Racing Symposium, Hong Kong and Making Racing Stronger

Another successful Arizona Symposium on Racing and Gaming concluded last week. By successful I mean they got through the entire agenda, more or less on schedule. There are a number of insightful people who have great perspective on racing’s problems, but in racing things change at a glacial pace. We’re great at talking about what ails racing; we aren’t nearly as adept at fixing it.

First, I’m tired of hearing about Hong Kong. Hong Kong has huge fields. They handle $11 million per race. Their handle has increased 47% since 2006. They have the greatest drug policy in the universe. Why can’t we all be more like Hong Kong?

I’ll give you a few reasons. The have two racetracks. North America has well over 100 if you include harness tracks. Hong Kong has one authority running the whole show. North America is a hodgepodge of state and provincial commissions run by people who were appointed and not necessarily for their expertise in making and enforcing racing rules. Hong Kong has 83 racing days a year. North America has that in a half a month in August. Hong Kong has a virtual monopoly on gambling. The nearest casinos are in Macao, an hour away by ferry. The Hong Kong Jockey Club controls the lottery. They control sports betting. There is no hometown football or basketball or baseball to distract the racing fan. 80% of residents have been to the track, and 20% characterize themselves as regulars. It’s like America in the 1920’s when racing topped sports attendance by far.

Horses based in Hong Kong start an average of 7.4 times a year. That’s comparable to higher quality horses in North America. Why can horses be pampered the way they are in Hong Kong? The purses. Average earnings per horse are a little over $78,000, which means most horses more than pay for their upkeep. If you wanted to own a string of horses and were told you were all but guaranteed to make money, you think the number of owners and horses being bred might go up?

The Hong Kong Jockey Club is effectively a self-perpetuating not-for-profit corporation, much like NYRA or Keeneland, but unlike the for-profit Churchill Downs or the Stronach tracks. Unlike North American tracks the HKJC is the alpha and the omega. It puts on the races, owns the facilities, employs just about everyone in the business except for horse owners and trainers (even the grooms and hotwalkers are HKJC employees), runs the vast network of OTBs and phone and online wagering, and is its own regulator, setting the rules, running the testing laboratory and meting out punishments. How does that sound all you fans of due process?

Oh yes, and the grooms who work for the HKJC (and not the trainers), are earning $5,000 a month, plus their cuts of purse money, and they don’t have to tend to more than three horses. I know some trainers who would be happy clearing that amount every month. That whole situation has to be an intersting dynamic. Oh, and when the government comes to collect its share of the taxes, the maximum they get is 15%.

We’re not Hong Kong, and we’re not going to ever be Hong Kong. The Hong Kong model works because there is one central authority and everybody buys into it. They don’t have to worry about filling races. They are running 830 or so races a year, so if the average field size is 12 horses and the horses run their average of 7.4 races a year, arithmetically 1,400 horses could get them through a season. Even at Arapahoe Park they would need 4-600 horses to get through two weeks of racing. I also expect if 1,400 horses could get us through the entire racing season, being drug free wouldn’t be nearly the challenge it is today. On the other hand, if you can keep the rest of the 10,000+ horses we need to keep racing going in a summer season race-capable without medication, unlocking the secret of the universe prior to the Big Bang should be child’s play.

So enough of Hong Kong. That tangent on Hong Kong spun on a little longer than I thought it would.

Back to the Racing Symposium.

Robert Evans the CEO and President at Churchill Downs listed his five reasons to be optimistic about the future of racing. Number one was the expansion of “alternative gaming” at tracks. This sounds a little bit like dating someone else because your current partner is a little stale. I get that in the short term the injection is like a B-12 shot, but what happens when the gaming people do what they did in Iowa and say they are tired of essentially burning money subsidizing racing, in this case the greyhound tracks?

Second was that balance sheets are improving because operations emerging from bankruptcy are shedding debt and are being bought by stronger, casino companies. I can tell you based on the Colorado experience that the casino companies hope to use the tracks to expand their gaming operations, and if that doesn’t happen, racing can be dropped like a bad habit. It’s not a bad thing, but it only works as long as the casino companies don’t see racing as a drag.

Evans was proud of how Churchill is using technology to increase handle. I think high def feeds are a nice feature for tracks and ADW’s but I hope that’s not the best you’ve got to try to suck my money in (disclosure: I won’t bet Churchill or on Twin Spires since they’ve raised their take to cover executive salaries).

Fourth was an emphasis on quality racing. Yes, the Kentucky Derby, the Travers and the Breeders Cup generate huge handle, but how many more of those days can we squeeze in without adding lower quality horses? The Kentucky Derby already has 20 starters, and every year there are five or six that have absolutely no chance and are running just so their owners can claim a Derby starter. More quality racing is a great idea, but we need to quickly move beyond ideas to collaboration and implementation. When half of the creme de la creme  of horses in America are trying to win a race at Saratoga in August, what’s left for the other few dozen tracks?

Finally was the offer of innovation, which given the slide Evans used, seems to be stuff that has already been tried with some success, like expanding the meeting at Saratoga, although his suggestion of exchange wagering would in fact be a great innovation.

The reality of the presentation was that it was a rehash of the same problems with most of the “solutions” things that are already being tried while racing continues to decline. Innovation is not finally adopting technology I’ve had on my TV for 10 years.

Ray Paulick argued in a recent editorial that tracks must come to grips with the idea that there are too many racing days, and this leads to smaller field size which in turn leads to smaller handle. Jennifer Owen, an Australian racing consultant said her research shows that if you can increase the average field size in the U.S. from the current 7.86 per race to 10 horses per race, you could increase handle by 43%. In this calculation, Ms. Owen projects that if a track went from10 races a day to eight, redistributing the starters from the two cancelled races across the remaining races, handle would go from say, $5 million to $7 million. Unfortunately, all I have are the summary articles and not her actual calculations, but I’m guessing she used the same calculus that CHRB and Churchill Downs did when they calculated raising the take would result in higher revenues. How did that work out anyway? If she argued that the PER RACE average would go up by 43% I could buy it, but cancelling two races and seeing daily handle rise by that much assumes a lot of people yanking a slot handle (I know, you push a button these days) must be shifting over to racing. The handle on a given day cannot be greater than the total amount people are willing to bet, and perhaps it is the case that bettors have money in their pockets they are not pulling out because of field size, but 43% sounds like a pretty difficult number to embrace. Still, the point is well taken. Short fields suck from a pari-mutuel perspective.

Ray Paulick asks what needs to be done for stakeholders to see the light. Unfortunately, there aren’t a lot of suggestions floating around that would get those stakeholders to change directions. It may be a little more destructive, but the market will eventually sort this out. We’ll see more Suffolks and Hollywood Parks and Rockinghams until all that is left are the tracks that live because of slots or because their handle can sustain their existence.

As Buzz Lightyear said, to infinity and beyond.