Archives for July 2014

This time of year most of the attention in the world of U. S. racing is on the two coasts.  Del Mar in the west and Saratoga in the east are all the rage.  But Saturday, August 2, in the hills of West Virginia, not far from Pittsburgh, Pennsylvania, Mountaineer Casino, Racetrack, and Resort has come up with a card that is chock full of entries trained by the likes of Tom Amoss, Steve Asmussen, Bernie Flint, and Mike Maker, and ridden by Calvin Borel, Cory Nakatani, and Rosie Napravnik, among others.

The 9-race card has purses worth $1,650,000 with the featured West Virginia Derby (Grade II) at $750,000.  The first race is at 2 PM EDT and the West Virginia Derby is at 5:45 PM.

Mountaineer Racetrack is located on the banks of the Ohio River and has a scenic hilly background.  In the summer mornings, the fog usually rises from the river to blanket the racetrack as the horses work out.

Mountaineer does not have the social cachet of Del Mar or Saratoga, but this Saturday’s day of racing offers an attractive betting card.   West Virginia Derby day draws an enthusiastic crowd of people who navigate the windy roads to get to the racetrack–the kind of routes John Denver may have been singing about in Take Me Home, Country Roads.

Here is a summary of the card:

Race 1, $100,000, 6 furlongs, for 2-year-olds, 10 entries.

Race 2, $100,000, 4 ½ furlongs, 3-year-olds and up, 11 entries.

Race 3, $100,000, 6 furlongs, fillies and mares 3-years-old and up, 12 entries.

Race 4, $100,000, 6 furlongs, 2-year-old fillies, 12 entries.

Race 5, $100,000, 1 mile and 70 yards, turf, fillies and mares 3-year-olds and up, 12 entries.

Race 6, $100,000, 6 furlongs, 3-year-olds and up, 12 entries.

Race 7, $200,000, 1 1/16 miles, 3-year-olds and up, 9 entries.

Race 8, $750,000 (West Virginia Derby), 1 1/8 miles, 9 entries.

Race 9, $100,000, 1mile and 70 yards, 3-year-olds and up, 12 entries.

Copyright © 2014 Horse Racing Business

Competition from start-up gambling establishments in nearby states has devastated the casino industry in New Jersey.   The Garden State has seen a 42% decline in gambling revenues since 2006.  In January 2014, Caesars Entertainment closed its bankrupt Atlantic City Casino Hotel.   Then, in June, the luxury Revel Casino Hotel on the Boardwalk filed bankruptcy for the second time in the two years that it has been opened.  Plans are to shutter the facility if a buyer cannot be found soon.

The situation in New Jersey can only deteriorate further as four full-scale casinos get up and running in New York.  New Jersey also lost its bid before the U. S. Supreme Court to overturn a ban on sports betting, though legislators and Gov. Chris Christie still plan to launch sports betting in September, according to reports.

The same week that Revel filed for bankruptcy, the Wall Street Journal ran a feature titled “Casino Boom Pinches Northeastern States.”  The article said that 26 casinos have opened since 2004 and there are now 24 casinos within 100 miles of Philadelphia.  In Delaware, gaming revenues have declined by 29% since 2011 and the casino industry is seeking tax relief.

A study by the University of Nevada, Las Vegas, reported that new casinos have resulted in “a 39% increase in total annual gambling revenue in the mid-Atlantic and New England.”   However, market share is being fought for fiercely among more casinos and divvied up.  An additional shakeout is a distinct possibility, with closings of underperforming casinos.

Racetracks with casino operations in states like Delaware, Pennsylvania, and West Virginia will continue to see some of their business migrate to states like New York and Ohio, where gambling has recently been expanded.   Slots subsidies to purses will come under intense pressure in the states that once had a quasi-monopoly on gambling in their geographic areas.

And racetracks in Kentucky, a non-player in the casino business, are playing the weakest hand of all.

Copyright © 2014 Blood-Horse Publications.  Used with permission.

Two facts about horse racing in North America are not in dispute.  First, pari-mutuel wagering is in a long-term decline; with the exception of 2006, handle has decreased every year since 2003.  Handle fell from $15.2 billion in 2003 to $10.9 billion in 2013, not accounting for inflation, and has not improved in 2014.  Second, racetracks have resisted significantly lowering takeout rates, over a protracted period of time, to make the pari-mutuel wagering product more competitive with gaming, and in some cases have inexplicably raised takeout rates in the face of weakening handle.

Assume for purposes of analysis that racetrack executives are correct in their implicit assessment that reducing takeout rates won’t provide enough of a catalyst to handle to boost profitability.  If this is the case, then a key component of horse racing’s business model dooms the entire industry.

What ails horse racing is the profit model component of the business model.   Many people erroneously use the term business model interchangeably with profit model.  In fact, an industry or company’s profit model is only one aspect of its business model, along with its value proposition and various systems, such as the unrivaled distribution model that makes Wal-Mart a winner.  Likewise, advanced deposit wagering is part of horse racing’s business model.

North American horse racing is a niche sport, but one with a value proposition that appeals to millions of people, as evidenced by the number who watch the Triple Crown races and the amount of money bet.  While pari-mutuel wagering is ebbing, it is still a nearly $11 billion business annually and this amount exceeds annual ticket sales for American movie theatres.  Moreover, horse racing’s convenient delivery system provides a competitive advantage in that it is the only legal form of gambling on the Internet in the United States.

Nonetheless, the trend in pari-mutuel wagering is negative.  One hypothesis is that racing’s profit model is unfixable.  It is conceivable that pari-mutuel wagering can’t compete because of its inordinate brick-and-mortar overhead, as opposed to slots, for example, similar to how conventional bookstores have been eviscerated by Amazon and music retailers were killed off by iTunes.

Whether racetracks can alter their profit model, via takeout rate reductions, and thereby make themselves more competitive and more profitable is impossible to know definitively unless track executives are willing to experiment to find out.  If they don’t experiment, the prognosis is continuing declines in handle.

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In a future article, I will focus on what a vastly downsized North American horse racing industry might look like.

Copyright ©2014 Horse Racing Business