The concept of our #FreeDataFriday series is to highlight the value of offering more data to the overall thoroughbred industry. More data, more participation – the benefits are obvious.

But when presented with ideas and recommendations from the past, has the industry embraced change? Are we, really, aware of the rocky cliff ahead? Is the greater industry attentive to the data presented by some individual states?

Consider the following…

Rudolph Giuliani and his consulting firm, Giuliani Partners, presented a report titled “Declining Purses and Track Commissions in Thoroughbred Racing: Causes and Solutions” to the NTRA’s Wagering Systems Task Force in September 2004. Giuliani’s foreword in the final report explains its purpose.

“The National Thoroughbred Racing Association (NTRA) and the Wagering Technology Working Group (WTWG) retained Giuliani Partners in 2003 to address electronic security and public policy issues that developed after an attempted $3 million wagering fraud in connection with the 2002 Breeders’ Cup World Thoroughbred Championships…

For those that might not recall, a former tote employee hacked the tote system to yield the lone winning ticket in the Breeders’ Cup pick six from 2002 in a caper that was as easily uncovered as it was executed. To read more about that, CLICK HERE and HERE.

“Following up on our work in 2003, Giuliani Partners was retained by the WSTF to determine the extent of the problem from economic, legal and regulatory perspectives and to develop recommendations for the future. This Final Report of the Task Force provides an analysis of the challenges the industry faces in dealing with the growth of Internet wagering. Only by fully understanding the facts can we begin to develop effective solutions.”

At that time in the industry a primary concern was the decline of prize money attributed to the start of a shift to online wagering and a revenue model which was never adjusted to account for that, even at a time when overall handle was still growing. 

Now more than 15 years following the report from the NTRA’s Wagering Systems Task Force, it is worth revisiting their recommendations and considering the state of the industry now.

Below are the recommendations extracted from the report. To read the full findings, CLICK HERE.

The Task Force’s recommendations to address the problems of declining track revenues and purses fall into five categories: economic analysis, technology, integrity, betting exchanges/bookmakers and legislative/regulatory.

Economic Analysis

1. Each track and horsemen’s association should perform detailed analyses of its wagering data to understand fully the effect of all the different sources of wagering (live, on-track simulcast, intrastate and interstate simulcast and international wagering) as well as the types of wagering (e.g., computerized wagering) on its net income and purse structure.

2. Each track and horsemen’s association should review its wagering data and internal cost structure to determine whether its current revenue policies reflect its current cost structures.

Technology

3. The industry must make improving the tote infrastructure its top priority to fully address current inefficiencies and satisfy ongoing integrity requirements. The improved system should include:

• Processes whereby the live host track controls the wagering event including when to accept wagers and when to stop the betting process.

• Tote communication based on Wagering Transaction Protocol (WTP) (not existing ITSP protocol) whereby guest sites send bet details to the live host and the live host confirms receipt of those details and advises the guests that they can print a ticket or tickets for that pool.

• Development of a security database of wagering information to allow for real-time monitoring of suspicious activity and historical review of wagering data by regulators and appropriate industry representatives.

• Technological advances to eliminate or substantially reduce late odds changes.

Integrity

4. Tracks, horsemen’s associations, and racing commissions should diligently monitor all wagers allowed into their pari-mutuel pools by requiring and reviewing relevant information from tote companies and wagering sites. This information should be aggregated by an industry-wide, national wagering security organization (e.g., the National Office of Wagering Security called for by the WTWG report in 2003). A refusal to provide the information necessary to ensure integrity of the system could affect the willingness of industry members to permit access to their own pari-mutuel pools.

5. Tracks, horsemen’s associations, and racing commissions should require an adequate level of disclosure as well as regulatory and appropriate industry access for international and Native American gaming sites and for all domestic wagering (e.g., ownership, tax status, customer domicile, etc.).

Betting Exchanges/Bookmakers

6. Additional research and planning should be conducted regarding the impact on U.S. handle, revenue and purses from the growth of wagering through international betting exchange platforms and bookmakers.

7. The U.S. industry should work with the international racing community to better understand the extent of the global challenges posed by unauthorized wagering without host track and horsemen consent.

8. Racetracks and horsemen’s associations should work with law enforcement agencies to aggressively protect against betting exchanges and other entities (e.g., online bookmakers) that illegally accept wagers on U.S. races from U.S. citizens.

Legislative/Regulatory

9. The industry should focus on efforts to secure passage of new state laws and regulations to allow tracks and other licensed operators the flexibility needed to compete in the electronic gaming marketplace. This would include passage of account wagering and flexible-takeout legislation in all pari-mutuel states.

10. The industry should redouble its efforts to ensure passage of the legislation regarding the 30% withholding rate (currently before Congress) to facilitate the export of the U.S. racing product to the $85 billion international pari-mutuel wagering market.

11. Efforts to respond to the activities of betting exchanges and bookmakers should include seeking additional legislation to strengthen current protections of the industry’s wagering rights including civil remedies for infringements on those rights.

12. Members of the industry should proactively cooperate with legislators and law enforcement officials to preserve horseracing’s existing legal positions regarding interstate electronic wagering as set forth in the Interstate Horseracing Act.

Absent from the report is any reference to alternate sources of revenue to fund prize money, notably, that which comes from casinos connected with racing operations.  

Total prize money in America in 2003 was $1.469 billion (adjusted for inflation to 2018 dollars) from 53,500 races compared to $1.117 billion in 2018 from 36,500 races. On a per-race average, that suggests average prize money per race was $27,400 in 2003 (adjusted for inflation) and $30,500 in 2018, an increase of 11.1%.

In other words, prize money per race has increased, even though across the intervening years, total handle has declined 47% when adjusted for inflation.

American racing has, generally-speaking, sustained itself quite well while receiving purse subsidies via casino revenues as overall wagering declines on its product. But that’s the inherent problem that will face the sport sooner, rather than later. As jurisdictions experience market saturation with newer gaming options, gaming operators who also run racetracks will look for additional sources of revenue…or pursue options that could begin clawing-back the required revenue sharing with purse accounts.

What happens when these previously “mandated” revenue sources slow, or are legislated away from racing? Decoupling is a viable threat.

Even though revenues from casino operations are not shared with Florida tracks, for example, the physical casino facilities are co-located with some tracks. Recent judicial decisions confirmed that operators do not have to continue the same source of pari-mutuel betting at their facility for which it was originally granted a casino license.

If one’s sole reason for operating a racing facility was the retention of a casino license, and that reason is no longer required, would you continue funding a racing operation in the current environment?

In 2018, greyhound racing in Florida was banned, effective at the end of 2020, via a constitutional amendment approved by voters in the state. Operators of casinos at those facilities are permitted to retain casino betting while abandoning racing.

In Pennsylvania, 88% of purses earned across all breeds in 2018 were derived from revenue coming from the state’s slot machines.

Read that last sentence again.

Just 12% of purses earned in 2018 came from wagering on horse racing. In 2006, 94% of purses earned came from racing wagering handle, a number which dropped to 34% in 2007.

What would Pennsylvania purses be without the slot subsidies? What would horse racing in Pennsylvania be without those subsidies?

In 2006, the total amount of purses earned from wagering, adjusted for inflation, was $67.3 million.

In 2018, the total amount of purses earned in the state was $176.5 million, $155.6 million derived from slot machines and just $20.9 million from handle, that’s an inflation-adjusted decline of a staggering 68.9% in purses earned from handle. The history of these numbers is reflected in Pennsylvania’s Pari-Mutuel Benchmark Reports. Here is the 2018 edition.

Racing has grown quite comfortable accepting casino-related subsidies, but for how long will the subsidies continue, particularly in light of the dramatic declines in wagering in some jurisdictions? Why would gaming company-owned facilities support innovation and modernization in an industry which is seeing significant declines in customer participation, all while being currently forced to share significant revenue with that same industry?

These are serious questions with no good answers.

So, back to the report prepared by Giuliani Partners.

“[The] Task Force was charged to recommend appropriate remedial steps to reverse the downward trend of purses, the lifeblood of the Thoroughbred racing industry.”

Racing has, generally, solved the prize money question it faced 15 years ago, but the answers have been based largely in accepting imposed subsidies which seem poised to shrink in the coming years.

Is it time to re-examine the recommendations from 2004 in context of the industry’s position in 2019? From where is the leadership forthcoming on this most fundamental issue of industry sustainability? How will the greater industry address the challenge of becoming far more sustainable…on its own?

The future of racing in America might depend on the answers to these questions.