Wednesday, July 15, 2009

Time for Some Serious Downsizing?

It's almost time for the Saratoga meet, the highlight of everyone's racing year on the East Coast. The last two races for our (Castle Village Farm) horses were a third in a stakes race and a win in an allowance. And we're in the process of buying the best horse we've ever had (a two-year-old by Smoke Glacken, in case you were wondering). So what could be the matter?

Well, for a start, the state of the racing industry. The latest figures from Equibase show a disturbing acceleration in the decline of the industry. For the first half of 2009, total US handle was down 10.5% (to $6.5 billion) as compared to 2008, and purses were down 6.0% (to $507 million), even though the total number of racing days declined by only 2%. And the rate of decline was much worse for the month of June, with handle dropping 16.9% from the same month in 2008 and purses declining by 10.3%, to $101 million. Both these decreases were far larger, in percentage terms, than the drop in the number of racing days for the month (5.6%, to 620 days). So, even as other parts of the US economy are stabilizing, if not recovering, the decline in racing is accelerating.

This is as close to free-fall as it gets. At previous purse and handle levels, horsemen put about twice as much money into training and caring for their thoroughbreds as they took out of the game in purses, without even counting in what they paid to buy or breed the horses. We all know that owning a race horse is generally a money-losing proposition, but at least we could harbor the hope that someday we'd get a big horse and make a big score.

As purse levels decline precipitously, though, even this hope becomes more remote. True, the prices at the auctions may be experiencing double-digit declines, but the cost of training and vet services shows no such easing. It doesn't matter if you can now buy a good horse more cheaply than a couple of years ago if you can't afford to keep it at the race track. My back-of-the-envelope calculation suggests that, if you buy a horse for $40,000-$50,000 and race it in a high-cost state like New York, it will have to earn $200,000 on the track for you to break even. Not many horses do that well. And if you pay more than that, you'd better win some graded stakes and resell the horse as a stallion or broodmare prospect if you want to come out ahead.

While the folks nominally in charge of the game continue to rearrange the deck chairs (see Ray Paulick's account of the Breeders Cup "strategic planning" conference; Ray is more optimistic than I am that something will actually come from this endeavor), racing has, more and more, the look of a dying industry. Yes, changes in the Breeders Cup system, making the end-of-season "championship" look more like playoffs in other professional sports, would help. (Patrick Patten has some sensible ideas on how to do this here.) And serious enforcement of drug rules is an absolute necessity if there is to be any hope of gaining public confidence in the honesty of the game. Kentucky and Indiana's rules that suspended trainers can have no financial interest in the performance of their horses while the trainers are suspended is an excellent start in this regard. (Let's see what actually happens with Rick Dutrow's 30-day suspension in Kentucky.) And the near-universal ban on steroids in racing seems to have gone into effect without any serious impact on the number of starters available for racing

Actions like these are necessary, but by no means sufficient, to create a healthy industry. As long as handle continues to decline, and purses inevitably follow, it quite frankly makes no sense to own race horses. Thoroughbred racing started in England as the hobby of a few rich aristocrats. If current trends continue, racing may become something similar, a hobby for the rich who care more for glory than for financial reward. That would mean fewer -- many fewer -- race meetings, and no place in the game for the thousands of breeders, trainers, grooms, hotwalkers and farm employees who now draw their livelihood from the racing business.

There are, however, two areas in which substantial changes could be made that might provide a foundation for a healthier long-term outlook for racing: an orderly, well managed downsizing and lower prices. This post looks at the downzing possibilities. I'll follow it up in the next post with some thoughts and information on ways in which racing's price structure could be changed to make the industry more viable for the long term.

Racing is already in the midst of a significant downsizing, albeit one that is unplanned and chaotic. Some important tracks, like Hollywood Park, Bay Meadows and Ellis Park, have either closed or are on the way to doing so. Suggestions are being made with increasing frequency that, at a minimum, government funds shouldn't be used to prop up tracks that are losing money. (See the recent editorial in the Newark Star-Ledger advocating letting New Jersey racing die a natural death.) The Magna Entertainment bankruptcy may end up putting some of its tracks (Santa Anita, Pimlico?) in the hands of those willing to pay the highest price, and such potential bidders are far more likely to be property developers than they are to be race track operators. What's lacking in all this, though, is a plan. When General Motors went through bankruptcy, at least someone thought about what the company should look like when it emerged from court supervision and faced the future. Because of racing's fragmented state -- too many entities offering the product, too many different state regulators each defending its turf (or synthetic, as the case may be), there seems to be no way for the racing industry as a whole to agree on a restructuring plan.

As anyone knows who's been to the track recently, not a whole lot of people come out to see the live product, except for a few special days (the Triple Crown, the Breeders Cup) and a few boutique meets (Keeneland, Saratoga). Some 90% of betting these days is done through OTBs, telephone accounts, casino race books and the internet, and most of that is bet on the major-league tracks, however that's defined. Do we really need to be racing at all 74 of the tracks that are listed on the Daily Racing Form's site (and that's not including six California fair tracks)? Do we really need racing year-round in New York, Pennsylvania, West Virginia and Maryland? Do we really need all those $2,500 and $4,000 claimers running at Finger Lakes, Charles Town, Penn National or Beulah Park? Is there a way that a benevolent racing czar, if such could be conjured up, could design a model racing system?

An interesting parallel can be found in the history of baseball. While the major leagues expanded from 16 to 30 teams in the post-World war II period, minor league baseball contracted sharply, and both major and minor leagues prospered. In 1948, there were some 448 minor legue teams, in 59 different leagues, attracting some 39 million fans. In 2007, there were only 160 minor league teams, in 16 leagues, but they drew 42 million fans; the teams that remained were healthier, and both the majors and the minors were generally profitable, despite an astronomical increase in major league salaries. Television, an increasingly urban economy, and a more mobile population forced minor league teams to close up shop, but the survivors are doing very well. And young men still work hard at becoming big-league ballplayers, although nowadays they may more often be found playing on a sandlot in San Pedro de Macoris than on a field in the middle of a farm in Van Meter, Iowa.

So what would a downsized and sustainable racing industry look like? Fewer tracks, racing fewer days, organized in circuits, or "leagues," with coordinated schedules, so they didn't cannibalize each other's signature races, and with standardized conditions that eliminated trainers' forum-shopping for the best (read "least") weight to carry.

The major league tracks would form a pretty select group. They'd have most of the graded-stakes races, most of the purse money, coordinated television coverage ("races of the week" every Saturday, always on the same TV channel at the same time?), and, most importantly, most of the off-site betting handle (does anyone not a part of the owners' and trainers' families actually bet on the 5th at Prairie Meadows?)

Who'd be in this league?. For a start: the NYRA tracks, Churchill, Arlington, Del Mar, Keeneland, and the winter tracks, because of their importance to the Kentucky Derby: Fair Grounds, Oaklawn, and Gulfstream and Santa Anita (if the latter two survive). They'd have first call on scheduling the major stakes races, access to the television feed, and a high minimum overnight purse level.

At the equivalent of AAA baseball would be the major regional tracks: northern California, Texas, Calder, Colonial Downs, Philadelphia, Laurel and Pimlico, Delaware Park, New Jersey, Louisiana Downs, Hoosier Park, Presque Isle, Prairie Meadows(?), Remington Park(?), .

And then there'd be the equivalent of Class A in baseball -- shorter seasons, lower purses; tracks that functioned mainly to support the horses, and their connections, that couldn't make it at the big-league level. Suffolk, Penn National, Finger Lakes, Delta Downs and Evangeline, Emerald Downs, Pinnacle, Canterbury, Tampa, and the like.

Lots of the 76 existing tracks should probably, like most of those 448 minor leagues teams, just be shut down. Do we really need racing at, say, Arapahoe, Blue Ribbon Downs, Fonner Park, Les Bois, and the like? And i know we don't need it at Mountaineer and Charles Town, since I've seen the condition of horses that end up having to race there.

It wouldn't be exactly like minor-league baseball; AAA tracks could still put on some high-level events, like the Virginia Derby, Calder's Summit of Speed, The Haskell, The Lone Star Derby, etc. And the Class A tracks that remained could put on regional or state-bred events. But the scheduling of these would be subservient to the scheduling needs of the major tracks.

Shrinking the industry would mean shrinking the thoroughbred population, as well as closing a bunch of tracks. And that would put a lot of people out of business. So there would need to be an adjustment program for those caught in the middle: compensation for land that was no longer needed for horse farms, job retraining and relief payments for those put out of work. But such upheaval is part of capitalism. Where did all those buggy-whip makers go? Probably into the auto industry (which now has its own problems). Sure, it would be a wrenching change for a lot of people who love horses, but if we don't do something drastic, the industry will just wither away, and we'll all be out of work anyway. Its always better, in bankruptcy, to try a Chapter 11 reorganization, which leaves something still functioning, than a Chapter 7 liquidation. Racing as a whole is bankrupt, and if it doesn't get the kind of major overhaul that General Motors got in bankruptcy court, it has little hope of long-term survival.

How to effect a change this big? Baseball was forced into it after the Black Sox scandal of 1919 forced the warring team owners and leagues to agree to give a commissioner real authority; they were helped along by an antitrust exemption for baseball that the Supreme Court affirmed in 1922. (Interesting aside that has nothing to do with racing: the trial judge who heard the first baseball antitrust case in 1915 was none other than Kenesaw Mountain Landis, who obliged the major leagues by taking the case under advisement -- i.e., not deciding it -- until it was moot, and was subsequently tapped by the baseball owners to run the game.)

I know Congress has a lot to do, what with health care, wars in Iraq and Afghanistan, a collapsing economy, global warming and the like, but maybe they could spare a few moments for thoroughbred racing and give us an antitrust exemption too. Kentucky's delegation might take the lead here. After all, Senate minority leader Mitch McConnell has been helpful to racing before, and the state's junior Senator, Jim Bunning, used to pitch in the major leagues. Armed with an antitrust exemption, racing's dysfunctional family of tracks, breeders, owners, trainers and workers might even be able to agree on a few things.

But don't hold your breath waiting. I'm just hoping that racing has enough years left for our new two-year-old to win a few big races.

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