The sport of horse racing was deeply ingrained in American culture long before the American Revolution.   The first race course was established in 1665 on Long Island in Hempstead Plains and was called Newmarket after the original site in England.

Immigrants from Great Britain brought their appreciation for horse racing with them to America.   Colonial aristocrats and Founding Fathers George Washington, Thomas Jefferson, James Madison, and James Monroe were fans of racing, as was John Marshall, who served longer as Chief Justice on the Supreme Court than any person.   George Washington was an expert horseman himself and one of his leisure activities was fox hunting.  He attended races in Annapolis, Maryland, and kept a written record of his gambling wins and losses.

Daniel Boone, who served under Lt. Colonel Washington in the French and Indian War and later became famous as a daring explorer, introduced a bill in Kentucky’s first legislative assembly to “improve the breed of horses.”  

Patrick Henry, as governor of Virginia after the American Revolution, made a land grant to a man named Keen (eventually changed to Keene).   The property passed down through several generations of the Keene  family and part of it became the setting for Keeneland racetrack in Lexington, Kentucky.

Many, perhaps most, of the jockeys in colonial America in the South were slaves, who were referred to only by a first name.   Racing was the one aspect of life where slave jockeys competed on even terms with whites.   After the Civil War, African-American jockeys were some of the top riders, men such as Isaac Murphy, Willie Simms, and Jimmy Winkfield, all of whom are inductees in the National Museum of Racing and Hall of Fame.

In the first decade of the 19th century, future president Andrew Jackson was a prominent breeder in Tennessee, which at the time was a leading horse-racing state.   The Belle Meade Plantation in Nashville was once a premier Thoroughbred breeding farm where Jackson boarded some of his stock.  Its present-day motto is “history, horses, hospitality.”

In 1806, Jackson’s Truxton was to engage in a match race with Captain Joe Ervin’s formidable stallion Plowboy, but Ervin forfeited due to Plowboy coming up lame.   Ervin was a Jackson political rival and there was bad blood between the two men.   Circumstances surrounding the race and a slur by Charles Dickinson, Ervin’s son-in-law, against Jackson’s wife Rachel led to a pistol duel.   Jackson was wounded but then killed Dickinson, who was purportedly the best pistol shot in Tennessee.

Another political enemy of Jackson, Henry Clay, was a Thoroughbred owner and breeder and a prolific bettor on horse racing (click here to read in detail about Clay’s involvement in breeding and racing).    Clay, the Speaker of the U. S. House of Representatives, detested Jackson and ganged up against him to elect John Quincy Adams president in 1824 rather than Jackson.   It became known as “the corrupt bargain” because Adams appointed Clay as his Secretary of State as a quid pro quo.   Jackson referred to Clay as “the Judas of the West.”

In the late 18th century and early 19th century, four important breeding stallions were imported from Great Britain to the United States: Diomed, Medley, Messenger, and Shark.   Diomed won the first Epsom Derby in 1780.   The stallion was a disappointment as a sire in England and also had declining fertility.   He was purchased and imported by two Virginians when he was 21-years-old, even though James Weatherby, the publisher of Britain’s initial General Stud Book in 1791, warned them that Diomed was not a good sire.   After arriving in Virginia, Diomed’s fertility inexplicably improved and he sired exceptional racehorses, including Sir Archy, who was the best racehorse of his day and an exceptional sire.

Although the American Stud Book was not printed until 1868, breeders in colonial days began to keep their own records.   Jockey clubs were organized to set rules and regulations.   The Philadelphia Jockey Club, for instance, was founded in 1766.

In 1823, America’s first blockbuster spectator sports event was held on the Union Course in New York.   Sixty-thousand people showed up for a match race between the North’s American Eclipse, by a son of Diomed, and the South’s Sir Henry, in an equine precursor of the bloody Civil War 38 years later that ripped the country apart.   Senator Andrew Jackson attended the race, as did former vice president Aaron Burr (himself a notorious pistol dueler), and most of the members of Congress, which adjourned so that senators and representatives could travel to the race.  American Eclipse won in three heats.   Some Southerners reportedly bet and lost their plantations and, as a result, a few became so distraught that they committed suicide at the race course.

Horses have had a long and vital role in the United States in war and peace.   The Narragansett pacer that Paul Revere rode in 1775 to warn the Massachusetts citizenry of British troops on the march became a legend in his time.  The first Triple Crown winner, Sir Barton in 1919, stood at stud for awhile at an Army cavalry remount station.   Even today, U. S. Special Forces are using horse soldiers to combat the Taliban in Afghanistan.

Horse racing in North America began in pre-revolutionary colonial days and has survived into the 21st century.   Before the days of baseball, football, and basketball, horse racing was the sport of its day, attracting, as it does now, all classes of people.

Copyright © 2009 Horse Racing Business

Happy 4th of July to American readers!   We owe our freedom to the men who had the courage to risk their lives by boldly affirming over their signatures…


The unanimous Declaration of the thirteen United States of America:

When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness…


Racing needs Jobs…Steve Jobs, that is.  The staid industry could benefit from a creative genius.  Most of the people in charge of racetracks and other industry organizations are buttoned-down analytical types.  The sport could use a heavy injection of intuitive thinking, some right-brained ideas.

Steve Jobs co-founded Apple in 1976 when he was 21-years-old.  The company’s first product was a pioneering personal computer.  In 1985, Jobs and his board of directors had a falling out and he resigned to launch NeXT, a computer platform development company that was acquired by Apple in 1997.  In 1986, Jobs bought the computer graphics division of Lucasfilm Ltd., which became Pixar Animation Studios and was purchased in 2006 by Walt Disney Company.  Pixar has won 20 Academy Awards and its films have grossed more than $4 billion.  Since Jobs’ return to Apple 12 years ago, the company has had a remarkable record of blockbuster products.  iPod turned the music industry upset down by allowing 200 million iPod customers to download six billion songs from Apple’s iTunes online store.  iPhone has been a sensational hit.

Gil Amelio, a highly respected Silicon Valley executive, was unsuccessfully attempting to return Apple to its former glory days when Jobs came back to the company in 1997.  Once the Apple board lost confidence in Amelio and let him go, they installed Jobs as the interim CEO to get Apple back on the path to innovation, revenue growth, and profitability-which he did.  Jobs’ value as a technical and marketing guru is so great that Apple’s stock waxes and wanes depending on the actual or rumored state of his health.  Jobs developed and evidently overcame pancreatic cancer.  Currently, he is on a medical sabbatical for a vaguely described condition that left him listless and gaunt.

A friend of mine, who is a “turnaround” executive–or a person who tries to right sinking companies–was part of a group of advisors to Amelio. They were helping him craft a plan to save Apple.  Upon Amelio’s ouster, Jobs promptly fired them all.  Later, Jobs brought back my turnaround friend as a consultant, which shows that Jobs seeks talent regardless of the source.

Jobs is variously described as being brilliant, idiosyncratic, mercurial, indispensable, petulant, profane, boorish, scary, unconventional, impatient, a vegetarian, a Buddhist, etc.  His clothing is far removed from the standard corporate attire, as he is partial to black long-sleeve mock turtlenecks, blue jeans, and sneakers.  Jobs has been known to engage in a public war of words with such tech-business icons as Michael Dell.  He even banned all books at Apple from a company that published an unauthorized biography of him.  Once, at a shareholder forum,  an individual inquired of Jobs why stockholders should buy into the plan that Jobs had formulated for saving Apple.  Jobs answered “Because I am the only f—— hope you’ve got.”  Outspoken, truthful, blunt, and confident.

Racing cannot get Steve Jobs,  but a Jobs-like person is available, Halsey Minor.  He is a well-known high-tech entrepreneur and an aficionado of Thoroughbred horse racing.

I don’t know Halsey Minor personally, but I know this about him:  Even though his upbringing of privilege in the Thomas Jefferson country of Virginia is drastically different from how Jobs was raised, the two Silicon Valley technology entrepreneurs have a lot in common.  Minor is the co-founder of the technological-news company CNET, which he sold to CBS for close to $2 billion. (Minor’s first employee at CNET was Shelby Bonnie, who is the son of prominent Louisville, Kentucky attorney and horseman, Edward S. “Ned” Bonnie.  The elder Bonnie serves on the board of the Kentucky Horse Racing Commission.)  Since then, he has been both an angel capitalist for funding start-up enterprises and an entrepreneur, under the banner of Minor Ventures in San Francisco.

Minor is eminently successful at what he does and, like Steve Jobs, can be  combative. On the latter point, for instance, he has recently been in litigation with Sotheby’s over a painting and with Hialeah, Florida, and the owner of Hialeah Park racetrack.

A feature on Minor in Conde Nast titled “The Baddest Boy in Silicon Valley” began by asking “…why do so many of his former tech-world colleagues revile him?”  The article said:

Even those who bad-mouth him chalk up his successes to much more than good luck.  ‘He’s very bright,’ says a former CNET executive who no longer speaks to Minor, for reasons he wouldn’t discuss.  ‘There’s no better guy in front of the whiteboard, in terms of being really smart and quick on his feet and being able to see what others don’t.’  Another tech executive who worked closely with Minor for several years but now no longer wants his name associated with him adds, ‘He’s easy to demonize.  He’s kind of arrogant; he has an edge.  But there’s no question that when he wants to, he gets things done.’

The portfolio, in brief:  A person who has high bandwidth, is capable of keen insight and hell bent on getting things done, and prone to rocking the boat irrespective of personal relationships.  This modus operandi might not be compatible with strong companies in growing  industries, but horse racing is not in this category. 

Minor is a racehorse owner, having spent millions on bloodstock, purchased Carter’s Grove plantation from the Colonial Williamsburg Foundation in 2007 for Thoroughbred breeding, and reportedly wants to be in the retail end of racing by starting or purchasing a track.

Horse racing is an elegant old sport with roots in this country since colonial days.  In order for it to continue on in the 21st century, updating the product and new approaches are essential, particularly from the standpoint of using technology to communicate with and attract the younger generations.  Who knows whether Halsey Minor could succeed where others have failed, but it is worth a shot.  The fellow is said, even by his enemies, to be concept-driven, Internet-savvy, capable of seeing the big picture, and a go-getter.  Here’s hoping he gets a chance very soon to bring fresh Jobs-like, no Minor-like, thinking and energy to a sport that needs it in the worse way.

If Minor joined up with some of the bright young minds in the industry to operate a racetrack, in the right location and under the right circumstances, the results might be highly desirable.  With the bankruptcy filing at Magna Entertainment this week, a few prospects come to mind.

The racing fraternity should embrace Minor with open arms, as a force for change and experimentation–a straw that stirs the drink.   He could be the person to take on some of the industry’s toughest jobs…like Jobs did at Apple.

Copyright © 2009 Horse Racing Business


by Eugene Martin Christiansen

Editor’s Note:  This article was published in November 2004 in Insight — The Journal of the North American Gambling Industry. It is reprinted (with permission) in light of its relevance after the acquisition of TV Games Network by Betfair Group Ltd. from Macrovision for $50 million–which was announced on January 27, 2009.  The data are from 2004 and earlier, but the discussion of racetracks versus betting exchanges is more applicable than ever, now that Betfair has purchased a U. S.-based horse-racing television company with a advance deposit wagering platform.

How should U.S. racing respond to betting exchanges like Betfair? Everyone agrees that something needs to be done but there is no agreement on what course to adopt. Here are five possible responses.

1.  Racing might do nothing. Sometimes when industries are impacted by technological change this is the only option. It’s difficult to see, for example, what transatlantic passenger lines could have done to adapt to the technological change of air travel, other than to redeploy capital in the airline industry and/or repurposes liners as cruise ships.

2.  Racing could form a committee.

3.  Racing could take refuge in the “competition is illegal” response, which comes to it naturally. Other industries have adopted this course: the recorded music industry responded to Napster in this fashion, invoking intellectual property law in U. S. courts to shut Shawn Fanning’s technological innovation down.

4.  Racing could change its business model: add new lines of business that are unrelated to horseracing- -VLTs (video lottery terminals), for example.

5.  Or racing could enter the market with a competing betting exchange service.

Let’s look at what is really going on.

Internet-related technological change isn’t some isolated one-off phenomenon that affects just the racing industry. The Internet is realizing its promise: it is wringing inefficiencies out of industries across the economy, lowering consumer prices for goods and services through more perfect information. As (MIT computer scientist) Nick Negroponte has pointed out, being digital changes the way consumers relate to the world. Consumers can access goods and services (or each other) directly–bypassing pre-Internet industry gates like CDs or racetrack turnstiles. The impact of betting exchanges on racetracks is merely an incident in a much larger transformation in the global economy.

Let’s look at some examples.

Here are five industries that are feeling the same Internet impacts racing is experiencing: airlines, movies, music, travel and lodging, and bookmaking. The driver of change is lower consumer price: record labels price CDs at $10 to $18, shared files are free, business travelers who used to pay high airfares and book through travel agents now have direct access to near-perfect fare information and the ability to book cheap seats online and so on. It isn’t rocket science to connect the dots.

If you think horse race handle and attendance trends are discouraging take a look at the music industry. Following a decade that saw recorded music sales rise from $9 billion (in 1992) to $14.6 billion (in 1999) music went into a tailspin. Not coincidentally, the post-1999 years saw the birth and explosive growth of a new form of music consumption: file sharing. CD sales appeared to rebound, slightly, in the first three quarters of 2004, but have been wobbling around zero for the past nine weeks–a possibly ominous sign for a jittery industry heading into the holiday shopping season. Has recorded music stabilized at some lower level of CD sales–or is the bottom about to fall out?

Here’s the underlying reality. Almost 25 million Americans download music from free file-sharing services. About 9 million pay to download files, at least occasionally. Less than half a million Americans subscribe to Internet music services. None of this existed, of course, before Shawn Fanning came along.

The music industry’s almost instinctive response to file sharing was that it was illegal under intellectual property law. The industry was right about that. The labels invoked that law in the courts and shut Napster down. New file-sharing services located outside the United States–does this sound familiar?–sprouted to fill the vacuum created by Napster’s demise–for Napster had proved the file sharing business model. Grokster, Kazaa and a raft of competitors set up shop online. File sharing continued to grow and CD sales continued to plummet. So the labels decided on a second response: sue the consumer. In September 2003, the Recording Industry Association of America (RIAA) instituted lawsuits against “illegal” file sharers. Through October 2004 about 6,191 such suits had been filed, according to the RIAA; there have been few convictions, but about 900 defendants have settled for amounts reportedly averaging $3,000, payable to record labels.

The music industry is divided on the strategy of suing consumers: marketing people, as you would expect, have reservations about it. It’s worth pointing out, though, that intellectual property law is fundamental in ways that the Wire Act is not. The unenforceability of 18 U.S.C. 1084 says something about Federal attitudes towards gambling–namely that they are at variance with the attitudes of ordinary Americans–but at the end of the day most ordinary people couldn’t care less whether betting on sports is legal or not. What matters is that it’s easy to do. Intellectual property law, on the other hand, matters to everyone. Artists’ rights in their intellectual property are the legal protection for all forms of creativity; these rights are the legal foundation for publishing, movies, television programming, music, the theater and a long list of “creative” industries.

As things stand today, the effect of targeting consumers with lawsuits on CD sales is unclear, but the lawsuits did remove the quotation marks around “illegal” file sharing and established a distinction between free file sharing services like Kaaza and RIAA licensees like Apple’s iPod/iTunes.

At this juncture an outsider jolted the music industry onto a new track. Steven Jobs, Apple Computer’s founder, launched a new licensed music download service, iTunes, and used it to drive a new Apple box, iPod, into consumer pockets and purses. It worked like a house afire. Apple is currently selling songs at the rate of 150 million a year worldwide, for 99 cents apiece. Somewhat belatedly the labels woke up to a fact that Jobs, being an outsider, had been able to recognize before they did: legal or not, downloading music had been validated by the consumer. And if downloading was a new way to get music there must be a way to get consumers to pay for it. Apple iTunes/iPod was that way. The labels took notice and set up online music stores of their own. So did Microsoft and music dot-coms like RealNetworks and Roxio, which purchased Napster from its disenchanted German owner (Bertelsmann) and re-launched it as a licensed service.

Devising a new business model for recorded music is very much a work in progress. Online music stores seem to be part of the answer but probably aren’t all of it. Universal Music Group, the biggest label, recently announced the start of Universal Music Enterprises Digital, a digital “label” that will publish music directly on the Web, dispensing with CDs altogether. The CD album, UMG thinks, has become at least partly obsolete–it’s too expensive as a distribution channel and has been rejected by too many listeners, who are no longer willing to pay $16 for an album of songs they mostly don’t want. Trial and error in the marketplace will determine whether Universal’s new online publishing model works; if it doesn’t Universal will try something else. In the long run it will be forced to, intellectual property law or no, because consumer behavior, the way music listeners get and consume music, has changed and changed for good.

Movies, travel and lodging, airlines, and bookmaking are other industries that are experiencing the kinds of Internet-related impacts the music industry is trying to cope with. It’s worth noting that the movie studios are following the labels: last month the Motion Picture Association of America (MPAA) said its members would begin filing copyright infringement suits against individuals who trade digital copies of movies online; like the labels, the studios are experimenting with download services.

As dramatic as the changes being wrought by the Internet are, these are still early days.

After a slow start growth in Internet advertising dollars took off in 1999. Spending on online ads reached $7.3 billion in 1993, and no one thinks that’s where it will stop. Those trends validate an advertising business model for Web sites that isn’t all that different from the broadcast network television business model. That’s a development racing should bear in mind.

This is what underlies that growth in online advertising. The number of American households online has grown steadily since 1995 and reached 62.2 million in 2003: that compares to 73.4 million U.S. households with basic cable television (November 2003). This, too, is probably in its early stages. Wi-Fi- yet another technological innovation-lets consumers bypass cable modems and DSL and get high speed connections just about anywhere–in many cases for free.

Does that sound like file sharing? It should. A couple of weeks ago Verizon lobbied Pennsylvania’s legislature into passing a law that would prevent Philadelphia from creating free or nominal cost Wi-Fi access points everywhere in the city–which would pretty much invalidate Verizon’s DSL service business model in Philadelphia. Verizon persuaded Pennsylvania’s governor, Ed Rendell, to sign this measure into law; Verizon says it will permit Philadelphia to go ahead with its free broadband access program, but other Pennsylvania cities and towns presumably will not be able to do likewise. Philadelphia is not alone. This approach to connectivity is increasing common in Pacific Asia, and many American and European cities are walking down this road. A world online at high speed, anywhere, for free, may be dawning. Racing should think hard about what that means. Verizon is.

That brings us to Betfair. From nothing in 1999 when two outsiders, Andrew Black and Ed Wray, saw, as Shawn Fanning had seen, a business model for doing something online that had no counterpart in the physical world, Betfair has exploded into a global business that is impacting licensed pari-mutuel racing and fixed odds bookmakers everywhere. More than 70% of Betfair’s business is horseracing: who said horseracing isn’t a growth industry?

The drivers of Betfair’s astonishing growth resemble the drivers of music downloading services: lower consumer price and vastly wider selection. Just as no Tower Records outlet (Tower, incidentally, is in bankruptcy) could offer even a tiny percentage of the music inventory consumers can find online, no racetrack and no bookmaker can offer the variety of wagering propositions consumers can find at Betfair. If you haven’t done so, log on to Betfair’s website and spend a little time looking around. You will find more things to bet than anyone in pre-Internet days could ever have imagined.

You will also find lower prices. Much lower prices. Betfair’s business model derives revenue from a commission on the peer-to-peer bets it matches: this commission seems to range from 7% to 9%. That is, of course, very much lower than the north-of-20% takeout that is commonly deducted from pari-mutuel wagers in the United States. Serious horseplayers are among the most price-sensitive consumers of any kind in any industry, and Betfair’s pricing is irresistible. Offshore betting services and rebate shops also offer lower prices, of course. Downward pressure on the price of betting horses is a structural change in racing’s market environment; betting exchanges contribute to this pressure but it would exist even if the exchanges shut down tomorrow.

As most in racing know, one reason Betfair and its offshore betting service competitors are able to offer lower prices is that they contribute less to purses than do U.S. pari-mutuel license holders–or nothing at all. Without in any way neglecting the importance of this, or the integrity issues raised by the ability of Betfair’s customers to lay horses to lose, it’s important for racing to understand that these aren’t the only reason bettors like Betfair. Betfair is as close as your PC or, real soon, your mobile phone handset. Pari-mutuel machines simply aren’t needed for many horseplayers today: that industry expense is something the consumer no longer needs to support. And, as file sharing proved, consumers like variety. No pari-mutuel licensee could hope to offer the variety Betfair does–if for no other reason than the Wire Act, that unenforceable law that licensed businesses must observe but consumers are able to ignore. (Note, in this connection,’s recent announcement of its intention to acquire American Wagering, a licensed Nevada sports and horserace betting service.)

So what should racing do about all this? How should racing respond to Betfair?

Jack Ketterer, the executive director of the Iowa Racing and Gaming Commission, answered this question in Paul Dworin’s November 2004 Global Gaming Business, and I think the Ketterer recommendations are a start.

First, Jack thinks racing must reduce the high cost of wagering. Twenty percent to 25% of handle is simply too high. It costs 4.5% to bet NFL football, never mind, because the consumer doesn’t mind, that this is illegal outside Nevada; at Betfair or a long list of convenient offshore betting services horse race betting prices typically do not exceed 10%. These price differentials pre-date the Internet, of course, at least for a few horseplayers. The Internet has made lower prices from more convenient suppliers available to everyone. Trying to charge 25% for a bet when the competition charges 10% is swimming against the tide.

Second, Jack thinks racetracks should use access to their pari-mutuel pools as a bargaining tool to negotiate contributions to industry costs from online betting service providers. This is a good idea. There are two things wrong with it.

Number one, the U.S. racing industry’s organization, or lack of organization, makes it hard to implement in practice. You would have to gather all the relevant rights into the hands of someone empowered to negotiate with Betfair and its many offshore betting service suppliers: the NTRA (National Thoroughbred Racing Association) is the natural candidate, but getting this done would, undoubtedly, be easier said than done. There’s also the Federal government’s position that offshore betting service suppliers are criminals, which certainly complicates a negotiating process involving holders of state pari-mutuel licenses.

Number two, increased contributions to industry operating costs run directly counter to the price advantage Betfair currently enjoys. Before you say “competition is illegal” and repeat the mantra that this is wrong and Betfair shouldn’t have a price advantage because it doesn’t contribute to purses stop and think. Consumer desires for lower prices aren’t illegal. Remember the Internet’s promise: lower consumer prices and more efficient businesses, for just about anything. The music industry’s experience is powerful support for the argument that you can’t maintain a $16 price for a CD or a 25% takeout from a horse race wager anymore, because consumers have lower priced alternatives online. Jack’s second recommendation is a good idea, but it may prove hard to implement in practice.

Jack’s third recommendation is to reduce the number of racing days “to a realistic number” as a way of reducing the industry’s high costs, which I guess Jack thinks are no longer supportable in today’s business environment. If Jack is right about this there is an industry contraction ahead. Like some of Jack’s other recommendations, this is, in my view, something NTRA and/or The Jockey Club might look into.

Jack’s fourth recommendation concerns breeding and is, as I read it, one that calls the economic logic of subsidizing the breeding of horses with betting revenue into question. I don’t think this relates directly to the issues posed by Betfair and the Internet and I’ll defer discussion of it to another time. So what should racing do about betting exchanges? Downward pressure on the consumer price of betting horses will be a fact of life for U.S. racing from here on out. Nothing can alter that. No law, no law enforcement efforts, no judge, no committee can make downward pressure on the price of betting go away. The Internet and technologies yet to come rob racetracks of their gatekeeper function and open channels to betting services for consumers everywhere. This isn’t personal. It’s business. And racing isn’t alone. Airlines, lodging companies, telcos, music labels-these and other industries are being forced to adjust their price structures because of technological change. U.S. racing can nail its colors to the price structure fixed in pari-mutuel law and see its clientele steadily erode; or it can find a way to compete on price with the new-technology suppliers. Implicit in this is another conclusion: pari-mutuel law, by fixing the consumer price of betting, deprives U.S. racetracks of a basic business tool: the ability to set the price of their products. If racing can’t get pari-mutuel law changed it probably needs to find a way around it.

Racing shouldn’t confuse the legal issues raised by Betfair with the business problem it poses. Betfair and other offshore suppliers may be illegal under U.S. law, as the Justice Department contends, but the music industry’s experience with Napster suggests strongly that a strategy resting on the enforcement of the Wire Act could win in the courts and lose in the marketplace. The labels are solving the problem posed by file sharing by adapting their business model to changed market conditions: by setting up music download services of their own, perhaps ultimately by jettisoning the CD entirely and moving to direct digital publishing. These are radical changes in a business model that served recorded music well for three quarters of a century. But I think it’s clear that if the labels had limited their response to file sharing to “competition is illegal”, if they had been content with shutting Napster down and hadn’t been prodded by Steve Jobs into addressing the problem of file sharing in the marketplace, they would be dying today. Law is important. But racetracks are businesses. They are not law enforcement agencies. Businesses live or die by their ability to compete in the marketplace. When marketplaces change businesses change, like the labels are changing; or they die.

At the end of the day I think there are six possible responses to the challenges posed by betting exchanges.

1.  Racing might do nothing.

2.  Racing could form a committee.

3.  Racing could rely on the “competition is illegal” response and pin its hopes on the Wire Act.

4.  Racing could take Jack Ketterer’s advice and try to find ways of lowering the consumer price of its product.

5.  Racing could change its business model by adding new lines of business that are unrelated to horse-racing–VLTs, for example.

6.  Or racing could enter the market with a competing betting exchange–or with some as-yet unthought-of method of supplying competitively priced wagering on U.S. races to the emerging global horse-race betting market. This was suggested a few weeks ago by Chris Scherf (Executive Vice President of Thoroughbred Racing Associations), but Chris’s suggestion hasn’t, as far as I can see, excited much discussion. I think it should. Just as Napster proved the market for file sharing, Betfair has proved the market for betting exchanges. It took Steve Jobs to prod the labels to the obvious conclusion: launch download music stores that supply licensed files and return revenue to artists and the music industry. The parallel with racing isn’t exact; racing and recorded music operate in different legal environments; but the two situations have enough in common to make Chris’s suggestion worth thinking seriously about.

Eugene Martin Christiansen is Chairman of Christiansen Capital Advisors, LLC, 250 West 57th Street, Suite 432, New York, New York 10107.


Copyright © Insight (Vol. 2 Issue 11) November 30, 2004.