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Sunday, August 26, 2012

The Gravy Train is Over

The Horse Racing Transition Panel in Ontario released late last week their interim report regarding the horse racing industry and to say it was an indictment of the racing industry is an understatement.  The news presented was grim to those who believes a strong industry doesn't require customers; strong purses alone is sufficient.  To those who believe racing needs to be concerned with customers, disdained by many as an annoyance, it was a vindication of sorts.  I realize there is debate regarding what the Slots at Racetracks Program was for the horsemen (subsidy vs. partnership) but the fact the government controls the funds allows them to call it what they wants to.  So if you are looking for the one phrase which describes the decision of the panel it is this; "The free ride on the public dole is over".

Racing could have fared much worse.  Instead of deciding that racing was not worth saving, the panel decided racing is worth saving in Ontario.  They also decided the government should spend more than the $50 million over three years they have been planning on spending as transitional aid, albeit delivered in a different manner.  Of course, whether the government does step up to the plate remains to be seen.  One thing is clear.  Slots at Racetracks is dead.

The report put things nicely, but for all practical purposes, the transition panel has decided the SAR program was flawed by having no preconditions, which resulted in the program being like giving money to an alcoholic.  With no preconditions or anyone to answer to, racing went on a fourteen year bender since the first slot parlor opened up in 1998.  Spending obscene money on purses had no basis in reality and did nothing to grow interest in the sport.  Fault needs to be shared with the government for their lack of requiring oversight meant no one cared how the money was spent.  As long as horses showed up to the track to race, they were rewarded.  Product development?  Nope.  Customer development?  Minimal.

Let's look at some findings from the report:

  • Breeding industry's benefit?  While more foals were born, the average price declined.
  • With slot revenue not restricted to Ontario-breds, in 2003,  A significant amount of money went into American hands, in particular the larger stables.
  • 90% of slot revenue went to purses, only 8% to breed improvement programs, the rest to horsemen groups
  • The avg purse in Ontario based on handle would have been $1,328 in 2011.  With the average purse being $10,119, it means $8,791 came from slot revenue.  86.88% of purses came from slot revenue throughout the province.
  • The industry working together to fix the situation?  Forget about it.  As the report says, "
    Ontario’s horse racing industry is fractious and has proven capable of very little collaboration for the common good. This is partly due to the flow of slots money that has enabled the industry to function without pulling together. The panel concludes that the industry currently lacks the cohesion to save itself".
  • Too much racing for the demand.

 Well, if the report recommendations are taken by the government, what we will have is in effect of racing being in rehab.  For example,
  • Money will be doled out at a significantly reduced rate and paid out to the industry with the industry having to account for the use of the money and show it is being used for the stability of the industry. In other words, the bender is over.
  • The government expects a return of any funds given to racing in the form of higher taxes.  No more racing just because we have horses available to race; racing will be done according to customer demand, not horsemen demands.
  • Perhaps allowing introduction of the V75 or sports betting to reduce the amount the province needs to invest.
  • If government funds being used to support the industry, Ontario horses will race for it.  Foreign horses and/or owners may not be welcome.
  • All tracks will be given offers of aid which they will decide to accept or reject.  The expectation is many of these tracks will fall to the wayside reducing the supply of races available for wagering.
  • The industry can't work to a joint interest, no need to.  In effect, through a new group, Horse Racing Ontario, a de facto commissioner, will tell tracks when and how many days they can race as well as develop marketing plans.   

In summary, the government which will likely decide in the fall will support horse racing but it will be under their rules and based on a common-sense approach.  In Ontari, supply side racing is dead.  This means the industry in Ontario will go through a severe contraction, doing what the industry has refused to do up to now, closing of tracks, reducing race days, and cutting purses.  It is called right-sizing.  The industry will be expected to act like almost every other company in the economy is expecte to do.   

As for American racing interests, they shouldn't rest easily.  First of all I suspect the ability to ship north of the border to take race for bigger purses is coming to an end with purses getting smaller and most of the support to be offered restricted to Ontario interests.  It will likely mean more horses at least for the short run will be taking up residence in the states to race,  Other than that, I don't expect much change in Amercan racing because the racing family is so dysfunctional it can't work for the common good.  All I can offer is this caveat:

Any state offering slot revenue can take the Ontario report, replace Ontario with the name of their state and the report would be 90% complete.  However, don't expect anyone to decide the industry is worth saving with governmental funds.   

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