Sunday, May 19, 2013

How to Help Horse Racing Industry Sustainability in the US and Canada (Part 1)

That horse racing has been in serious decline in the US and Canada for years is not new.  That commentators, consultants, industry leaders, regulators, et. al., have been prescribing their solutions is also not new.  Some of these solutions have helped keep racing afloat but none have shown any promise or potential of generating new horseplayers.  In particular, the only solutions that have kept the industry afloat have been some form of subsidy, either a direct infusion of money from a government or the addition of slot machines or other casino gaming at racetracks, with a portion of that revenue being used for racing.

Subsidy might seem like a pejorative term, but with regard to racing, it's fairly accurate.  For the purposes of this discussion, view subsidy as a separate revenue stream for racing that in of itself does not contain the promise of cultivating new horse players and generating any incremental pari-mutuel wagering.  The desire is for racing to be able to survive without subsidy.

What is wrong with a subsidy, you may ask?  Fair question.  The problem with a subsidy for racing is that long-term, it won't last.  If the revenue stream doesn't have the potential of generating new horseplayers, the provider of the subsidy will eventually want to have the entire revenue stream for itself and no longer provide this "gift" to racing.  What has happened recently in Ontario is proof.

With regard to the situation in Ontario, there are those that will say that slot revenue was a fair rent for having slots at racetracks.  Well the provider of the slots (OLG) is going to move the slots (at least a sizable portion) elsewhere, so all racing has been doing is whining and crying and trotting out rural people to say how their great agribusiness has been hurt by the mean and evil casino people.  The racing industry did nothing to help make itself sustainable when they were receiving this revenue - they kept doing what they had been doing for years, allowing the subsidy money create the illusion of sustainability - "letting the good times roll."  The industry did nothing when this money was coming in, not reorienting itself or its economics.  When the subsidies were cut, all they could do is cry and whine.

What is a key problem for racing is the racing industry itself.  One of the most popular posts on this blog analyzes the racetrack industry, which can be seen here.  The post discusses how various industry players impact the tracks, but the reference has value here in that the assertion I want to make for this topic is the industry overall has challenges and the various industry constituencies don't really cooperate - they fight amongst each other for the same or larger slice of a pie that is decreasing in size.  When times are good, they do nothing to improve or fix problems.  When times are bad, they whine for everyone else to bail them out while they do nothing to improve themselves.  When legitimate problems are brought up (like doping in US racing), the industry circles the wagons, blames others, denies a problem exists - anything but address the issue.  This only invites government intervention which brings its own perils to any industry, not just racing.  I won't talk about what's wrong with the industry players any more than this as that topic could fill a book.

So what can be done?  To start to answer, let's define what a great result would look like.  A solution that produces a great result would accomplish the following:
  1. Get more people of a desirable demographic to the tracks, OTBs and ADWs
  2. Get those people to place pari-mutuel wagers
  3. Get all people to increase their pari-mutuel spend per visit
  4. Have that increased pari-mutuel handle help sustain the racing industry
Whatever solutions are put forward for racing, they should be evaluated against these four results to determine their potential efficacy.  Let's look at how slot machines at racetracks match up.  Do slot machines at racetracks:
  1. Get more people of a desirable demographic to the tracks, OTBs and ADWs?...NO, the typical slot player isn't really that much younger than the typical horseplayer...OLD
  2. Get those people to place pari-mutuel wagers?...NO, slot players don't play the horses
  3. Get all people to increase their pari-mutuel spend per visit?...NO
  4. Have that increased pari-mutuel handle help sustain the racing industry?...(see answer to #3)
But slots helped, right?  Yes, in that the money was used to keep purses at a certain level or to an extent inflate purses beyond that which could be supported by wagering alone.  Where slots appear at racetracks, it helps mask the secular problems of racing with an infusion of cash, but the net result is that the industry then becomes "addicted" to slot revenues, with massive withdrawal experienced in case of removal, as is the case with the racing industry in Ontario.

The next post in this series will discuss attempts to attract a younger demographic and why that hasn't resulted in the success hoped.

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