At the 2017 Jockey Club Roundtable, Ben Vonwiller, a McKinsey & Company partner, made an informative presentation on the effects of race scheduling on pari-mutuel handle, wherein he stated:
“The first thing we needed to do was to build a model that predicted handle. So we ran a multivariate regression, tested an array of features to see which was significant in explaining handle. Our model can actually explain or predict handle pretty well. It’s a pass grade of about 70%. And many of the features that predict handle have been seen in other attempts, in other models–field size, purse size, track, race type.”
Whereas McKinsey’s model was developed to predict handle for individual races, I was interested in forecasting aggregate handle for an entire year. I took the annual data for U. S. pari-mutuel handle from 2000 through 2016 and regressed it against a single variable, U. S. Gross Domestic Product, and found that GDP explained 74% of the variation in handle. In other words, handle in any given year depends to an overwhelming extent on the state of the current overall economy, as reflected in GDP.
Thus the prospects for U. S. pari-mutuel handle on horse racing in 2018 are bullish if forecasts for the larger economy turn out to be true, which I am cautiously optimistic will be the case. Here are some of the reasons why:
- Virtually every economic indicator is pointing up, and this includes for both the United States and the developed economies of the world. The Wall Street Journal reports that “Economic data are beating expectations by the most in nearly six years.”
- The 2018 tax cuts will almost immediately put extra take-home pay in the pockets of a vast number of consumers, as the new withholding tables should be available by February 2018.
- Consumer confidence is close to a 17-year high, as measured by the Conference Board.
- Existing home sales are surging and there is a shortage of housing inventory.
- Interest rates remain low and, although the Federal Reserve will raise rates, it likely won’t be enough to stifle economic growth.
- Under the sweeping tax reform passed by Congress in December 2017, U. S. corporations are now taxed at 21%, down from a punitive 35%; the new rate places the United States about in the middle of the pack of industrial nations (but still well above Ireland’s bottom rate of 12.5%). The incentive is there for U. S. companies to repatriate offshore money ($400 billion in one estimate), to bring facilities and jobs back to the U. S., and to forgo corporate inversions that relocate American companies to tax-friendly venues. Already, major companies in the U. S. have announced bonuses and raises for employees and investments in infrastructure in the U. S.
- The unemployment rate is hovering at a full-employment level–the lowest since 2001–and manufacturing is hiring.
- Inflation appears to be contained. Yet wage increases in metro areas with 3% unemployment are double the national average, which could boost inflation.
- The Trump Administration has rolled back onerous regulations on businesses, and this is particularly important to jobs-creating smaller businesses.
- Both major political parties in Congress favor infrastructure initiatives.
Naturally, the sanguine scenario for the U. S. economy could change if there is an horrendous international flare up or if the Federal Reserve must raise interest rates more than expected to combat government deficits and/or inflation. But as of January 1, 2018, the prospects look the most promising in years for both the overall economy and, by extension, pari-mutuel wagering.
However, in order for pari-mutuel wagering to exceed the growth rate of GDP, there would need to be a major catalyst, an innovation that attracts bettors.
Copyright © 2018 Horse Racing Business
On January 11, 2018, Horse Racing Business will provide an outlook for bloodstock sales for 2018.
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