Archives for September 2014


The trend line in pari-mutuel wagering in the United States has been mostly negative since 2004.  Plausible reasons include:  the expansion of casino gambling, illicit online gambling, uncompetitive takeout rates on bets, a severe recession, high unemployment, financially-stressed consumers, and the financial crisis of 2008.  Another cause that has surely taken its toll is the ongoing adverse publicity horse racing has received owing, for example, to high-profile breakdowns, unflattering articles in the New York Times about industry practices, and a People for the Ethical Treatment of Animals expose of a leading trainer.

The significant financial fallout that such notoriety can instigate is factually demonstrated by Sea World.  The company announced that it expects 2014 revenue to fall by 6%-7%, and its stock is down by 22% over the past year.  Sea World attributes these developments to “demand pressures related to recent media attention…”  The 2013 documentary “Blackfish” presented the point of view that great harm is done to killer whales in captivity.  The film resulted in increased media reports and motivated more animal-rights protests that Sea World acknowledges have damaged its brand.

Commercial endeavors featuring performing animals are particularly susceptible to public scrutiny because the participants do not have the choice of opting out.  Horse racing’s image vulnerabilities with the public at least partially emanate from the generalization that racehorses are overmedicated by callous humans for monetary gains—a charge being propagated by conventional media, animal-rights organizations, and amateur blogs dedicated to the eradication of horse racing.  Perception based on such a canard can become a false and hostile reality.

Racing in the United States must begin to burnish its sullied image by meaningfully demonstrating to the public that medication rules across the country are not only uniform, but are palpably intolerant of drugs and dosages to keep ailing horses running.

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


What information do buyers look to most, at least implicitly, in deciding whether to purchase yearlings at all and how much to pay?   The health of the overall national economy and personal finances are obvious answers, but data particular to the horse racing industry from the past decade provide more specific insights.

Between 2004 and 2013, average yearling prices in the United States, in inflation-adjusted terms, declined by 7.1%, whereas median prices soared by 41.3%.  Though prices were buoyed to some extent by smaller annual foal crops, the results are still surprisingly robust in a 10-year period in which there was a global financial crisis, a deep recession with high unemployment, intensified casino competition, and precipitous declines in both inflation-adjusted pari-mutuel wagering and aggregate purses.

While average yearling prices have tracked the downward path of pari-mutuel wagering and aggregate purses, median prices have trended in the opposite direction.   Median yearling prices have moved in concert with average purses, which grew in real terms by nearly 4% between 2004 and 2013.

The maintenance and growth of average purses has been made possible by a significant reduction in the number of races carded (almost 20% fewer races were held in 2013 than in 2004) and slots subsidies in casino states.  These are uncertain underpinnings for average purses, and, by extension, yearling prices.  Boosting average purse levels by cutting the number of races eventually becomes a self-liquidating tactic; and slots revenues are subject to the will of elected officials, who can give and take away.

The least risky catalyst for yearling prices is continually improving average purse levels via a turnaround in pari-mutuel wagering.

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


In the past decade, U. S. pari-mutuel wagering, when adjusted for inflation, declined by 41.6%, while aggregate purses decreased by 16.3% and average purses increased by nearly 4%.  Concurrently, the U. S. registered foal crop fell from 34,800 to 21,275, or by 38.9%.

The trajectory of pari-mutuel handle (which is to some extent dependent on what is occurring in the national economy) and the trend in the size of the foal crop are almost perfectly correlated.   Likewise, the correlation between the movements in aggregate purses and the foal crop is extremely high.

While correlation is not a definitive measure of cause and effect, it is reasonable to construe that breeders have generally been quick to react to unfavorable developments in pari-mutuel wagering and aggregate purses by breeding fewer mares.

After the financial crisis of 2008, yearling auction prices decreased in 2009 and 2010 but rebounded in a big way in 2011.  Since 2008, average prices are up (even in inflation-adjusted terms) 8.6% and medin prices are up 70%.  Yet the foal crop remains low.  If breeders were making decisions based on auction prices why weren’t more mares bred since 2011?  Something else is at work in declining foal crops, and the numbers indicate it may be ebbing pari-mutuel handle (in nominal and real dollars) and aggregate purses (in real dollars).

In comparison, there is no correlation between the upward movement in average purses and the downward trend in foal crops.  One reason is that average purses have been maintained and increased by spreading aggregate purses over far fewer races; in 2013, U. S. racetracks held 43,139 races compared to 53,595 in 2004.  Another cause is that purses have been supported by slots revenues.

The scale of the U. S. breeding industry should continue to shadow what is occurring with pari-mutuel wagering and aggregate purses, and the latter derives from both betting handle and slots subsidies.  Thus the magnitude of the U. S. horse racing industry ultimately hinges on actions by racetracks to rejuvenate pari-mutuel handle and with state governments to continue with slots contributions to purses.

Diminished foal crops will require racetracks to offer cards with fewer races in order to present the fuller fields that bettors prefer.  This less-is-more approach is apt to foster additional wagering.  Smaller foal crops have other redeeming qualities, such as fewer retired racehorses to place in caring homes.

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