Archives for December 2016

THE BLUE GRASS AND WOOD MEMORIAL DOWNGRADES

The American Graded Stakes Committee (under the aegis of the Thoroughbred Owners and Breeders Association) downgraded the Blue Grass Stakes and the Wood Memorial for 2017 from Grade I to Grade II.  The decision is analytics-based:  each race is statistically evaluated for the quality of the fields that competed in the previous five editions.

With the downgrades, there are now three Grade I races for 3-year-olds leading up to the Kentucky Derby:  the Arkansas Derby, Florida Derby, and Santa Anita Derby.

In any statistically-driven model, the independent variable(s) selected determines the outcome (i. e., the dependent variable).  In the case of rating a horse race, the sole independent variable is the quality of the field, as determined by how well the entries did in winning subsequent races, and the dependent variable is the grade deserved—I, II, III, or no grade.

The Blue Grass Stakes has gradually lost quality for two major reasons.  First, beginning in 2006, the Blue Grass was run on Keeneland’s synthetic surface until Keeneland replaced it with dirt in time for the fall meet in 2014; trainers with leading Triple Crown contenders often bypassed the Bluegrass Stakes and opted instead for the Derby prep races on dirt tracks.  Second, the date for the Florida Derby was moved to early April, so trainers in the eastern part of the United States did not need another prep race prior to the Kentucky Derby and west coast trainers could continue to send their horses to the Santa Anita Derby, also held in early April.  Similarly, competition from the Florida Derby has recently cannibalized the fields for the April-run Wood Memorial.

Downgrading the Blue Grass Stakes and the Wood Memorial to Grade II races has not been popular among industry insiders and in the racing media.  However, in order to avoid making the downgrades, the American Graded Stakes Committee would have had to override its own statistical model.  That would have introduced human subjectivity and politics into the Committee’s decision making for every race in the United States competing for a particular graded status.

For any grading system to be fair and equitable and have integrity, it must be adhered to in an even-handed manner, with no preferential treatment given to anyone.  The American Graded Stakes Committee appears to be following that policy, irrespective of criticism.

Copyright © 2016 Horse Racing Business

WHERE NORTH AMERICAN HORSE RACING IS HEADED

Horse racing in North America persists on the path of downsizing as measured by the number of races held each year, the number of foals born and registered with the Jockey Club, and the amount of dollars wagered.  Making predictions about the future is always perilous but, if the malaise continues, following is what horse racing is apt to look like within another quarter of a century.

Racetracks will hold significantly fewer live races than today but will still be able to offer a full complement of races to bettors from racetracks around the world via simulcasting.  Advance deposit wagering companies will also have a full schedule of races, from early morning until late at night.

By contrast, the breeding side of the North American racing industry will likely see profound changes, for two reasons.

First, stagnation of pari-mutuel revenue and state decoupling of purses from slots revenues will make horse ownership less attractive economically, which will decrease demand for bloodstock.  As a result, there will increasingly be fewer mares bred…until an equilibrium in the foal crop is reached.

Second, the breeding industry will be dramatically transformed in terms of geographical dispersion, with the industry becoming far less centered in greater Lexington, Kentucky and Ocala, Florida.  Anyone who has periodically visited Lexington and Ocala can see that it is only a matter of time until most of the horse farms are lost to urban sprawl.  Lexington is a desirable place to live and do business and Ocala has become a destination for retirees.  A rapidly growing population of people and businesses generally does not bode well for agricultural pursuits, even when some land owners establish conservation easements for their property.

The latest statistics available from the Jockey Club (for 2014) show that 46.7% of all registered Thoroughbred foals were born in Kentucky (36.4%) and Florida (10.3%).  Moreover, the Kentucky and Florida foal crops are concentrated in Lexington and Ocala, respectively.  Five states accounted for 68.9% of the registered foal crop:  Kentucky, Florida, California (8.2%), New York (7.1%), and Louisiana (6.9%).

A streamlined or rationalized breeding industry will gravitate away from the high-land-costs of Lexington and Ocala to more rural venues in Kentucky, Florida, and other states like New York.  As the stallion population is dispersed geographically beyond the bluegrass, the Jockey Club may even allow artificial insemination to mitigate the costs of transporting broodmares.

In order for this scenario to be averted, pari-mutuel wagering would have to be rejuvenated so that horse ownership is more monetarily rewarding and Lexington and Ocala would have to become less attractive venues for individuals and businesses.  Both of these look like longshots.

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DIVERGENT ECONOMICS OF THE RACING AND BREEDING ENTERPRISES

The North American registered foal crop has declined in the 21st century from 37,755 foals in 2000 to an estimated 22,500 foals in 2016.  The actual number of Thoroughbreds born is somewhat larger because owners do not register every eligible foal.

The number of races contested in North America for registered Thoroughbreds also declined—from 62,877 in 2000 to 43,949 in 2015.  The correlation between the number of foals registered and the number of races run over this period of time is .95, indicating that there is a close correspondence between the size of the registered foal crop and the number of races run.

Correlation does not confirm causality.  However, in this case it is reasonable to assume that a major reason the number of races run has decreased is because there are not enough entries to fill the races.  To check this assumption, I correlated the foal crop in each year since 2000 with the number of races run two years later.  With this time lag, the registered foals in a given year would have been 2-year-olds and the effects of declining foal crops would have been felt by racetracks looking to fill races.  Allowing for the lag effect, the correlation between the registered foal crop and the number of races run rose to .99.

The size of registered foal crops hinges on very recent economic conditions in the Thoroughbred industry, such as purses offered by racetracks , auction prices for bloodstock, and training costs to horse owners.

The number one economic risk or threat for the industry is the decoupling of slots revenues from horse racing purses, which is a trend as financially-strapped state governments seek any money they can find.  Exacerbating the situation is the fact that  pari-mutuel wagering is stagnant and therefore is unable to augment purses.

Racetracks and advance deposit wagering companies can continue to provide their customers with a smorgasbord of races from North America, Europe, South Africa, and Australia, even with a continuing decline in the number of races offered.  The racing-industry participants most in jeopardy are the horse breeders and the businesses that serve them–the auction companies, veterinarians and common carriers.

The downsizing scenario for horse breeders and supplier firms in the industry can be mitigated only through a revitalization of pari-mutuel wagering, which, to date, has been elusive.

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More on this next week.

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