Saturday, December 13, 2008

Why Isn't Racing in Line for a bailout?

Let's see.  Thieves on Wall Street are getting $700 billion, apparently without having to make any promises at all on how they'll use the money. (Well, all right, they probably can't use it for lavish spa getaways, though they can pay out dividends, obscenely huge salaries and bonuses.)  And the auto companies, after three decades of making the wrong cars for the wrong market, are getting at least $14 billion to put off their inevitable trip to bankruptcy court.

So, why shouldn't racing get a piece of the pie? I'm really disappointed that Mitch McConnell, the Senator from racing (oops, make that Kentucky), hasn't yet made sure that his constituency gets its place at the trough.  Just in case ole Mitch is paying attention to what we say here, I've come up with a plan that'll hardly cost the government anything at all. In fact, we could do a very nice bailout package for well under $5 billion over a three-year period.  That's hardly a rounding error in the grand scheme of things. (Disclosure:I started this post tongue-in-cheek, but, looking at the figures, I've almost convinced myself)

So, how would it work? If we look at who's losing money in racing, the outlines of a bailout practically reveal themselves.

First, the folks who actually race the horses.  Last year, there were some 67,000-plus horses in training, if you define "in training" to to mean every horse that made at least one start during the year. (All the statistics in this post come from the inestimable Jockey Club Fact Book.) To make a very rough estimate, let's assume that the average cost of keeping one horse in training for the year is $25,000 -- it's much more, of course, for a horse that spends a whole year in New York or California, much less for a horse that races at a minor league track and spends a good part of the year on the farm.  That's a total cost of about $1.675 billion just for maintaining horses. Add in the amortization of the cost of buying or breeding those horses and getting them to the races, and we're probably talking about another $675 million, or a total cost of $2.35 billion to acquire and keep the horses that provide the product.

Purses generated $1.18 billion last year; it'll probably be a bit less this year, taking into account the recent cuts by a number of tracks.  Of that, at least 20% never reaches the owner, going to jockey and trainer percentages and assorted deductions by the tracks.  So let's say that net purses going to owners are on the order of $950 million. That's barely 40% of the $2.35 billion it cost owners to acquire and keep their horses in training.

I know, I know. What about all that money that the owners will get at the end of a horse's racing career when it goes to stallion duty or becomes a broodmare? Sure, Big Brown was valued at $50 million, and Curlin at $20 million, but the Keeneland November sale showed what the rest of the market was like.  Let's be generous and say that total residual value for a year's worth of horses coming off the track is perhaps $500 million.

Add all those numbers together and we still have a shortfall of about $900 million a year for owners.  That loss is, of course, very unevenly distributed.  A few owners, who are rich enough or lucky enough to get the year's best horses, do very well.  The rest of us make do, while we are writing endless checks to trainers, vets, etc. and wondering where the money for the next check will come from, with the psychological satisfaction of watching our lovely horses run.

But, in this post-liberal age, let's not worry about fairness or equity in distributing the bailout money. After all, the banks got part of that $700 billion whether they needed it or not, so why not horse owners?  Just take the $900 million, divide it equally among the owners of every horse that raced in the past year, and we get about $13,400 per horse.  Enough to make the difference between profit and loss for many of us.

Next, we need something for the beleaguered race track owners.  Magna has lost some $600 million over the past few years; NYRA is just emerging from bankruptcy and hasn't made a eal profit in more than a decade; and Churchill is showing a profit, but that's largely due to its off-track internet wagering system, which earns money by low-balling the horsemen over the split of wagering revenue.  Calder, suffering under the Churchill bean-counters' ownership, just canceled three graded stakes because it couldn't afford to put up the purse money. As for the smaller regional tracks, I have no idea how they'd survive were it not for slot-machine income or casino supplements.  So again, just to throw around some rough numbers, let's say that US tracks are losing some $200-250 million a year on racing operations.  That's 1/2800th of the financial system bailout.  Just give them the money.

And then there are the breeders, who are certainly hurting, after declines of 20% or more at the yearling sales and 40%-plus at the bloodstock sales.  The solution for them, though, like that for the auto industry, needs to be coupled with some requirements for changes in behavior.  Luckily, we already have a good precedent for how to solve the breeders' problem: just pay them not to breed more horses.
That's the way the US agriculture program already works for many crops, so why not extend it to horses?

As late as the mid-1960s, the annual foal crop was about 20,000.  To be sure, those were the days when stallions generally covered only 40 mares per season. In the current decade, the foal crop has been in the mid-30,000's, and stallion owners, eager for quick cash flow, book their horses to hundreds of mares per year.  Of course, since average starts per horse has declined from 11 to 6 per year in the same period, I guess one could argue that we need all those additional foals just to fill the same number of races. (In fact, average field size has declined from 9 to 8, notwithstanding a decline in the number of races run and the increase in the size of the foal crop.) If the 1950's and 1960's were the glory days of racing, why not go back to the number of foals we had then?

So let's pay breeders not to breed horses above the 20,000 limit.  How much would that take? I'd bet that we could find 15,000 volunteers at, say, $15,000 each in return for refraining from breeding.  That'd cost $225 million -- just a drop in the bucket.  Of course, we'd need some kind of enforcement mechanism, but if it works for other crops, why not for horses?

To sum up, we need $900 million for horse owners, $250 million for race tracks, and $225 million for breeders.  Rounding up, as Washington tends to do, let's call it $1.5 billion for the whole industry.  That's per year, of course, but, what the hell, let's make it for three years, to give everyone time to figure out a new business model or else retrain themselves for all those new jobs in solar energy that are just around the corner.

So, for a mere $4.5 billion, we could save an industry that employs more than 200,000 people across the country. Such a deal!

How about it Sen. McConnell?




1 comment:

Power Cap said...

What about the horseplayers? Along with the owners we are the only ones who provide the capital to fund this game. Most of these punters will show a loss on their diversionary activities speculating on horse race outcomes. Sounds like another group that has the credentials necessary to receive a bailout.