How Much Trouble is American Racing in Now?

​Across the country people have rightfully made the decision that lives are more important than livelihood. This reality has always been understood but, the pandemic we currently face has deepened that understanding.

Some industries that have been growing like crazy during good economic times will have no problem weathering the storm. Some companies are actually expanding, like Amazon and Walmart, to serve consumers in a new social distancing or stay at home consumer environment. Unfortunately, the American racing industry is another story.

With only a handful of American racetracks now remaining open for online wagering, (2 this Tuesday and 5 this Friday), some negative impacts are obvious. Less obvious are the future impacts that underlie racing’s economic future. The people really paying the bills, racehorse owners, are still writing checks for horse care and training without any purse revenue to offset those expenses. This dynamic, which may be similar to certain other industries, is not one that can be stomached over a period of time in an industry already in serious economic trouble.
 
Racing has experienced a very consistent and extremely disturbing decline over the last 3 decades. The foal crop (product production), number of races (revenue opportunities) and inflation adjusted pari-mutuel handle (revenue) have all been essentially cut in half over the last 30 years. Recent trends reflect an average near 2.0 - 2.5% annual decline in all those indicators. Very few other industries were suffering economic distress anything like the horse racing industry was prior to the Covid-19 outbreak.

What this means is that the lower and middle economic tier owners, not the very rich, are going to have some serious decisions to make. Will they continue to play the racehorse ownership game or decide to that the funds they risk in racing might be better used to deal with stressed living expenses, or be put into a rainy-day fund now that everybody really understands what a rainy day looks like? At a minimum, “fear reactions” following a crisis like the one we are all experiencing today, forces a re-evaluation of priorities. It is unlikely that racehorse ownership is going to be considered a high priority going forward, after a pervasive historical human and environmental crisis has occurred.

This means that middle and lower tier economic owners will never forget owning racehorses, at a monthly cost ranging from $2,500 to $5,000 per horse, without any possibility of earning purses to offset those expenses. Approximately, 8 to 9 out of every 10 horse owners lose money on their horses every year when things are normal, so it is not unusual for them to experience financial loss in the horse business. However, trainers always expect and demand that owners keep paying their bills because trainers in the same middle to lower economic tiers have no capability to pay their workers, and horses still need to be cared for.

Though it is likely that the top of the typical bell-shaped pandemic curve will start to flatten out and be recognized in America by mid to late April, the 2 to 3-month shutdown in most racing environments will have a long reaching impact. In other words, this pandemic is not typical. It is not like a normal disaster such as a tornado, hurricane or flood. This pandemic, and the reaction which forced an extreme change in lifestyle all across America, will cause everyone to evaluate the future differently and prepare for the next battle.

Owners in the lower and middle economic tier will reduce or eliminate their stables. They will demand retirement of many of their lower earning horses, putting a strain on the racehorse retirement organizations. These owners will also be much less willing to purchase new horses or breed. The influx of new owners, essential to racing's need to annually replace those that leave the game, will also be greatly reduced.  Sales will suffer, particularly sales the next year or two as an over-supply of sale horses meets a low demand, thus creating a downstream strain on the many organizations that breed and sell racehorses. Sales volumes and medians will decline.

With all of this said, there will be an inevitable decline in the middle and lower economic tier racetracks, breeders, trainers and owners. In other words, the minor leagues of American racing that have been contracting over the last three decades may not survive, and will at best see a more pronounced decline in key economic indicators. The media pressure related to fatality rates and Federal indictments will seem like nothing compared to a new universal reality associated with economic priorities.
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No, it will not be a good time to be in the minor leagues and while higher end racing will always survive in my view, racing in America might once again become a sport clearly suited to be named “The Sport of Kings”! If only racing would have re-engineered the sport over the last few years, or better said, fixed the roof before the rain started.

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