American horse racing has become increasingly dependent on subsidies from casino revenues to augment purses.  The conventional wisdom is that this dependence is just a temporary fix, and there is indeed hard evidence that the temporary time frame is about over.

The Wall Street Journal ran an article (October 13, 2015, page A6) titled “Casino Glut Adds to Racetracks’ Woes.”  The opening paragraph read:

“Casinos have pumped more than $8 billion into the U. S. horse racing industry in the past, propping up a sport beset by an eroding fan base…  But market congestion from the recent casino-building boom across the East is cutting into some casinos’ revenue, bringing new woes to nearby tracks.”

The Journal article contains a chart that lucidly depicts how casino revenues in West Virginia have been in decline, thereby dramatically eroding purse subsidies.  Delaware is in a similar situation.  Both states are experiencing relatively new casino competition in close-by states.  In addition, in West Virginia the legislature has cut purse subsidies to bridge a budget shortfall.

What is transpiring in Delaware and West Virginia will likely eventually spread to other states, such as Pennsylvania, Maryland, and New York.  (Arguments that horse racing and “wealthy owners” are being subsidized by states at the expense of spending on education and health care are very difficult to counter regardless of the economic-development logic put forth by racing interests.)  If this occurs, the result will be vastly reduced purses and most likely at least a few racetrack closings.

Chris McErlean, vice president of racing for Penn National Gaming, is quoted in the article:  “We want to see racing survive and thrive, but we know in a lot of places the current model isn’t sustainable.”

If this data-based Wall Street Journal article and Mr. McErlean’s candid observation do not demonstrate the imminent need for a much more desirable pari-mutuel product, then nothing will.  A key component to a more enticing product is the takeout percentage on wagering.  Big-spending bettors are not fools and gravitate to plays where they have the best chances of turning a profit.

The view here is that the upper-tier managements at some and perhaps most casino-owned racetracks don’t experiment with takeout percentages to attract new customers and encourage more betting for the simple reason that the powers that be would prefer to see horse racing gone from the product line.

How else to explain their unwillingness to attempt to revive the pari-mutuel product with experimentation on pricing?

Copyright © 2015 Horse Racing Business

I’ll have another post on takeout on Saturday, October 17.