The Great Contraction: A Macro-Analysis of U.S. Horse Racing

The state of American horse racing in early 2026 is at a critical juncture, defined by a “death spiral” of retail handle, a legal onslaught against the industry’s power structures, and a technological shift that threatens to leave the average bettor behind.

1. The Handle Crisis: Inflation and the CAW Shadow

The raw numbers tell a sobering story. Total U.S. handle for 2025 hovered around $11.03 billion, a 2.1% decline from 2024. While a $11 billion figure sounds robust, it is a mirage when adjusted for inflation. Since the 2003 peak of $15.18 billion, the real value of the betting handle has plummeted by approximately 57%.

The primary driver of this decline is the “cannibalization” of pools by Computer-Assisted Wagering (CAW).

• The Whale vs. The Minnow: CAWs now account for an estimated 30–35% of all U.S. handle. Because these groups receive massive rebates (often 10–15% or more), they can profit even when they “lose” on the track, essentially taxing the retail bettor who pays the full 20%+ takeout.
• Odds Volatility: The “late odds drop”—where a horse goes from 5-1 to 5-2 the moment the gates open—is the signature of CAW bots dumping thousands into the pool in the final milliseconds. This has decimated retail confidence.

2. The Global Comparison: Why the U.S. is Lagging

Unlike the U.S., which operates as a fragmented collection of private tracks and state-level commissions, the Hong Kong Jockey Club (HKJC) and the UK (BHA) operate under more centralized models that protect the “ecology” of the betting pool.

The Legal Front: A Changing Guard?

The lack of a central governing body (despite HISA’s efforts in safety and meds) has left a power vacuum now being filled by high-stakes litigation.

The Ryan Dickey Lawsuit (RICO)

Filed in late 2025, this class-action suit targets Churchill Downs, NYRA, and The Stronach Group. It alleges a “racketeering” conspiracy where tracks and totalizer companies provide CAWs with an unfair technological advantage. You can read about it here.

• The Stake: If the discovery phase forces tracks to reveal the specific rebate structures and “proprietary” data feeds given to CAWs, it could break the current business model of major ADWs.

The Mike Repole Lawsuit (Antitrust)

Billionaire owner Mike Repole has officially notified The Jockey Club, Breeders’ Cup, and NTRA of his intent to sue.

• The Argument: Repole is targeting “overlapping leadership,” where a small “old boys’ club” sits on the boards of every major organization, creating a monopoly that stifles innovation. He views this as an “antitrust” battle similar to Michael Jordan’s recent victory over NASCAR’s charter system.

The “Less is More” Future: Racing in 10 Years

A “less is more” situation is supported by the data. By 2036, the industry will likely be unrecognizable to the 20th-century fan.

1. Foal Crop and Track Closures

The 2026 foal crop is projected at just 17,000, down 28% over the last decade. With fewer horses, many “mid-tier” tracks will be unable to fill races. We are heading toward a “Boutique Circuit” model:

• The Elite Survivors: Saratoga, Keeneland, Del Mar, and the Kentucky “Big Three” will thrive as high-end social events.
• The “Dead Zones”: Tracks without massive gaming subsidies (HHR/Slots) or elite status will likely shutter or “decouple” from racing entirely to focus on casino gaming.

We already see the extinction of the former typical allowance race progression of non winners of one, two, three and even four. Today they have to be carded as optional claiming races for any hope of filling entries.

2. The AI Revolution in Handicapping

The future of handicapping is a “Man vs. Machine” war.

• AI Dominance: Predictive modeling will replace the “Daily Racing Form” for the winning 5% of players. AI can process variables (past performances and even stride length, heart rate, wind speed, pedigree efficiency) that the human eye cannot.
• The Impact: As AI makes the pools more “efficient,” the profit margins for human handicappers will shrink. This will likely lead to a “tote-less” future or a move toward fixed-odds betting (similar to the UK) to protect the retail player from late-odds manipulation.

3. The Ethical Pivot: Aftercare and Welfare

The greatest threat to horse racing’s future isn’t economic; it’s existential. In an era of heightened animal welfare scrutiny, the “social license to operate” is no longer guaranteed. High-profile breakdowns, such as those that marred the 2025 season at major meets, serve as visual fuel for abolitionist protests and mainstream media critiques, like the recent New York Times calls to end state subsidies. While the Horseracing Integrity and Safety Authority (HISA) reported that racing-related fatalities hovered around a historic low of 1.0 per 1,000 starts in late 2025, the public’s tolerance for “incidental” loss has reached zero. This friction has turned aftercare from a charitable afterthought into a defensive necessity. Despite a patchwork of private initiatives like the Thoroughbred Aftercare Alliance, the industry still lacks a mandatory, national funding mechanism that follows every horse from the sales ring to the finish line. Without a centralized body to mandate that a percentage of every handle dollar—including CAW volume—is diverted to retirement and retraining, the sport remains vulnerable to the perception that its athletes are disposable assets rather than protected partners.

The Transition: Fixed Odds & The End of Pari-Mutuel Dominance

1. The Case for Fixed Odds: Locking the Door on CAWs

The “pari-mutuel problem” is fundamentally a lack of price certainty. In the current system, a bettor is at the mercy of the final cycle of betting. Fixed odds solve this by allowing a player to lock in a price at the moment of the wager.

• Retail Protection: By moving win/place/show markets to fixed odds, tracks can effectively “ring-fence” the average bettor. If you bet a horse at 5-1, you get 5-1, regardless of a CAW bot dumping $50,000 into the pool three seconds after the gates open.
• The Sportsbook Integration: As of 2026, major players like NYRA are aggressively lobbying for fixed-odds legislation in New York to place horse racing on the same “digital shelf” as the NFL and NBA. The goal is to capture the “casual crossover”—the bettor who finds the tote board confusing and the late-odds drops predatory.

2. Precision & Prediction Markets: The New Frontier

While fixed odds are the traditional alternative, “Precision Markets” (modeled after event contract sites like Kalshi or Polymarket) represent the next evolution.

• Peer-to-Peer Trading: Instead of betting against a house or a pool, precision markets allow bettors to trade “contracts” on a horse’s performance. You can buy a “Yes” contract on a horse to win at $0.20 (effectively 4-1) and sell it at $0.50 if the horse looks strong in the post-parade.
• Regulatory Loophole: These markets are often regulated by the CFTC (Commodity Futures Trading Commission) rather than state gaming boards. This federal oversight could allow for a more uniform, national betting experience that bypasses the “no central governing body” issue plaguing the sport.
• Hedging and Laying: Unlike pari-mutuel pools, these markets allow you to “lay” a horse (betting it to lose), a feature common in the UK (Betfair) that has been largely unavailable to U.S. bettors. Personally I embrace this concept as discussed here.

Feasibility and Implementation Hurdles

Despite the clear benefits for the retail player, the transition faces three massive roadblocks:

The “Liquidity Trap”

Fixed-odds betting requires the “house” (the track or sportsbook) to take on risk. Currently, U.S. tracks love the pari-mutuel system because they take their 20% takeout off the top with zero risk. To offer fixed odds, tracks must either hire sophisticated bookmakers or partner with global firms like BetMakers to manage the liability.

The Legal Patchwork

As of early 2026, fixed-odds wagering is only fully operational or legalized in a handful of states (New Jersey, Colorado, and West Virginia).

• The Interstate Horseracing Act (IHA): Modernizing this 1978 federal law is required to allow fixed-odds signals to be legally “exported” across state lines with the same ease as pari-mutuel signals.
• Tribal Compacts: In states like California, tribal gaming interests often hold exclusive rights to certain types of wagering, making the introduction of fixed-odds a legal minefield.

The “Takeout” Dilemma

For fixed odds to be competitive with sports betting, the “price” must improve.

• Standard Sports Vig: ~5-10%
• Horse Racing Takeout: ~15-25% If tracks move to fixed odds but keep the effective takeout at 20%, they still won’t attract the “Modelers” or the younger sports betting demographic who are used to more favorable pricing.

Conclusion: A Sport of Extremes

The American horse racing industry is currently staring into a mirror, and the reflection isn’t pretty. While the sport has survived decades of “dying” predictions, the convergence of legal warfare, predatory wagering technology, and a shrinking biological foundation has created a “Less is More” reality that is no longer a theory—it’s the new business model.

The next decade will likely see the U.S. horse racing industry transition from a “mass market” gambling product to a luxury sports entertainment niche.

The lawsuits from Dickey and Repole may be the “creative destruction” needed to force the sport into a centralized, transparent model similar to Hong Kong. If they fail, the sport will continue its reliance on casino “life support” until the foal crop can no longer sustain a daily racing calendar.

By 2036, we will also likely see a split-market system:

1. Pari-Mutuel for Exotics: High-liquidity, high-volatility “lottery” style bets (Pick 6s, Superfectas) will remain pari-mutuel, as these are harder for bookmakers to price and offer the “life-changing score” potential.
2. Fixed-Odds for Core Markets: Win, Place, and Show betting will migrate to fixed-odds platforms integrated into major sportsbooks, finally offering the “price stability” that the Ryan Dickey and Mike Repole lawsuits are indirectly fighting for.

However, all this said, we are an industry that can’t seem to stagger the post times of the Saturday Stake races.