The American Gaming Association estimates that 26 million Americans will bet on the 2020 Super Bowl, up 15% from last year. This includes bets through brick-and-mortar casinos, legal online sports books, and illegal offshore websites. Estimated revenue is $6.8 billion versus $6 billion in 2019. The main reasons for the increases are the rapid expansion of legal sports betting in the United States and a buoyant economy.

Recently, I was listening to a radio call-in sports show in Cleveland, Ohio.  One of the announcers was lamenting that Ohio has not yet legalized sports betting and therefore, in order to bet on the Super Bowl, he intended to drive 40 miles and cross the Pennsylvania state line, where online sports betting is up and running.  (In fact, the Churchill Downs-owned Presque Isle Downs & Casino in Erie, Pennsylvania has a sports book.)

The talk-show host said that as soon as he enters into Pennsylvania, he will be able to use his app (either DraftKings or Fanduel) to place his wager because Pennsylvania is one of five states that permit online sports betting.  In all, about 20 states and the District of Columbia have legalized sports betting and seven more are about to do so. Of the 20, 14 are operational. But only five states so far allow online betting: Indiana, New Hampshire, New Jersey, Pennsylvania, and West Virginia.  The radio host also said that if he wins his bet, the online sports book will credit his account, which he can withdraw money from without traveling back to Pennsylvania.

Until now, horse racing has had legal remote wagering, via phone or internet, to itself.  Now the competitive advantage has eroded. 

Horse racing has two competitive disadvantages versus sports betting:

First, sports betting is much easier to understand than handicapping horse races.  Second, the house cut on sports betting is about 5% in comparison to the 15%, 17%, or even 35% on pari-mutuel wagering, depending on the state and racetrack and type of bet.

The state of Ohio has seven horse-racing tracks, plus wagering at county fairs on harness racing.  At present, an Ohio resident living near the border of Indiana or Pennsylvania or West Virginia can take a short drive and bet on sports.  And Ohio will likely legalize sports betting in the near future.  Other states with racetracks are in a similar situation.  For example, Louisville, Kentucky residents can cross the bridges over the Ohio River into Indiana and bet online or travel about 14 minutes to Caesars casino and bet at its sports book.

The battle for the gambling dollar has heated up and horse racing’s takeout rates are detrimental like never before.  The dilemma is that racetracks cannot survive on takeout rates anywhere approaching the house cut on sports betting.

(More on possible responses by horse racing interests in the near future.)

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