Archives for February 2015

Strengthening horse racing in Texas needs to be an issue of economic development for the state.  Why so?  The horse breeding and racing industry consists of numerous small businesses that employ people–in particular Hispanic minorities who have relatively high unemployment rates–pay taxes, and buy goods and services from other firms, especially other agribusinesses.

Currently, two state-imposed negatives for horse racing in Texas are the bans on wagering via the Internet/telephone (known as advanced deposit wagering or ADW) and pari-mutuel wagering on historical races.

The prohibition on ADW is ill-advised, mainly for two reasons:

First, the ban is outdated and largely unenforceable because of what information and communications technologies can deliver.  For example, a Texas resident can call a friend in a state where ADW is permitted and have the friend place wagers.  Or the Texan might open an ADW account at the friend’s address.  The Texas resident can also find an offshore sports book ready to take his or her putatively illegal wager with no risk of being prosecuted.

The Texas bar on ADW has the unintended consequence of encouraging Texans to find ways around it and this costs Texas horse owners and breeders money for purses and the state of Texas misses out on collecting taxes on pari-mutuel bets.

Moreover, the reality is that Texans can and do legally use the Internet to day-trade stocks, bonds, commodities, and options.  This speculative behavior is somehow acceptable but recreational betting, via phone or Internet, on horse races is not.  Similarly, the amount of money that Texans bet legally (via Las Vegas) and illegally (mainly offshore) on Texas’ two NFL, three NBA, and numerous college teams is likely much greater than the amount they wager on horse racing.

Second, the ADW restriction does not treat all Texans in an even-handed manner.  If a person is physically unable to travel to a Texas racetrack, where pari-mutuel wagering is permitted, or lives in a remote part of the state, he or she does not have the same opportunity to wager as an able-bodied person living proximate to a racetrack.  A person residing in Dallas, for example, can conveniently go to Lone Star Park, while his or her elderly and shut-in grandfather is deprived of the enjoyment of wagering remotely (or at least he cannot do so legally).  Many horse-racing fans prefer to wager without having to actually go to a racetrack, and not letting them do so is paternalistic and as incoherent as would be permitting Texas customers to buy in a Wal-Mart brick-and-mortar store but not from its website.

The controversy over betting on historical races is also inexplicable.  Why is it even an issue?  The legality of pari-mutuel wagering in Texas is not in dispute, only whether the wagering is past, present, or future.  The approved wagering modus operandi is pari-mutuel and that is what matters, not the tense.  Courts in a number of other states have come to this logical conclusion.

The misguided Texas policies on ADW and historical races yield no winners.  On the contrary, the losers encompass:  Texans who are denied consumer choice of a legal activity (pari-mutuel wagering on racehorses); small business people and their employees in the racing industry who are stifled in their pursuit of a legitimate livelihood; vendors to racing businesses; and the people of Texas who forgo tax revenue.

Texas is an acclaimed  leader in free-market applied economics, except it seems in the case of the horse racing and breeding enterprise.  Placing artificial restrictions on horse racing over misplaced concerns by a small but vocal segment of Texans about “expanded gambling” is like shutting down the state’s cattle business because it offends some vegetarians.

Copyright © 2015 Horse Racing Business

Texas is an extraordinarily appealing venue for doing business because of the “can do” culture of the people who live there, low taxes, and elected officials who put out a welcome sign.  In recent years, The Lone Star State has attracted a plethora of companies that relocated from less friendly environs.  In the 21st century, Texas-based companies have made the state the hands-down U. S. leader in creating jobs, as entrepreneurs have launched start-up ventures and executives have grown existing firms.

Texas truly lives up to its image of independence and self-sufficiency, a place of unbounded opportunity for people who take chances and work smart and hard.  This is what is so perplexing about the neglect or even antipathy that some state elected officials have shown toward horse racing.  For instance, Texans are not allowed to freely engage in advance deposit wagering or pari-mutuel betting on historical races and a state senator is trying to defund the Texas Horse Racing Commission.

This is not the way of the Texas that reveres consumer sovereignty, the idea fundamental to free societies that people, rather than government, can choose what is in their own best interests.  Moreover, the bureaucratic and legal obstacles imposed on horse racing are glaringly uncharacteristic of Texas.

Horse racing and breeding have a storied history in Texas, and the enterprise embodies the risk-taking value that made Texas great in industries like oil/gas, ranching, and more recently in high technology.

The famous King Ranch under the leadership of Robert Kleberg bred and foaled two Kentucky Derby winners–Assault and Middleground–and the former is one of only twelve 3-year-old colts to win the coveted and elusive American Triple Crown.

Midland was the home of several owners of champion racehorses:  Ralph Lowe campaigned the great Gallant Man in the late 1950s; Fred Turner, Jr. won the Kentucky Derby with Tomy Lee in 1959; and Dorothy & Pamela Scharbauer (Fred Turner’s daughter and granddaughter, respectively) also won the Kentucky Derby, with Alysheba in 1987.  Clarence Scharbauer, Dorothy’s husband, bred and raced Thoroughbreds until his death in 2014, and his heirs still breed racehorses at Valor Farm in Point Pilot.

Many other accomplished sons and daughters of Texas have in some way been involved with horse racing, including, for example, Josephine Abercrombie, John B. Connally, the Farish family (Lane’s End Farm in Hempstead), Nelson Bunker Hunt, Robert McNair (owner of the Houston Texans), and Robert Strauss (president of Del Mar Thoroughbred Club until he was 94).

In addition to these well-known Texans, horse racing in the state is the livelihood for numerous small business people, who don’t have high name recognition but work long hours and employ people, pay taxes, and use the services of countless other small Texas businesses like veterinarians, farmers, feed retailers, and accountants.

If the best-known animal symbol of Texas is the Longhorn, as depicted by “hook-em-horns,” the horse would not be far behind.  And racehorses, both Thoroughbreds and Quarter Horses, are deeply ingrained in the narrative of Texas.

Horse racing in Texas does not need special treatment, merely equal treatment with other industries.  If only that Texas elected officials would allow the horse racing agribusiness to operate under the same free-market principles that created and sustains the enviable Lone Star economic success story.  Let racing sink or swim on its own, but give it a fair chance.

One would think that any conscientious state elected official would try to bolster a significant sporting and commercial endeavor like horse racing and breeding instead of impeding it.

(Part 2 of this article will be published soon.)

Copyright © 2015 Horse Racing Business

Jack Welch, the former chairman and CEO of General Electric, is deservingly regarded as one of the top corporate executives of modern times.  Mr. Welch is an avid golfer and sports fan and likes to comment on them via Twitter.  After the 2015 Super Bowl, he tweeted:  “Product managers every day try to design a perfect product like NFL.”

How right he is.  Consider that the NFL has had a dreadful season in terms of public relations with, notably, the Ray Rice (Baltimore Ravens) domestic abuse travesty and the deflated-football brouhaha regarding the New England Patriots in the two weeks leading up to the Super Bowl.  There were also the usual reports during the regular football season of players being arrested for drug and alcohol violations, or testing positive in random tests conducted by the NFL.

Yet in spite of this torrent of negative publicity, the NFL culminated a superb season, from the standpoint of business metrics, with the Super Bowl garnering the highest television ratings of any program in history and 30-second ads selling for $4.5 million.

NFL football is fortunate in that it televises extremely well, better than any other sport.

The Kentucky Derby is typically American horse racing’s Super Bowl, with the Belmont Stakes getting the same kind of interest and television ratings whenever a Triple Crown is on the line.  The problem that showcase horse-racing telecasts have is how to interestingly fill time leading up to an event that lasts only slightly longer than an NFL timeout of one minute and 50 seconds.  In addition, the in-race action on the backside does not offer the same clarity as an NFL play.

Horse racing is by not by itself, as most sports other than football have viewing deficiencies on television.  For instance, television does not come close to conveying the speed and power of the cars in the Indianapolis 500 like being at the Brickyard does.

If you were a product manager, how would you redesign the horse-racing product and/or present it on television?

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Speaking of the Kentucky Derby, following are two comprehensive and professionally done websites that provide almost everything one would want to know about the storied race, including history, purchasing tickets, fashion, betting, and trivia (neither are affiliated with Churchill Downs, Inc.): www.derbycraze.com and www.derbyexpert.com

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On a completely unrelated note, last weekend I was enjoying a respite from the snow and cold at home in Ohio by sitting poolside at a hotel in Key West.  An entertainer for the hotel was playing his guitar and singing.  After one particular song, he said it reminded him of California Chrome, and he then spent a minute or so saying why he admired the colt.  This is anecdotal evidence that a charismatic racehorse is worth a lot in word-of-mouth public relations value.

Copyright © 2015 Horse Racing Business