Is the horse racing rebound sustainable?

Horse racing in the United States has seen some growth in the last few years as the industry works on problems such as facilities, horse safety and making racing venues more family friendly.

Interest in horse racing in the U.S. is on the rise, but can it continue?

Interest in horse racing seems to be making a return in North America. Handle has increased each of the last 3 years by just under 2% year over year, and so far in 2018 the increase has been even greater than that.  Many attribute the larger increase in handle this year to the Triple Crown win by Justify, and while that undoubtedly has been a factor, the fact is that renewed interest in horse racing really started in 2015 when American Pharaoh won the Triple Crown. Until that point betting and attendance at racetracks was declining and it seemed inevitable that would continue indefinitely, but the industry addressed concerns by patrons in a few areas and played off of American Pharaoh’s media exposure to turn things around. Three factors in particular are likely responsible for the increase the last few years. 

Better safety for the horses.

At one time horse fatalities and jockey injuries were just accepted as a part of the sport, but in this day and age people expect animal welfare to be a concern. Consequently the tracks have made it their mandate to ensure horse safety by maintaining the tracks better through more efficient watering systems and putting in synthetic surfaces where warranted. But more importantly, they have improved medication regulations and removed medicines that were deemed dangerous to horse welfare. Also, there has been a much stricter duty placed on owners, trainers and track veterinarians to make sure that an unfit horse is not allowed to race. Penalties to trainers in particular who violate the rules are very severe. As a result, horse fatalities have been steadily on the decline in North America since 2012 and some statistics indicate the drop in the 5 years from 2012 to 2017 was almost 35%. The one exception to that is Del Mar which saw a devastating start to 2014 that required the track to suspend racing. Del Mar has improved somewhat, but is still deemed one of the more dangerous tracks in the sport. Bill, a horse racing analyst from New York explained to me how horse deaths over the years have hindered the advancement of horse racing for a generation but he now sees a light at the end of the tunnel.

"I worked in the front offices of the industry for years before becoming a handicapping analyst and one of my key responsibilities was to develop strategies to entice young families to adopt horse racing as part of their entertainment regime. We put in activities at the tracks for children, increased our advertising and generally just made the track a more friendly place to go. I also made sure that families enjoyed watching the horse races together, because while we wanted them to enjoy themselves, we were also trying to attract new horseplayers for the future. But I knew full well that if a family was watching the races on a day where a horse broke down there was about a 1 in 3 shot those families would never attend races again. And that has been a concern. In the big races horse breakdowns have destroyed generations of horse race goers. Barbaro had a huge following with youth and many in the industry were hoping he was the horse that would change the decline, but when he broke down in the Preakness thousands of kids left tracks all across the U.S. crying. And the blame after the race put on horsemen for allowing Barbaro to run when he clearly wasn’t fit at the gate devastated us for years. Since then rules have been put in to make sure that unless a vet is 99.9% confidence the horse is sound, then that horse won’t run. And Eight Belles was a big draw for women but when she collapsed soon after crossing the finish line in the Kentucky Derby the media was filled with articles about how horse racing was a cruel sport and owners and trainers didn’t care about horse welfare. This was totally untrue but the damage was done. There was an immediate noticeable drop off of woman attendees at race tracks. Naturally nothing can be foolproof, but long suspensions to suspect trainers, like Rick Dutrow, and demands made to track veterinarians and standardized medication regulations has made a huge difference. At least now when a horse breaks down, it occurs less frequently and the tracks and horsemen can honestly tell families that they put in all the stops to prevent it and families appreciate that effort."

Better racing facilities with more to do.

One thing that has always bugged people about horse racing is the lack of activities at the track. It’s one of the reasons families tend not to go together to the track. Many tracks are also quite dark and dire and not deemed family friendly. The industry has addressed those concerns quite well, particularly in the last decade. Most of the A list tracks such as Belmont, Santa Anita and Gulfstream have spruced up the interior quite well and tracks like Suffolk Downs and Lone Star have not only improved the facilities, but hold regular concerts. And more importantly, the addition of slot machines at most tracks have been welcoming, particularly for women. It can be quite a wait between horse races and if one’s not a handicapper pouring over the racing form it can be boring and frustrating. These new additions, along with simple updates like Wi-Fi, Sony arcades for youth and play areas for children, have created an atmosphere that makes an outing at the track a form of entertainment, which was lacking. Naturally slot machines or arcades won’t increase horse racing handle, but it has enticed families to attend together and some of the family members will gamble on the ponies.  In the 1980s and 1990s it was rare to see families attend the races together, whereas today it is commonplace.

The introduction of technology.

Weekends have generally been decent at attracting patrons to the track, but weekdays are almost always dead and handle is low. That has changed thanks to the Internet. The Interstate Horse Racing Act (IHRA) has been in place for quite a while, so bettors have been able to bet simulcast for some time, but the last few years tracks have coordinated race days so that there are limited race tracks operating at any particular time. Consequently, on a weekday, horseplayers are forced to wager at specific tracks. Parx, for example only races on Monday and Tuesday while the A tracks will only race on the other weekdays. That ensures that the handle to the tracks is enough to cover the costs for racing on that day, and the reason the handle is good enough is the result of simulcast and Internet wagering. Many people who would never venture out to a track or OTB location to wager on other tracks will put money into their TVG or other online account if they can bet at home and watch the race on a computer or TV. Plus, even non- U.S. countries bet into the U.S. pools helping to increase handle. Furthermore, electronic and handheld betting terminals, along with exchange wagering at New Jersey tracks, have attracted younger people who just aren’t prepared to stand in line at a betting window to place a $2 bet.

horse racing in the US

While these three factors have been important there are two new developments that could bring horse racing back to its heydays of the 1960s and 1970s. First and foremost is a change to the taxation laws. While it may seem strange to non-American bettors or to small horse race bettors that the track can withhold winnings is indeed the case for large wins. The rule until late 2017 was that for any winning ticket where the odds are over 300-1 and the amount of the payout is over $600, bettors were required to go to a special IRS window and obtain a W2-G form to declare, for income tax purposes.  And any win of $5,000 or more at the 300-1 odds necessitated the track withholding 25%. In the old days where the only real wagers were win, place, show and possibly daily double, exacta or quinella bets, it wasn’t an issue, but nowadays bets like superfectas, win-4s, high 5s and the pick 6 generally pay over 300-1 and having to fill out a tax form and keep track of all other losing tickets to prove to the IRS that you didn’t win overall for the year was deemed quite a pain. And for wins over $5,000 the 25% withholding resulted in many bettors passing on the bet because they deemed it just wasn’t worth it. The horse racing industry, however, has fought to change that and as of six months ago the rules were changed by the IRS which has helped promote those wagers which is important to the tracks since they have the highest hold. Bill explained the change to me with examples.

"Prior to this year any win of 300-1 or more was subject to tax and it was based on the base unit cost of the ticket. So if you bet a $1 superfecta box on 4 horses that cost $24 and it paid $500 you would have to fill out a tax form since the 1 bet from the 24 you made won that money. Now the revenue service only requires a tax form if the bet is greater than 300-1 on the full ticket cost. In that example you would only have to fill out a tax form if the resulting payout is $7,200 or more (300x24) and tax will only be withheld if the bet pays out at 300-1 or more and the total amount won is $5,000 or more. I am sure that a lot of bettors will still see this requirement as unnecessary since horse racing isn’t a lottery, but truthfully the pick 6 is indeed a lottery type bet. But the majority of bets where one had to go to the tax window were for bets like a $1 trifecta box on 3 longshots where the trifecta pays say $1,200. Before the new rules you had to fill out that annoying form because you were deemed to have cashed a 1200-1 ticket but now the bet would be deemed to pay only 200-1 and therefore would’t require a tax form. The industry believes these rule changes could increase handle by as much as 10% and will attract a lot of bettors who refused to bet on exotics because of the tax reporting requirements."

The other major development hat could really help horse racing is the addition of sports betting thanks to the SCOTUS ruling earlier this year. The hope in the industry is that racetracks would effectively become like the combined race and sportsbooks in Vegas. People will go to the track to wager on a sporting event and will decide that since they are there they may as well wager on the ponies too. Plus, of course a percentage of the profits from sports betting will go to the tracks, which could then be invested in improving the product. Bill said that there are a lot of racetracks in New York and New Jersey that are relying on sports betting revenue to help provide funds to modernize the facilities and attract better horses to their tracks through larger purses. If early results from Delaware are an indication it may work too. Delaware took in $7 million in bets in the first 20 days at the three racetracks with revenues of $1 million. It’s unlikely the 14% loss rate will continue, but it is promising and betting handle will only soar once the NFL season begins. That said, sports betting will only help racetracks if it is one of few options available to sports bettors. In Delaware it works since tracks are the only place to wager on sports and New Jersey will be limiting sports betting to racetracks and casinos. But there are other states that seem interested in allowing sports betting at bars, online - so one can bet at home, and even at the airports. In that case it’s unlikely that many people will choose to sit in a racetrack and watch and wager on a game if they can do so at a sports bar, or better yet at home.

So for the first time in decades there is a bright future for horse racing. The industry still has a lot to do to bring patrons back to the levels they did in the heyday, but thanks to improvements to facilities, more concern for horse welfare, better technology, including proposed exchange wagering, new tax rules and the addition of sports betting, it is conceivable that the racetrack will once again be viewed as a good place for entertainment for the entire family.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!

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