When low-probability events of high magnitude occur, seemingly out of nowhere, things quickly go awry in society. The Covid-19 virus has disrupted the world of organized sports like never before, even during the Spanish flu pandemic of 1918-1920, the Great Depression, and World War II, or in the aftermath of other national tragedies.

The 2020 Triple Crown horse races have already been upended with the Kentucky Derby rescheduled for September 5 and Preakness and Belmont dates not yet determined.  The chain effect is that other major summer races for 3-year-olds are in limbo.  Most notably, the Travers is supposed to be run one week before the Kentucky Derby, which now seems unlikely. 

No one can predict, with any confidence, what the rest of 2020 will bring.  Will coronavirus infections begin to increase once social distancing is relaxed?  To what extent and how soon will antiviral drugs prove effective?  Will the virus mutate? How badly has consumer confidence been damaged…and how long will it take to recover?

What can be said with some certainty is that if by late August and early September conditions are not conducive for gatherings of large crowds, or if crowds are banned by government edict, events such as the Indianapolis 500, the Kentucky Derby, and college and NFL football will all be canceled or substantially altered. The people in charge of these spectacles will, of course, terminate as a last resort because of the huge amounts of money that will be forever lost, both to the sponsors and the cities hosting the events.

In addition to health concerns, there is the unknown of how long it will take to recover from the carnage in the world economy.  When daily life gets back to a semblance of normal, will people have the wherewithal and desire to spend, especially on entertainment and sporting events?  While Goldman Sachs is forecasting double digit GDP growth in the United States for the third and fourth quarters of 2020, other credible sources are not as sanguine and see a slower pace.  One promising fact is that the American economy was buoyant prior to the Covid-19 pandemic, which is a marked contrast to 2008, when there were serious structural issues

The future is unknowable. The only prudent way forward for individuals and organizations is to prepare for several likely scenarios, including a worst-case. This would apply to top executives at, say NYRA or Churchill Downs, or to horse trainers who must adapt to an uncertain Triple Crown racing calendar. Or to fans hoping to see the Kentucky Derby on the first Saturday in September.

As renowned investor Howard Marks aptly says in his most recent memo: “These days everyone has the same data regarding the present and the same ignorance regarding the future…if you’re experiencing something that has never been seen before, you simply can’t say you know how it’ll turn out.”

Copyright © 2020 Horse Racing Business

Next Wednesday, Horse Racing Business will publish “A Kentucky Derby from the Twilight Zone.” Maybe there was a Kentucky Derby on May 2, 2020 after all…a classic of classics.