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Sunday, August 12, 2012

The Broken Racino Model

Contrary to what some in the racing industry will say, it is apparent the racino model of racing is not supporting a strong standardbred industry slots were supposed to deliver.  In fact, the foundation of the industry is still failing even in many of the states with racinos.  Granted, perhaps failing slower than it would have, but still failing.

This is not your typical story about how most tracks with slots could care less about racing other than it being the legal basis for offering lucrative casino gambling.  This is not a story bemoaning how none of this slot windfall is being spent on reducing take out rates.  Nor is it a story on how horsemen are getting richer while they are racing in front of empty grandstands and minimal handle.  This is a story on how slots are not delivering the economic engine it was meant to deliver.
To understand this, one must go back many years to see why horse racing was legalized in the first place.  Horse racing was intended to promote agriculture by stimulating demand for locally (state) sired and bred horses.   By having horse racing in a particular state and offering preferred racing opportunities for state bred horses,  people were supposed to become interested in buying state sired and bred horses and for many years, this was the case.  The state allowed gambling on racing, breeding farms profited, horsemen profited, and the state was able to make a profit via taxes on handle.  Before lotteries and casino gambling became wide-spread, the model worked.

Then came expanded gaming options and the resultant decline in racing.  Purses declined, breeding demand crashed, breeding farms closed or moved, and racing became a shadow of its former self.   “Give us racinos”, horsemen cried out, “and save the horse industry in our state”.
So where are we now?  As Harness Racing Update reported in its Saturday edition, nation-wide, the foal crop in 2011fell below 10,000 for the first time since statistics were kept starting in 1987; 9,796 foals in 2011 compared to 22,911 in 1987.  To get a better picture, in 2006 the foal crop was 14,106, so the crop of foals in 2011 was roughly 31% smaller than it was five years earlier (58% since 1987).  You can’t fully blame the foal crop decrease on those states which refused to adopt racinos for in many cases, the stallions were simply moved to states where there were racinos.  In theory, declines in one state (non-racino) should have been offset with an increase in another (racino) state.   While contraction of racing accounts for some of the drop when compared to 1987, this excuse doesn’t hold water in recent years; simply look at the shortage of horses appearing all over the country and the difficulty and creativity race secretaries need to imploy merely to card races, while not necessarily competitive, are full fields.  Clearly, the demand for horses is there.  How do foal crops continue to decline, even in some racino states?

The promise racinos had made to stimulate the breeding of horses clearly has failed to deliver overall.  It may have slowed the decline, but declining it continues to do.  Instead of stimulating breeding, the allocation of slot money is weighted too much in favor of overnight racing, stimulating demand for “ready to race” horses but doing nothing to promote the breeding of horses; the very thing legalized horse racing was originally intended to do.  Simply put, the risk of buying a yearling, developing it to get to the races, and making a profit has never been greater and the way purses are structured does nothing to mitigate this risk, leaving commercial breeders to accept losses on many yearlings and what slot money being invested in breeder awards and such is not sufficient to offset the losses involved in breeding and raising a horse until it is sold at auction at depressed prices.
Perhaps Murray Brown, Vice President and General Manager of Standardbred Sales Company and Public Relations Director of Hanover Shoe Farms, sums it up best, “I hate to say it but it’s the horsemen abetted by the racetracks who are to blame.  Why should a person buy a yearling, regardless of how reasonable it is, and then put a significant amount of money into it for the better part of a year before he really knows what he has?  Then if he doesn’t have a stakes horse, he is forced to race for purses lower than the lowest of claimers.  That is, if he can get into race at all”. 

Purses on overnight races are greatly inflated, making it more attractive to buy the ready to race horse and stimulating the rent a horse trade at the claiming box, in hopes of pulling down the winner's share of purses before the horse is claimed off of you.  No need to invest in a horse; small risk, great reward.  Go the yearling route and you buy the horse at auction in October and then pay training bills for nine months before they are even able to get behind the starter’s gate and race in their first purse start.  You may or may not have a horse that is able to compete in a stakes race but typically if a not ready for prime time horse, they end up in overnights  where it is hard to win back the investment you had made.  If we offered higher purses for non-stakes horses in lower conditioned races instead of the same purses as lower classed horses, there would be a chance to make your investment back.  Why can thoroughbred racing do this but not standardbred racing? 

With more people looking for the ready to race horse, it decreases demand at yearling sales.  While you will always hear about the $250,000 yearling, you don’t read about the yearling that brings $10,000 or less.  While stallion fee differs, the other costs involved in raising a horse from new born foal to yearling are basically fixed so unless regally bred, there is a good chance the breeder is going to sell a yearling for less than it costs to raise him meaning breeding farms will cull their broodmare band, resulting in fewer foals being born.

If more money was spent on purses for green horses in the lower classes instead of rewarding mediocrity, the greater demand for yearlings would encourage breeding; the primary reason pari-mutuel racing was initially started in the first place.  Would the prices increase enough to cover the expenses of raising each horse, who knows?   But if greater breeder awards were offered, it would find more breeders willing to take on the risk.  Does it really matter if the top overnight class raced for $45,000 instead of $50,000?  Probably not, but if we took that $5,000 and added it to the purse of state bred maiden or non-winners of two races lifetime class for green horses, it would mean a lot more down the line for owners, horsemen, and breeders alike.  
Without changes in how slot revenue is distributed, racing faces a bleak future with fewer horses being raised, deepening horse shortages making for even weaker race cards and more overwhelming favorites winning races.  Even worse is the prospect of states re-evaluating their racino programs only to realize there is little benefit of such programs with regards to stimulating the breeding of horses thus threatening the slots program with respect to racing in its entirety.

Slots making racing stronger than ever?  Hardly.  The foundation is crumbling and unless it is shored up, the entire future of harness racing is at risk.  The question is are there leaders to make the changes necessary to stem the tide with respect to breeding?

2 comments:

Anonymous said...

Am I correct in believing the horsemens associations call the shots on conditions and purses at the tracks? The tracks let them know how much money is available and they decide how its spread?

As long as the majority of horses are older, owners and trainers with those horses wouldn't let a larger percentage of purse money go to the young ones.

Have you noticed some tracks have trainers claiming a horse and then entering it the following week at a lower claiming price? Those inflated purses allow them to grab a nice purse in an easier race and make a profit even if the horse is claimed for less than they paid.

The horses change barns just about every week. Can't be good for the horses.

Pacingguy said...

Anon,

The takeout rate is composed of many slices, one slice is for breeding and breeding awards. That is often set by state legislatures.

As for the amount of money set aside for stakes races, it is often dictated in contracts as this money comes from the purse account. This typically dictates the stakes schedule.

While the racing secretary has the ability to set the race conditions and purses (purses because depending on how wagering and subsidies flucuate they may need to be adjusted). Other than that, generally the secretary and horsemen groups consult on how the purses should be structured (incentives for green horses, etc.)

Yes, I have seen horses drop off a claim. It is part of the rent a horse strategy.