there are few things more fundamentally American than doing our utmost to make a difference in the lives of others.

Just as our veterans stood watch on freedom’s frontier, so have they safeguarded the prosperity of our Nation in our neighborhoods, our businesses, and our homes. As teachers and engineers, doctors and parents, these patriots have made contributions to civilian life that serve as a testament to their dedication to the welfare of our country. We owe them a debt of honor, and it is our moral obligation to ensure they receive our support for as long as they live as proud veterans of the United States Armed Forces. This year, as our troops in Iraq complete their mission, we will honor them and all who serve by working tirelessly to give them the care, the benefits, and the opportunities they have earned.

On Veterans Day, we pay tribute to our veterans, to the fallen, and to their families. To honor their contributions to our Nation, let us strive with renewed determination to keep the promises we have made to all who have answered our country’s call. As we fulfill our obligations to them, we keep faith with the patriots who have risked their lives to preserve our Union, and with the ideals of service and sacrifice upon which our Republic was founded.

With respect for and in recognition of the contributions our service members have made to the cause of peace and freedom around the world, the Congress has provided (5 U.S.C. 6103(a)) that November 11 of each year shall be set aside as a legal public holiday to honor our Nation’s veterans.

NOW, THEREFORE, I, BARACK OBAMA, President of the United States of America, do hereby proclaim November 11, 2011, as Veterans Day. I encourage all Americans to recognize the valor and sacrifice of our veterans through appropriate public ceremonies and private prayers. I call upon Federal, State, and local officials to display the flag of the United States and to participate in patriotic activities in their communities. I call on all Americans, including civic and fraternal organizations, places of worship, schools, and communities to support this day with commemorative expressions and programs.

IN WITNESS WHEREOF, I have hereunto set my hand this third day of November, in the year of our Lord two thousand eleven, and of the Independence of the United States of America the two hundred and thirty-sixth.



Economic Value Added or EVA is a metric developed by Stern Stewart & Company that depicts how effectively a company is creating wealth for its stockholders. EVA is used by investors and some of the world’s premier firms. EVA analyses show that Churchill Downs, Inc. and Penn National Gaming, Inc. rate highly as wealth creators, not only in the gaming industry but across all industries.

The basic concept of EVA is that a company is building wealth whenever its operating income exceeds its cost of capital. The difference between EVA and conventional measures of financial results–such as net profit and earnings per share–is that EVA indicates what gains (or losses) remain once a company’s combined cost of capital on debt and equity is deducted from its operating profits.

Investopedia summarizes EVA, as follows: “…EVA charges the company rent for tying up investors’ cash to support operations. There is a hidden opportunity cost that goes to investors to compensate them for forfeiting the use of their own cash. EVA captures this hidden cost of capital that conventional measures ignore.” A company, for example, might show an accounting net profit but when the cost of capital is factored in, the true return to investors may be negative.

The Motley Fool recently looked at the EVA metrics of U. S.-based resorts and casino corporations in the Russell 3000 Index. (This index encompasses the largest publicly traded American companies that comprise about 98 percent of the U. S. equity market.) Of the eight leading EVA-performing resorts and casino companies, Churchill Downs ranked fifth and Penn National Gaming ranked eighth. Churchill Downs’ EVA metrics are 8% for the past quarter, 3.7% for the past year, and 0.7% for the past three years. Penn National Gaming’s EVA numbers for the same time frames are 3.4%, 5.7%, and -0.6%. These numbers placed Churchill Downs in the lofty 79th percentile of the entire Russell 3000 and Penn National Gaming in the 64th percentile.

Enterprises doing business in leisure markets like gaming and horse racing are especially vulnerable to economic slumps that dampen discretionary spending. The fact that Churchill Downs and Penn National Gaming are among the top eight resorts and casinos on EVA returns is laudable. What is more impressive is that their EVA metrics also rank highly among the broad swath of industries and companies in the Russell 3000.

Upper management in Churchill Downs and Penn National Gaming have skillfully deployed capital and cultivated wealth for their shareholders in spite of an unfavorable economy.

Copyright © 2011 Horse Racing Business

Originally published in the Blood-Horse. Used with permission.