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Monday, February 8, 2010

A Look at the Future

As readers of my blog already know, I have been advocating for racing to get off the VLT and subsidy fix; it is time for racing to make the hard decisions necessary to become self-sufficient so it may survive. Needless to say, this position has not been very popular. Horsemen argue when VLTs were first put in at racetracks they were installed to support racing; in effect, an entitlement. This may be so. However, knowing how government works, the industry should have known support would be temporary. A prudent business decision would have been to use VLT revenue as a bridge to allow the industry to “right size” itself in light of the current marketplace.

Unfortunately, the industry has done little to make the sport more marketable and financially sound. Perhaps being a regulated industry gave the sport a false feeling of security. Maybe, it is just human nature not to do anything until you have to. As a result, thanks to simulcasting and the Internet, there is an excessive amount of product for the actual demand. Now that state governments are beginning to turn their back on the racing industry, right sizing may be more severe than it had to be.

For those who wonder how the states can renege on their promise of VLT revenue for racing, just look at General Motors and Chrysler. In the past, the government had bailed out the auto industry. Since the auto industry did not take advantage of the bailout to change the way they do business, they found themselves in a similar situation by the end of 2008. Rather than throw good money after bad on a faulty business model, the government made the decision to let General Motors and Chrysler go into bankruptcy, forcing them to redo the way they did business. How many horsemen were in favor of letting General Motors file for bankruptcy instead of having the government continue to provide aid for a failed business model? Why should racing be any different than GM and Chrysler? If we can't expect the government to keep bailing out companies like the automakers, why should we expect them to keep bailing racing out? Like the auto industry, racing needs to make the tough decisions and figure out how to improve their product so it may survive on its own in the marketplace.

So what would racing look like without VLT revenue? Let's take a look at the crystal ball and see how racing may look like in ten to fifteen years. Of course, this assumes the industry is willing to reinvent itself.

The days of extended race meets (four months and longer) will be history. With the loss of VLT revenue (and supplements), horsemen will be racing for purses derived from wagering only. As a result, were tracks to race long meets, horsemen will be racing for purses of $1,000 or less for the cheapest classes. By racing short meets of two or three months at the most, purses will be much better as the horsemen will be racing for money earned on wagering throughout the year.

Tracks will be closing. Now, I know this is not news, but what is news is not as many tracks will close as some people think. Some tracks which have been losing money will actually find it possible to make money by racing only two or three months a year and finding other uses for their facilities the rest of the time. With less tracks operating, more money will be bet into formerly minuscule pools raising the caliber of racing at some of these B tracks. With limited race meets, some of these tracks will be offering purses higher than they are at present. In some states, you may even find new tracks opening or training centers being used for pari-mutuel meets. With the vast majority of wagering taking place at profitable OTW sites and in the home, there is no longer a need for grandstands holding 5,000 or more people and the resulting overhead costs so the days of larger racetracks are over. Smaller racetracks designed for festival meets and tailgating will be ‘in’. Horses that can race successfully over the mile tracks will fall out of favor as horses will have no choice but to race over the smaller ovals (mile tracks take up too much expensive real estate). Look for more tracks to be like Woodbine, able to race multiple breeds at the same time.

Horsemen will be traveling regional circuits. With short race meets, horsemen will once again be taking to the road to race most of the year. No longer will the best horses be able to take up residence at a track like the Meadowlands eight months out of the year. There will also be a resurgence of the trainer/driver. With smaller purses, it will be harder for trainers to make a living just training. Many of these trainers, in order to make a living, will be sitting in the sulky when race time comes. Same goes with drivers. If you are not one of the top catch drivers, you will need to train again to make a living in this business.

North American racing is going to look more like European racing. Faced with the reality of having to provide gamblers with higher payoffs, the sport will have to make adjustments to make itself more challenging from a wagering perspective. In order to make the sport more challenging, we will find more than ten wagering interests (meaning two tiers) in a race and with the exception of two years old racing, races of various distances will become the norm.

As for the gamblers? Harness racing will be available virtually 24 hours a day. Racing truly goes international as the racing day will start in Europe and end in Australasia. After all, a wager made on a race abroad will help build up the purse account back home and make the investment in new technology more economical. The various racing authorities will standardize racing information so gamblers in any country will be able to wager knowledgeably. With less tracks racing at any given time, pools will be larger, allowing professional gamblers to wager without killing the odds.

The ADW business will be changing. Racetracks, realizing they depend on account wagering, will attempt to take back the business. Racetracks on a regional basis will form consortiums. These non-profit consortiums will be in charge of scheduling the race meets of member tracks so no more than two racetracks will be operating at the same time. Tracks will coordinate post times and multi-track wagers will become commonplace. These consortiums will also start their own ADWs to benefit the tracks and their horsemen. If a wager is made on a particular track in the same home state of the gambler, the wager will be treated the same as being made on track. All wagers made on a consortium member track by an out of state resident wagering through the consortium will be treated like a regular ADW wager, but with a higher commission being paid to the host track. Wagers made on non-consortium tracks or through a non-consortium ADW will be handled commission-wise as they are now. Exclusivity will be history. Anyone willing to accept wagers on a race will be able to show the race live. OTW sites will be owned by the consortiums. Since these consortium ADWs will be non-profit; the takeout kept by the ADWs will be used solely to pay for the expense of running the ADW and OTWs; thus allowing more money to get funneled back to the tracks and horsemen.

Thanks to the emergence of consortium ADWs, tracks will finally be able to cut the takeout rates to stimulate wagering. Currently, ADWs and racetracks typically drop a signal when a track attempts to cut their rates, but since these consortium ADWs will accept wagers from out of state customers, the other ADWs and racetracks will no longer be able to freeze out low cost racetracks.

Ironically, gaming companies, the same companies who now would like to get rid of horse racing, may actually try to buy into some of these races tracks as all of a sudden, while not as lucrative as a standalone casino, racetracks may actually become profit centers once again.

This is not to say there won't be costs as a result of this retooling. Some of the marginal drivers and trainers will likely find themselves no longer involved with racing or be involved on a part time basis. With the reduction of race dates and racetracks, the sport cannot handle as many horsemen as we have now. With more wagering occurring off-track and via the Internet, fewer mutuel clerks and ancillary workers will be needed. Those working at the tracks will find employment seasonal.

More of our racing stars will continue to race past the age of three as there will be an oversupply of breeding stock. To address the excess production of yearlings, the standardbred will be marketed similar to the quarter horse; horses being marketed not only as a racing breed, but as a breed acceptable for pleasure riding and other equestrian activities, not just after their racing career ends. To keep yearling prices from falling too far, and to keep the breed from becoming too inbred, we may find new restrictions on breeding with additional limits on breeding books. With stallion fees not being as great and fewer mares being covered, we may find the North American breeding industry looking more like it does in France with stallions racing and breeding within the same year. Unfortunately, many of the small breeders will find themselves out of business.

Will these predictions come true? Only time will tell. With visionary leadership, anything is possible. By making the product more customer friendly, the sport will be able to secure its own niche in the marketplace and sustain itself. Those who think racing can only survive with slot revenue and subsidies are consigning the sport to failure. It is time for individual horsemen to decide if they want to contribute to the sport’s success or its failure. Those who think there is no future should step aside and let those who believe there is a future lead the way.


Pocket Up said...

Sorry to see no comments yet on your very detailed article Pacingguy. I can't help but think the picture your painting is a full circle from yesteryear, when racing was special and one of the few games in town.

Of course the major difference is the internet and ADW's which are keeping fans away from tracks in droves except for the big events.

I hope the tracks wake up soon and realize to compete we must become more fan friendly.

Your comment said it best, "With visionary leadership, anything is possible." As the person running for Governor in my home state says, "We need a nerd", a tough, smart nerd I might add.

I guess the lack of comments are a good thing. No one taking you to task for writing such a different picture or is it a commentary on the fan base? Maybe we just don't care anymore?

Pacingguy said...

I fear it is resignation to the inevitable. I hope I am wrong.