The current turmoil in Pennsylvania over horse-racing funding is an omen for the sport nationally.

Betting handle in Pennsylvania plunged from over $1.46 billion in 2001 to $427.5 million in 2014 and the state’s share of the handle declined from $31.8 million in 2001 to $11 million in 2014.  Yet it takes approximately $20 million annually to regulate horse racing in Pennsylvania and the State Racing Fund has a deficit.

Previously, the State Racing Fund deficit has been covered by transferring dollars from the Race Development Fund, which receives a percentage of state  tax revenues from slot machines.  The Race Development Fund reportedly receives about $250 million per year and this money is used for breeders’ awards, purses, and horsemen’s benefits.

Not surprisingly, the subsidies paid to the Race Development Fund are increasingly being characterized by critics as corporate welfare.  The rebuttal by horse-racing interests is mainly that the subsidies support an agribusiness that contributes some $1.6 billion annually to the Pennsylvania economy.

The intent here is not to delve into the pros and cons of economic development incentives that states routinely give to both keep and attract companies and industries.  Rather, the objective is to illustrate the precarious state the horse racing enterprise is in whenever it depends on state elected officials to continue with slots subsidies, especially when state budgets are tight.  If slots subsidies are coveted by governors and legislators now, imagine what will happen when the next recession comes around.

If horse racing is to survive in Pennsylvania and other states, pari-mutuel betting will have to stand on its own because the argument that slots subsidies to maintain horse racing is corporate welfare is persuasive and will likely ultimately prevail.

Whether drastically reduced takeout rates would be a catalyst to turn around pari-mutuel wagering’s fortunes is an open question that urgently needs to be tested empirically by the racetracks.  As long as takeout rates remain so uncompetitive vis-à-vis alternative products, no reversal of fortunes can be expected.

While star racehorses like Zenyatta and American Pharoah come along periodically and help to stir interest in horse racing, the buzz wears off.  In the end, the fate of horse racing as a business will depend on whether pari-mutuel wagering is an attractive value proposition to enough bettors.

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