The Mouthpiece


By Martin Owens
Contributing Editor


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    Martin Owens

    A Most Determined Case:
    Will Thoroughbred racing bounce back from here?

    "He who rejects change is the architect of decay."
    Harold Wilson.


    Philadelphia, PA (Sports Network) - There used to be a nasty joke about a rural Southern sheriff who investigated a lynching and pronounced it "the most determined case of suicide I ever saw." In many respects, the same thing could be said about thoroughbred horse racing in America. From near-absolute dominance of the USA sports betting scene, it has declined to near insignificance today. Perhaps American thoroughbred racing will turn around in time to avoid outright extinction; from here that looks like close call. But the blame for this state of affairs lies mostly with the major players of thoroughbred racing itself

    To be fair, there seem to be what counsel for the defense would call extenuating circumstances. It is true that racing suffered as the US economy underwent a sea change. The blue-collar Steel Belt towns like Detroit and Youngstown that used to provide most of the customers, have become Rust Belt basket cases, marked by declining incomes and property values. It is also true that costs have continued to go up, squeezing operators big and small. But what ailed the Sport of Kings was not so much a lack of funds as a lack of vision.

    League sports like football and basketball combined into the NFL, NBA etc, as early as the 1920s. They allotted franchises and worked together on a national basis in matters of mutual interest. To Congressional and state lawmakers they presented a united front. They embraced the chance to televise games. And the strategy worked brilliantly. It made them into powerhouses, the nationwide financial, advertising and marketing forces that they are today. Racing, by contrast, did not even begin to organize nationally until the National Thoroughbred Racing Association ( NTRA) came in 1997. But by then the damage was done. Racing had frayed its two most important lifelines almost to the breaking point.

    Frayed Lifelines
    The first lifeline was the one to the fans themselves. Individual race tracks used to look on the local gaming public as their exclusive property. They looked down on television as a threat to their gate receipts and handle, rather than a heaven sent opportunity to make their mark in every American home. By neglecting, even refusing, the publicity advantage that TV offered, racing cast adrift two generations of supporters. And what did the abandoned supporters do? They happily tuned in the football and basketball on their tubes. And then, broke or not, they filled up the stadiums, bought the team merchandise, and delivered an advertising El Dorado to the makers of pricey cars, cheap beer, and junk food ( all the more delicious for being unhealthy, thank you very much).

    An associated lifeline, horse racing's near- monopoly on licensed gambling, also gave way. In the 1960s, horse racing had a nationwide lock on legal gambling outside of Vegas. Essentially there was no competition, and they thought it would stay that way forever.

    But of course, competition came. State lotteries, banned for a hundred years, started to make a comeback.. Next came Indian gaming . Casino gambling was no longer confined to Nevada, but came to Atlantic City and New Orleans. Gambling riverboats appeared as far upriver as Iowa.- and this was all before Internet gambling! If all you wanted to do was bet, there were now plenty of other options. Horse racing made no worthwhile efforts to recruit a new demographic base, even as the existing one continued to shrink and age. Result: today the average horseplayer is a man near his careful retirement years, or already there. By contrast, Internet sports bettors average 30 years old, unattached, with lots of disposable income.

    The second lifeline was the one to the backbone of the industry itself- the small to medium size racing stable. True, there are large and famous operations, backed by fortunes. But just as with taxes, it's the little people that make it happen. A racing meet fields about 10 races a day, minimum five horses per race, six days a week; in some place this goes on nearly year-round. And the bulk of the entries come from these smaller independent operations, who are mainly on their own. In fact, no other mass spectator sport in America depends so heavily on private means as horse racing . A new player drafted by the NBA or the NFL, for instance, has already been raised, educated, and trained at somebody else's expense. The pre-contract investment is essentially zero. But the two-year-old racehorse still has be schooled and trained for the track before it can earn anything. The horsemen who breed their own stock are in an even tighter vise. They stand all the expense and risk of breeding, raising and training by themselves. It's at least two years before the four-legged investment can begin to pay for itself- and many never do. But when the new gambling competition drew off horse bettors and potential horse bettors, that meant a spiral of lower handles leading to lower purses, leading to lower quality of racing, leading to lower handles. Bad news for the little guys, who live on the purses.

    The racing purses come from the set percentage that the pari-mutuel wagering system deducts from every dollar wagered ( between 14% and 25%, depending on the location). But as year followed year, purses too often came last after state and Federal taxes and track operating expenses, even as the lower handles shrank the pie for everybody. Track management too often dealt with the horsemen as adversaries, instead of the heart of the whole industry that they really are. Of course, the horsemen could have made a lot stronger effort to organize themselves.

    Renaissance Refused
    This knee jerk reflex of mutual opposition was so ingrained that when the NTRA finally opened, it ran into trouble from the very group that should have welcomed it with open arms, namely race track management.

    Why? By this time the ominous trend of "consolidation" was taking place. Individual investors and owners found they could no longer afford the upkeep and capital additions that a first-class working racetrack required. And so some very nice tracks, and even some of the crown jewels of American racing were offered for sale, cheap. The principal buyer was an outfit called Magna Entertainment, backed by one Frank Stronach, a Canadian car-parts billionaire and horse enthusiast who hailed from Austria.

    Sensing a bargain acquisition, Magna snapped up eleven American tracks, including Gulfstream, Santa Anita, Golden Gate Fields, Pimlico (home of the Preakness), Laurel Park (also in Maryland) and Thistledown in Cleveland, thereby becoming the biggest racetrack owner in the US. Hey, how could it miss? Gambling always makes money! Alas, when the pigs were let out of their pokes, the truth emerged. The squeeze-?em-to-the-bone management style of previous owners had left many of these operations cash poor, even while much-needed capital improvements and even basic maintenance had been skimped, deferred or simply not done. Far from scooping a bonanza, Magna had bought in just as it was getting harder and harder for a race track merely to break even..

    But dreams of empire die hard. Rather than cooperate with the new NTRA, Magna fought to weaken it, threatening to boycott the organization over funding. In spite of this opposition, the NTRA did good work in reviving interest in horse racing nationally. The two most successful developments for racing at this time were the expanded Breeders Cup program and the "racino" system (slot machines in the racetrack grandstands, although card rooms came to one or two places).

    Racinos are touted right now as a godsend to the racing industry. And it's true that they can make an enormous difference in the revenue picture. Slot machines allowed formerly lackluster Waterford Park in West Virginia to become Mountaineer Park, a showpiece success. All the same, they do not address the basic problems of the declining fan base. They're still not coming just for the horses: when the slots were located next to a racetrack instead of inside its grandstand, the slots prospered but the racetrack continue to decline. The industry is making better use of technology these days, as with Internet betting services and simulcast- but there is still much room for improvement. And really effective support for the small to medium stables that make up the bulk of the industry has still not been thrashed out. Racinos are a boost, but not a cure.

    Nor has any real thought been given to the impact of new technology such as mobile phone programs or social services such as Twitter, both in handling betting traffic and in attracting the new fans the industry needs for its lifeblood. New currents and new opportunities are swirling by. Would the environmental movement be an ally of racing, or make horse farming and breeding more valuable? Can US thoroughbred racing find a new market in the emerging economies of Asia? No one really knows what the answers to these questions are, or if there is more than one right answer. The problem is, few if any are asking.

    HOPE FOR THE FUTURE(?)
    Things have reached one hell of a state when a disaster turns out to be good news. But the industry may finally have hit the bounce point. Magna Entertainment is bankrupt, and its racetrack assets are being sold off. On September 15, Thistledown was purchased by Harrah's for $89 million, and other parties are waiting for the rest to be cleared ( some reports indicate Stronach is attempting back-room deals to withhold certain properties from sale, though how a party in bankruptcy could overrule a bankruptcy trustee is unclear.) Nevertheless, the impending transfer may signal a new day for US thoroughbred racing, when the operations are run by people genuinely acquainted with the heart of the industry and willing to attract the fans. More, it may open the way to leadership that is willing to do what is needed to re-establish racing's place in the nation's gaming industry. That is what is needed, and badly.

    [FULL DISCLOSURE: My particular perspective is a personal one: my father is a thoroughbred trainer, just retired after 60 years of racing, and I grew up in Cleveland. The backstretch of Thistledown was as familiar to me as home or school, and I had a groom's license before I had a driver's license. I share the hope of all the horse people that the change in ownership, in Thistledown and elsewhere, will mean better times.]

    Mr. Owens is a California attorney specializing in the law of Internet and interactive gaming and related issues, serving clients worldwide since 1998. He co-authored INTERNET GAMING LAW with Professor Nelson Rose, America's senior authority on gambling law (Mary Ann Liebert Publishers 2005, second edition just out, 2009), as well numerous other articles. He is an Associate Editor for "Gaming Law Review and Economics" magazine. Comments and inquiries welcome at to mowens@trade-attorney.com.

    Copyright 2009


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