Sports Betting: Good or Bad for Horse Racing?

February 21, 2019

Editorial by Michael Valiante

There is one advantage of being old. If you live long enough you truly will “have seen it all”. So when sports betting was promoted as being a goose that would lay golden eggs into the coffers of racetracks I had a sense of Déjà vu. I remember when slots were sold as a magic elixir for racing.  The song went something like this. Slots would mean more revenue, some of that revenue would inflate purses which in turn would lead to bigger and better fields, which would lead to increased handle and growth of the game. Alas slots did not become a magic elixir. To more accurately complete the metaphor I would say slots were like the magic beans that led to a few golden eggs and an out of tune magic harp.

Like slots, there is no doubt that sports betting has great revenue potential. Even if only a portion of that revenue is used to support the racing industry, it will at the very least enable some of the racing locations that are currently struggling to stay afloat.  However as anyone who has attended an AA meeting can tell you, enabling is bad because it does not force the troubled parties to change their behavior. Instead it allows them to stay on the wrong path.

From a simple mathematical standpoint it is doubtful that the benefit of extra revenue will offset the trends and net income issues that have led to the decline in the number of owners and number of foals.  Those two statistics need to be reversed because six horse fields running for higher purses is not going to be a pattern for broad based success.

Lastly, there are only so many gambling dollars in circulation and it is highly likely that sports betting will be a more attractive outlet for not only today’s existing gamblers but more importantly new gamblers.  

Some of what I am going to offer in this opinion piece could be dismissed as anecdotal since legalized sports betting and across the nation is truly in its infancy and long term trends have not yet been established. To that I will say to any doubters of my premise, “Do you want to bet me that it will play out differently?” Here are the challenges as I see them;

  1. The bureaucracy and state-fiefdoms that run racing do not have the best marketing track record.  If new revenue is used unwisely its benefit will be watered down.
  2. If the additional purses are overwhelmingly won by a small group of big stables that will not encourage new owners to the game except for the very well-heeled.  Exhibit one would be California where despite big purses, field sizes are small and small stables are in danger of becoming extinct.
  3. If the additional purses do not offset other rising costs look for the exodus of owners to increase.  For management, do not forget to include the rising opportunity costs of using real estate for horse racing as opposed to more lucrative ventures. Exhibit two would be Aqueduct where the increased workman’s compensation costs have driven owners out of the track or out of the game despite the casino cash injection.  Does anyone doubt that Aqueducts days as a track are numbered and that the casino will survive?
  4. The challenges of converting existing gamblers, to bet for example racing over football, are almost too numerous to mention here so I will limit the list to the major hurdles.  To bet football I do not have to buy expensive data tools and learn how to use them. Football has been the most popular sport in this country for over 50 years. Many people have been engaged in football betting including fantasy football, block pools and football cards.  These individuals did not have a need or way to access a bookie. Now the states are going to provide another outlet and mobile apps for them. Exhibit three. At my local track the football betting lines were long and full of many new faces that I had never seen before. When I am in the sports betting lines I almost never hear anybody discuss racing.  Conversely when I am in the horse racing lines I often hear people talking about their football bets.
  5. Because the challenges of item #4 are so difficult I seriously doubt that the racetracks will even attempt the tough task of cross-selling their product to the new foot traffic that sports betting will create.  Hell, before sports betting, management at a local track charged the racing patrons 25 cents for a pencil. After football betting began somebody stumbled onto the idea of free pencils. I would not want to place my trust with the individuals who originally thought charging for pencils was a good idea.
  6. At one time, racing was the only legal form of betting in this country. Once more and more states got into the action the customers were spread so thin that tracks began to close. Just east and west of the I-95 corridor the list of closed tracks in my adult lifetime include Roosevelt, Atlantic City, Garden State, Brandywine Raceway, Liberty Bell, and Bowie.  Aqueduct and Pimlico are on the ropes. On the west coast, Hollywood Park, Bay Meadows and Longacres bit the dust. When the state of Delaware first opened their three casinos, there was no competition on the east coast except for Atlantic City. Early in their life these three small Delaware casinos contributed about 10% of the entire revenue for the state. Once Maryland and Pennsylvania got into the action the revenues at all the Delaware casinos dropped precipitously.
  7. Once sports betting becomes legal in virtually every state, it will compete against poker, casinos, state lotteries and racing.  Which one of these is most likely to win the biggest portion of the finite amount of gambling dollars, and will any of these Super Betting Sites take off in the US ?

I wish I could be more upbeat but despite the cash infusion sports betting will provide, I believe that unless the game can attract more owners and by extension more horses and higher handle, the weak tracks will slowly die and in the not too distant future only the big name races, a handful of big tracks and niche tracks will survive.

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