Monday, September 14, 2020

Saratoga and Del Mar Meets: What the Numbers Tell Us

(published on, September 14, 2020)

         The Saratoga and Del Mar summer meets traditionally mark a bright spot on racing’s long annual calendar. The summer boutique meets have for decades attracted horses and fans from around the country, drawn by high purses, good racing and the vacation atmosphere. So, in this year’s virus-challenged sports environment, the question was whether those race meets, taking place in front of empty grandstands, could once again generate their typical excitement and carry the game for a while.

         The results are decidedly mixed. NYRA’s Saratoga meet recorded better-than-anticipated handle, though the return to the track and to the purse account were substantially below what would have been achieved with a grandstand and back yard full of racegoers. Del Mar, on the other hand, cut its number of racing days by a quarter and suffered some falloff in handle and purses. Here are the details.

         At Saratoga, total betting handle for the 40-day meet was $702.5 million, a decline of only 0.4% from last year’s record total of $705.3 million. Daily handle this year averaged $17,563,387, a drop of 2.9% from last year; the 2019 meet had only 39 race days because of a rain-out. At first glance, not too bad considering the circumstances.

         But the absence of on-track race fans had a bigger impact on NYRA’s bottom line. The track keeps the whole of the (average) 20% takeout on bets made at the race track and through NYRA’s own online betting platform, NYRABets, but, for all those bets made through other outlets, NYRA and its horsemen keep only 6-8%, leaving the rest for the bet processors and for rebates to big bettors. This year. NYRABets handled $64,384,833 (including over $600,000 from a smart promotion that sold betting cards through the local Stewart’s convenience shops). But in 2019, NYRABets and on-track handle totaled $146,618,750. That shift of $80 million-plus to non-NYRA betting outlets this year meant a decline of some $5-6 million in NYRA’s bottom line and the horsemen’s purse account, the latter already under pressure from the virus-driven closure of the Resorts World casino at Aqueduct, which typically generates some 38% of the purse money.

         There were a few negative signs. Field size at Saratoga declined by 6.4%, from 7.9 last year to 7.4 in 2020. And the number of claims dropped substantially. Saratoga is usually a claiming frenzy, as new horses arrive from around the country and owners and trainers drop their horses so they can get a win at the Spa. But this year, hardly any out-of-town horses showed up, except for stakes races. The numbers tell the story: in 2019, 524 claim slips were dropped, resulting in 231 claims. (There are fewer claims than claim slips, because many of the slips are for the same horse, resulting in “shakes” of the dice to determine which of the claimants gets the horse.) This year, only 368 claim slips dropped, and 179 claims were made, a decline of more than 20% in each category.

But still, Saratoga did at least as well as any informed observers could have predicted and, most importantly, did it without recording a single positive virus test among employees, trainers, owners or, to the best of our knowledge, anyone else who managed to get to the track. The casino has now re-opened, albeit at only 25% capacity, and the Belmont fall meet has cut race days and lowered stakes purses, so NYRA and the horsemen will be able to carry on at least a bit longer.

         The Del Mar meet tells a different story, despite an unexpected increase in field size from 8.0 last year to 8.4 in 2020. Immediately after the meet closed, the track sent out press releases reporting a “handle” increase to some $466.7 million, up some 8% from 2019, despite nine fewer race days this year. But “handle” means something different in California. In most of the world, it means the amount bet on that track’s own races; any amount the track receives from bets that patrons make on other tracks is reported as a separate item. But in California, any bets made by California residents on any track are counted as part of the California handle. Bets placed in California on a race at Saratoga, then, will show up in the Saratoga handle, legitimately, as a bet made on a Saratoga race, and then will be counted again, perhaps not quite so legitimately, in the Del Mar handle. This year, because the Kentucky Derby occurred during the Del Mar meet, the $24-million-plus that was bet by Californians on the Derby through the Del Mar wagering hub all showed up as additional Del Mar handle. If the Derby had been run in May as usual, Del Mar would have lost out on that sizeable “handle” increase.

         Backing out that double counting, some $319.6 million was bet this year on the 282 races actually run on the Del Mar track, compared to $33.8 million on 297 races last year; that’s a handle decline of about 4.2%. Looking at the Del Mar figures in historical perspective, total handle 20 years ago was $394.2 million. Adjusting for inflation, which would make that 20-year-old number $595 million in today’s dollars, there’s been a drop of almost 50% over the past 20 years. And with no casino subsidy to keep purses up and the lights turned on, it’s getting harder to see how Del Mar remains, in the long run, a going concern.

         And now, into the fall. We’ll have the highlights of the Preakness and the Breeders Cup, and undoubtedly some memorable races at Belmont, but this year’s impact on racing isn’t over yet. Some 20 tracks that usually host race meets haven’t even run this year, and others, including such onetime jewels as Arlington Park, are on the chopping block. Hard to see at this point how 2021 will be better than this year.

         Note: Like everyone else who reports on racing handle, I owe an enormous debt of gratitude to the Twitter source “@o_crunk,” whose numbers continually pierce the veil of corporate press releases.

Thursday, August 27, 2020

Can a Good Bloodstock Agent Help an Owner Make a Profit?

         Here's my most recent column, posted on on August 26, 2020:

Many of my columns at this year have pointed out how hard it is for a thoroughbred owner to make money. Yearlings and two-year-olds, especially those with good pedigrees or fast breezes, sell for much more than it’s likely they will earn on the race track; training and vet expenses keep going up; and purses, even when supplemented by casino revenues, haven’t even kept up with inflation. For some owners, that doesn’t matter. They have more money than they know what to do with (well, I suppose they could pay a lot more in taxes, but that’s for another column); what they want is a good horse, a Kentucky Derby or Breeders Cup runner.

         Lots of owners, though, just love horses and racing and are willing to lose a bit of money to be involved in the game. And some owners actually hope, against all the evidence, to make a profit. But for both these groups, the idea of losing millions a year for decades has limited appeal. They might not need racing to pay their mortgages, but they’d prefer not to lose too much. Is there anything a current or aspiring owner like that can do to improve their odds of success?

         Most buyers who are looking for a stakes-level horse buy at the major yearling and two-year-old sales, and most use a bloodstock agent either to buy for them or to advise on their purchases. Sometimes an agent will work for a single client, like Demi O’Byrne for Coolmore or John Ferguson for Sheikh Mohammed’s Godolphin empire. More often, a bloodstock agent will work for a variety of clients, somehow balancing their interests as the agent evaluates thoroughbred prospects. Some agents are good people who’ve spent their lives in the racing world and who have an eye for a promising horse. Others are more skilled at verbally romancing clients than at picking out good horses. And sometimes they’re just thieves, agents who take kickbacks from consignors in exchange for bidding on a horse, or who collude with the seller to bid up the price of a horse far beyond its actual value. To protect from lawsuits, I won’t name these bad actors here, but we know who you are.

         So, lesson 1 for the aspiring buyer: avoid the bad agents. But even if you can find a good, honest agent, can you have a decent chance of at least breaking even? Perhaps surprisingly, the answer is yes.

         For nearly 20 years, I’ve been friends with, and occasionally worked with, Jeff Seder and Patti Miller, who operate as EQB, Inc., evaluating and buying young horses at all the major US thoroughbred auctions. I’ve owned a few horses in partnership with them, and my NY-bred stakes winner Introspect spent a winter vacation at their Pennsylvania farm. Jeff has spent many years developing sophisticated evaluation tools, including a heart-scan database for comparing prospects to known winners, and slow-motion video for seeing how those two-year-olds breeze. By marrying those tools with Patti’s eye for a good horse and her expertise in administering heart scans, EQB has managed the unthinkable: horses they’ve bought for their clients, in the aggregate, actually make money.

         At my request, Jeff put together two spreadsheets. One shows the results for every horse EQB bought in 2016 – horses that are now five and six years old, so we can have a reasonable idea of how they turned out. The other shows all their results for the horses they bought for Ahmed Zayat in the years before American Pharoah’s Triple Crown. These data show that, when you include both racetrack earnings and the amounts that owners received when selling the horses as broodmare or stallion prospects, it’s possible to come out ahead.

         In 2016, EQB bought 65 horses, at prices ranging from $10,000 to $675,000, for a total of $9,478,500, an average of just under $146,000, with none of those million-dollar disappointments that prominent owners often purchase. Six of those 65 horses never raced. The remaining 59 have, so far, made a total of 735 starts and earned a total of $7,011,536, an average of $120,889. Among the 2016 cohort were multiple graded stakes winners Keeper of the Stars (Zayat) and Jersey Justice (Maggi Moss). Altogether, 13 of the 59 horses that made it to the race track were stakes winners or graded-stakes placed. Even if those horses weren’t profitable – and most of them were – Those owners would have been pretty satisfied to have raced and won at high levels. And those were just the 2016 purchases; taking a longer view, EQB has bought more than 40 graded-stakes winners over the past decade.

         While the $7 million those horses earned on the track doesn’t recoup the $9 million-plus that went to buy them, especially taking into account an estimated $3.5 million in training expenses, the owners did come out ahead because their income didn’t end there. For good horses, resale proceeds are a major source of income. Some horses were claimed away, for a total of $420,000, and many others were sold at auction or privately, as breeding prospects. In total, claiming and resale proceeds were $10,033,200. Add that to the race track earnings, subtract the estimated expenses, and the owners as a group come out more than $4 million ahead.

         The Zayat data show similar results. In the years 2005 through 2009, EQB bought 129 yearlings and two-year-olds for Zayat, spending a total of $31,647,000 (average of just over $145,000). Those four years’ purchases included graded-stakes winners Point Ashley, Baroness Thatcher, Z Fortune, Maimonides Zensational, Eskendereya, Nehro, Justin Philip and Pioneer of the Nile. (American Pharoah was a Zayat homebred that Jeff convinced Zayat not to let go at the sales, so the Triple Crown winner’s figures aren’t included in the totals, though EQB did buy American Pharoah’s dam for Zayat.) In total, the horses earned $13,279,506 on the track, a far cry from what they cost, and even further from the total their owners spent after adding in an estimated $9,900,000 in training and other costs. But the horses turned out to be high-class thoroughbreds that brought big prices when sold at breeding-stock sales. Half a dozen of the horses sold for more than $1 million, and a number became stallions, producing ongoing income for Zayat and, more recently, his creditors. Even without including that ongoing stallion value, Zayat appears to have realized over $41 million from the resale of those EQB horses once they came off the race track. Add all those numbers up and it appears that Zayat realized an overall profit of at least $12 million on those $31 million in purchases, a profit of some 30% after accounting for the expenses of racing the horses. Zayat also used agents other than EQB to buy horses; suffice it to say those purchases didn’t turn out so well.

         [If anyone wants the spreadsheets underlying these figures, feel from to DM me on Twitter, at @cvfpartnerships, and I can email them to you.]

         So, will you make money in horse racing? Probably not. But can you? Yes, especially with the help of an honest and accomplished agent buying the horses for you. As the EQB figures show, those agents are out there, but caveat emptor.

Tuesday, August 11, 2020

Midway Through the Saratoga Meet - By the Numbers

          We’re midway through this year’s Saratoga-without-fans race meet. Eighteen days of racing in the book, 21 scheduled in the final four weeks of the meet. At this same point in last year’s meet, we’d had 17 ½ days of racing. So, while it’s not a perfect comparison – for example, the Travers Stakes fell into the first half of the meet this year, instead of its usual position on the penultimate weekend – there’s enough similarity so that comparing numbers from last year and this can yield some tentative conclusions.

         First, the good news. Total betting handle through the first four weeks of the meet this year is just under $354 million, compared to $314 million at the same point last year. That’s a 12.8% increase from one year to the next, ignoring the paltry 1% inflation over the past 12 months. But that’s also with some advantages that last year’s Saratoga meet didn’t have: national television coverage on Fox Sports every day; a roughly $6 million boost in handle from this past Sunday’s mandatory distribution of the Jackpot Pick 6 pool; the shift of the Travers to the first half of the meet – though this year’s Travers Day handle was $39.47 million, a 24% decline from the $52.14 million wagered on the 2019 edition of the race; and the luck of having less damage from the cancellation this year of a  Wednesday card, compared to last year, when  the weather required that a full Saturday card plus most of a Thursday card had to be cancelled. Making some very rough adjustments for these differences would cut the increase in handle from 2019 to 2020 from $40 million to something more like $10 million, or only about 3% of last year’s adjusted number. That’s better than falling short, but it’s not spectacular. [Note: all handle figures have been calculated from Equibase race charts, available online.]

         Now for the not-so-good news. Last year 20% of the Saratoga handle was bet on-track or through NYRA’s own ADW operation, NYRABets. This year, with no fans at the race track, only 9% of total handle is coming through NYRABets, despite NYRA publicity about thousands of new online accounts being opened. Here’s why that matters: NYRA’s blended on-track takeout rate is about 20% (yes, we all know that’s too high, but that’s a story for another day). But NYRA receives only somewhere between 6% and 8% of the money bet off-track through outlets other than its own NYRABets. So, if everything else had been the same, each dollar that was bet through, say, TVG or Twin Spires by someone who last year bet that same dollar in person at Saratoga would return 12 cents less to NYRA and to the horsemen’s purse account.

         Now everything isn’t the same, so maybe the damage isn’t quite as serious as it might look at first glance. I don’t have access to NYRA’s contracts with its off-track betting partners (NYRA no longer appears to consider itself a New York State agency, which would have made it subject to the state’s open-records laws). But let’s say that, as one of the country’s premier race tracks, it’s able to get an average of 7% of what’s bet through non-NYRA outlets.

So, we can calculate, using the above numbers, that this year NYRA and the horsemen have so far earned about $6.34 million from NYRABets wagering and $22.56 million from the 90%-plus of the handle that’s bet elsewhere, for a total of $28.9 million. Last year, when total handle (not counting any adjustments) was a good deal less at this point in the meet, NYRA and the horsemen had received $11.56 million from the (much larger) share of total handle that was bet on-track, and $17.92 million from bets made at other locations, for a total of $29.5 million. In other words, the nearly 13% jump in total handle to date at this year’s Saratoga meet has actually resulted in less money available for NYRA operations and for the purse account. And that’s not counting the loss in ticket sales and concession income from the 20,000-plus fans who went to the races on an average day last year.

         Perhaps that’s not so bad. NYRA’s operating costs are surely lower this year (again, we don’t know, since NYRA no longer releases financial reports), and purses have been cut some, in anticipation of lower revenue. And the lingering mystique of Saratoga probably means that a stay-at-home Saratoga-at-Belmont meet would have handled substantially less money. But, while NYRA itself saved money, compared to last year, that wasn’t the case for the owners and trainers who sent their horses and their grooms and hotwalkers up to Saratoga to run for purses that aren’t as good as last year’s. A number of trainers have told me their daily costs are 10-20% higher at Saratoga than at Belmont.

         Looking beyond Saratoga, then, long-term omens are not optimistic. The Blood-Horse reports that total US thoroughbred handle through July this year was $6.15 billion, a 7% decline from last year. Of course, there are lots of reasons for that difference: among them the lockdown of racing in March and April and the shift of the Kentucky Oaks and Derby to September. But racing was the only gambling game in town, indeed the only major televised sport, for quite a while in the first half of the year, and one might have expected it to capture some of the dollars that couldn’t be bet on other sports. Now, with at least some of those sports and sports books coming back, it’s hard to see where more betting handle will come from.

         Twenty years ago, total handle on US thoroughbred races was $13.7 billion, of which 17% was bet on-track. Last year, the total was $11.0 billion, of which only 8% was on-track wagering. In nominal, non-inflation-adjusted dollars, that’s nearly a 20% decline in two decades. When you factor in inflation, the decline is nearly 50%. Looks, sadly, an awful lot like the buggy-whip industry in 1900-1920.

Wednesday, July 29, 2020

The Two-Year-Old Money Pit

Steve Zorn

“Expensive horses don’t always run well. It’s a risk [buyers] are willing to take. They have plenty of money. What they don’t have is a good horse.”
                           ---Francis Vanlangendonck, Summerfield Sales.

         Back in the spring of 2005, two bidders with plenty of money – Demi O’Byrne for the Irish colossus Coolmore and John Ferguson for Sheikh Mohammed of Dubai – hooked up at the Fasig-Tipton two-year-old sale at Calder and pushed the price of a Forestry colt, who’d breezed an eighth of a mile in a then-unimaginable 9 4/5 seconds, to the absurd level of $16 million. Coolmore’s was the winning bid for a colt they named The Green Monkey, after a golf course in Barbados that some of the Coolmore principals frequented. It was then, and still remains, the highest price ever paid for a two-year-old thoroughbred.
         As things turned out, The Green Monkey wasn’t much of a racehorse. The best he could do was one third-place finish in just three lifetime starts, earning a total of $10,440. He was then retired to an equally ignominious stud career in Florida, which was cut short by health problems. He did, it is true, sire the winner of the Panamanian filly triple crown, as well as two US black-type winners, but that must have been a bit less than his buyers expected back in 2005. He was euthanized in 2017.
         The Green Monkey is just the most egregious example of how an expensive two-year-old may not always run well. But he’s far from the only one. My friends at Two-Year-Old Sales Preview Watch have been parsing the data on these sales and have produced a number of very interesting lists of the success, or lack of it, that various buyers have had with juvenile auction purposes. (You can reach them on their Facebook page or directly at if you’re so inclined.) [Steve – shouldn’t there be 2 w’s in preview watch?] I’ve updated their list to be sure I’ve included the very latest earnings for all the horses, and I’ve added in the revenue when horses were sold as broodmare or stallion prospects, but even so, the figures strongly suggest that buying a two-year-old for a lot of money is a very good strategy for losing a lot of money.
         Let’s consider the results for juveniles purchased for six- and seven-figures in the past decade from a number of vantage points; we’ll look at the results that a couple of major buyers have had, then at the results for two-year-olds that were so impressive at the sales that they rated a story in the BloodHorse. Whichever way you break down the statistics, it isn’t pretty.
         Let’s start with the buyers. Perhaps the biggest purchaser of expensive two-year-olds over the past decade has been Terry Finley’s West Point Thoroughbreds partnerships, either alone or in partnership with other owners. From 2014 through 2019, West Point bought 48 six-figure juveniles and one – this year’s three-year-old Chestertown – for seven figures. More than a third of these horses are still in training, including the aforementioned Chestertown, who most recently finished sixth, beaten 15 lengths, in the Peter Pan Stakes at Saratoga. So, there’s still lots of room for the group as a whole to increase its earnings. But the aggregate picture is not positive: over those six years, West Point and its partners paid $16,758,000 for the 49 auction purchases, an average of $342,000. Those same horses have, thus far, earned $4,962,848 on the race track, an average of $101,282. That might be a respectable number for a horse one bought for, say, $25,000, but it’s not great for a horse that cost well over $300,000. Those 49 horses have so far won a total of 87 races, about 1.8 per horse, and have made a total of 487 starts, well below the national average. Those statistics of wins and starts per horse look even worse if one subtracts out the numbers for those horses that were claimed away from West Point and that have recorded many more starts and wins, albeit at lower levels, for their subsequent owners.
         West Point, to be sure, has some success stories. Their current four-year-old Galilean, a $650,000 purchase two years ago, just won another stakes on the West Coast and has already earned over half a million dollars. West Point bought the now five-year-old Seven Trumpets, a stakes winner and Grade One-placed son of Tiznow’s son Morning Line, for $205,000 in 2017, and so far, the horse has earned $516,684 and perhaps has some residual value as a stallion prospect. And the recently retired Gunmetal Gray, who more than covered his $225,000 purchase price with earnings of $284,700 (not taking into account training costs) was also, at last report, being evaluated as a potential stallion. The Grade One-placed mare Best Performance was sold as a broodmare prospect for $560,000, after earning $398,448 on the track, more than covering her $350,000 purchase price. But overall, only six of those 49 expensive two-year-old even earned enough on the race track to match what West Point paid for them, and in two of those cases, the lifetime earnings include purses earned after the horses were claimed away from West Point.
         Now let’s take a look at another kind of buyer, the wealthy entrepreneur. Robert and Lawana Low got their money from Low’s Prime, Inc., a highly successful trucking company. Over the years they’ve spent a lot of that income on thoroughbreds, the best known of which may be the ill-starred Magnum Moon, who won the Rebel Stakes and the Arkansas Derby before finishing 19th in the 2018 Kentucky Derby and never racing again. Magnum Moon contracted laminitis and was euthanized in 2019.
         The Lows buy many of their horses as yearlings, but over the past two decades, they’ve purchased 21 juveniles at auction, most recently paying $1,200,000 last year for the Liam’s Map colt Colonel Liam, who won a first-level allowance at Saratoga just last week. Aside from Colonel Liam, only one other of those 21 juvenile purchases – the Grade 3-placed Intrepid Heart - is still running in their name, so it’s pretty safe to make a judgment on how they’ve done.
         All told, the Lows paid $7,962,000 for those 21 horses, an average of just under $380,000 per horse. And, over their careers, the horses earned $3,173,979, or just under 40% of their purchase prices, without adjusting for the likely expensive training bills for 21 horses. Another caveat, a substantial share of those earnings came after the Lows lost the horses to claims or sold them privately; nine of the 21 juvenile purchases are currently racing or ended their careers in some other owner’s silks.
         Still, the money they spent did get them some good horses. In addition to the three-year-old Colonel Liam, who could still, in racetrack parlance, be “any kind,” Steppenwolfer was third in the 2006 Kentucky Derby, Intrepid Heart and Federal Case were graded-stakes placed, and Agent Di Nozzo was a stakes winner before sliding down the claiming ladder. So, the Lows may well have gotten enough good horses to be satisfied with their monetary losses.
         Here’s another way of looking at the data: what two-year-olds generated enough buzz, whether by way of fast breezes or high auction prices, to get written up in the BloodHorse? From 2008 through 2019, there were just 20 juveniles sold at auction who got that treatment. They ranged in sale price from the $2 million that West Point Thoroughbreds paid last year for Chestertown down to $250,000 for Angelcents, who was eased in the stretch in her second lifetime start and never raced again.
         In the aggregate, those 20 juveniles cost $19,390,000, an average of just under $1 million each. On the race track, they earned a total of $3,542,409, an average of $177,120. But that average is a bit misleading. Nearly half the total purse earnings, $1.5 million, came from a single horse, Carpe Diem, winner of the Blue Grass and the Tampa Bay Derby, who now stands at Winstar Farm in Kentucky. And even Carpe Diem’s earnings on the track were less than his purchase price of $1,600,000. Backing Carpe Diem’s numbers out, the other 19 horses cost a total of $17,790,000 and earned just $2,022,609 on the track
         One striking statistic from these 20 well-publicized juveniles is how little they actually raced. Three of the 20 never reached the starting gate at all, and the group as a whole averaged less than seven starts per horse. Most of these horses breezed very fast, but very few were at all durable in training. Only three of the 20, in fact, had as many as 12 lifetime starts. Were there some stakes horses in this elite group? Of course; half a dozen stakes winners or stakes-placed. And a couple – the aforementioned Carpe Diem and the broodmare Black Canary, who sold for $675,000 when she was done racing – went on to lucrative careers off the track. But perhaps there’s a better, or at least a cheaper, way to get a good horse?
         So, what’s the takeaway re two-year-old sales? If you have all the money in the world and don’t mind redistributing some of it to breeders, pinhookers and (possibly unscrupulous) bloodstock agents, then by all means go into the market. There are some good horses out there. But there are a lot more horses that you’ll spend six figures on and eventually let go for a $16,000 claim than there are expensive horses who will actually earn back their cost.
         As I’ve shown in previous columns here at and on my Business of Racing blog, most thoroughbred owners lose money on most of their horses. But if you’re of a mind to lose a lot of money quickly, then buying an expensive two-year-old is a pretty good strategy.

Sunday, July 19, 2020

Coronavirus Relief for Gamblers?

Steve Zorn
(Originally published April 18, 2020, at

         With many (most?) tracks and virtually all casinos in the US closed because of the COVID-19 pandemic, what’s a degenerate gambler to do? One could – and judging from the comments on Twitter, many do – bet on Will Rogers Downs on the days when Tampa, Gulfstream and Oaklawn are dark. But Tampa is closing this weekend, and Oaklawn will close in early May, with no guarantees as to which, if any, of the major tracks will pick up the slack. Can a racetrack regular survive just watching the television feed of the post drag at Gulfstream?
         Maybe not, but if that racetrack (or race book or poker room) regular can qualify as a professional gambler, then the recently enacted CARES Act for coronavirus relief might actually offer some help. Of course, as you’ve probably heard, the CARES Act relief package for small business has already run out of money, but let’s be optimistic – because if we weren’t we wouldn’t be gambling in the first place, would we? – and assume that Congress will get around to authorizing more money for the program. When that happens, and the loan spigot is turned on again, here’s how a devoted gambler might get some help.
         First, the CARES Act relief applies only to small business, including sole proprietors. So, you have to be in the “trade or business” of gambling. More than 30 years ago, The US Supreme Court, in the Groetzinger case, decided that gambling could indeed be a trade or business, if certain criteria were met. The gambler has to approach betting in a businesslike manner, keep good records, adjust betting methods to reflect changing circumstances, and have a profit objective. That last test – the profit objective – doesn’t have to be realistic, just held in good faith. The courts have even held that a slot machine player, gambling against the house, can be in the trade or business of gambling, as long as she kept good records, changed her playing strategy from time to time, and continued to believe, even in the face of the evidence, that she’d eventually win.
         Second, gambling can’t be just a hobby. A professional gambler, to qualify under the Internal Revenue Code and the CARES Act, needs to show some expertise, operate in a businesslike manner, devote a significant amount of time and effort to the task, and actually rely on gambling, not other income, for at least some portion of living expenses. There’s a built-in presumption that, if you show a profit for at least three of the past five years, whatever you’re doing is more than a hobby.
         So, let’s say one meets all these criteria. You spend eight or more hours a day with TVG on the screen, make your wagers through a high-rebate ADW account and actually, at least some of the time, squeeze out a bit of a profit. When you’re reduced to playing Will Rogers and Gulfstream, it’s as if you were the proprietor of a high-end restaurant and all of a sudden you can only offer half a dozen take-out dishes to be picked up on the sidewalk. In other words, your business opportunities have been drastically limited.
         That’s where the CARES Act could come to the rescue. Under the act, $349 billion was appropriated for small businesses, specifically including independent contractors and sole proprietors. So, the fact that a gambler doesn’t have any employees doesn’t bar assistance. In fact – at least when there’s some more money in the federal pipeline – a gambler deprived of chances to bet by COVID-19 can actually qualify for two different kinds of small-business assistance.
         The most attractive option is the Paycheck Protection Program, a loan that can cover up to 2.5 months’ worth of “payroll,” carries an interest rate of just 1%, and can be entirely forgiven if in fact the money is used for “payroll.”
         But wait, a professional gambler doesn’t have a payroll, just a bankroll. Well, the Small Business Administration regulations say that’s OK, “net earnings from self-employment” count as payroll for this purpose. Just calculate your average win for that 2.5-month period. The only restriction is that it can’t be at an annual rate of more than $100,000. And you have to show some proof, like tax returns or other records, that you were actually making what you’re claiming.
         And our professional gambler can also apply for a $10,000 “Economic Injury Disaster Loan” to cover other costs. That might even buy a few Daily Racing Forms and maybe a Clockers’ Report or two.
         There is one potential hiccup: an old regulation, dating back 25 years, bars SBA loans to businesses that derive more than one-third of their income from gambling. It looks like it was intended to bar SBA loans to small casinos, and maybe to ADW facilities. But the CARES Act is, to say the least, ambiguous about whether all the old SBA restrictions apply to these new loans, and the guidance issued so far is replete with statements that the legislation is intended to expand the pool of eligible borrowers. So find a good lawyer and give it a shot.
         But what about those degenerates still betting Will Rogers Downs? COVID-19 hasn’t totally shut down US racing. Not a problem. The CARES Act merely requires that a borrower certify that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” Surely someone who normally bets NYRA, Churchill and Santa Anita could make that statement in good faith.
         So, all you full-time horseplayers out there: if you’re feeling limited by the current menu of tracks to bet on, just write your Congress members and get some more money in the Small Business Administration pipeline. It’s a safer bet than the 1 horse in the 6th at Will Rogers.

Churchill Downs Inc.’s Annual Report:
Can Racetrack Financials Tell Us Anything at All?

Steve Zorn
(Originally published April 30, 2020, at

         A decade ago, the three largest US racetrack companies – Churchill Downs, Inc., the New York Racing Association and Frank Stronach’s Magna Entertainment – all issued financial reports that made at least some of their operations transparent. Then, in 2011, Stronach took his racetrack business private, which meant that it no longer released public financial reports. And in 2016, NYRA, which had been operating as a quasi-governmental limited-profit entity, decided it was no longer subject to New York State’s Freedom of Information Law and stopped making its financials public. And now, with its 2019 annual financial report and first-quarter 2020 results, just released this week, Churchill has so thoroughly muddied its presentation of data that you can no longer make any meaningful statements about how its individual racetracks are doing.
         There are probably good reasons to hide or at least muddy the information. Owning a race track is not exactly a big money maker these days. Most tracks are living on slot-machine welfare; the tracks’ share of betting handle (“takeout”) covers less and less of the ever-growing amount needed for purses and for keeping the doors open. And betting handle itself has declined steeply in real, inflation-adjusted dollars. So, for most tracks, it’s probably true that no financial news – at least to the public – is good news.
         Now, back to that Churchill Downs Inc. financial report for 2019. For more than a decade, Churchill has steadily become less a racing company and more a “gaming” entity, deriving ever more revenue from slot machines at its tracks and from stand-alone casinos. It also created Twin Spires, the largest US online horse-race betting operation, accounting for about 15% of total US handle. So, for some years actual live horse races – apart from the two days a year of the Kentucky Oaks and Derby – have been, if anything, a minor annoyance for the corporate types at CDI headquarters in Louisville, along the lines of “well, I guess we have to run these damn races to keep our casino licenses.”
         With its 2019 Annual Report and SEC Form 10-K filing, Churchill Downs Inc. completed its transition away from being a horse racing business. Instead of the financial reporting by individual tracks that had been included in earlier reports, CDI has now divided its business into four broad segments, with horse racing unevenly distributed among them: (1) Churchill Downs itself and the Derby City slots emporium in Louisville; (2) “Online Wagering,” primarily the Twin Spires ADW operation, plus a nascent sports-betting business; (3) “Gaming,” which is a mash-up of some straight casinos plus the Presque Isle and Fair Grounds tracks-cum-casinos; and (4) “All Other,” which includes Arlington Park and Turfway, CDI’s two tracks without attached casinos, as well as the new track in Oak Grove, Tennessee, and CDI’s United Tote business. So, four business segments, with race tracks scattered across three of them. I guess it makes sense to the corporate execs, but it’s damn hard to look at the financials and say very much about how the racetrack business is doing.
         At the corporate level, CDI is doing just fine, or at least it was before the coronavirus postponed this year’s Derby and Oaks, delayed the start of Churchill’s spring meet and shuttered all the company’s casinos. The company’s share price, which reached a high of $168 last year before closing out the year at $137, has fallen, like virtually all US stock prices, to a current level of just over $100, but that’s still a huge gain over the past five years; through the end of 2019, in fact, the share price had registered a compound growth rate of 34% a year since 2014, substantially out-performing the broader market.
         Underlying that share price was a steady gain in net revenue, to a total of $1.33 billion in 2019, and in net income from continuing operations, to $216 million last year. Not surprisingly, relatively little of that income comes directly from horse racing anymore. Looking just at net revenue – because the annual report doesn’t show net income (i.e., revenue less expenses) by individual tracks or casinos – the Churchill Downs track accounted for about 15% of the company’s receipts, mostly from Derby-Oaks weekend in May. Twin Spires alone accounted for half again as much – 22% of the company’s total, while the various casino operations including Fair Grounds and Presque Isle and the new Derby City venue in Louisville, pulled in 59% of total corporate revenue. And that “all other” category of Arlington Park, Turfway and United Tote added up to not much more than a footnote, with barely 5% of corporate revenue and a net loss when expenses are factored in.
         The coronavirus pandemic, of course, put a temporary hold on CDI’s continued efforts to grow outside racing. With all its casinos closed by mid-March and with the Derby postponed, net earnings for the first quarter were essentially zero, although revenue took only a 5% hit from last year. And CDI drew down some $700 million from a revolving loan facility in the first quarter, giving it enough cash to weather the year, even as it floated plans to allow at least some spectators at the track for the rescheduled Derby-Oaks weekend September 4th and 5th.
         So, that weekend aside, Churchill Downs Inc. is, for all intents and purposes, a casino and online betting company. And that probably suits the top executives just fine. It’s not a coincidence that CDI’s metamorphosis from an entity focused on racing – at one point it hosted lengthy meets at Hollywood Park and Calder as well as at Churchill – to one that’s all about casinos and online betting coincides with the arrival of three alumni of famed corporate honcho Jack Welch’s General Electric Company, a fearsome financial giant in past decades. Both Churchill CEO William Carstanjen and Chief Operating Officer William Mudd came to CDI directly from GE, Carstanjen in 2005, the same year CDI sold Hollywood Park, and Chief Financial Officer Marcia Dall started out at GE before spending some years with insurance companies en route to CDI. None of the three top execs have any particular ties to horse racing, and only Mudd has links to Kentucky. As it turned out, importing three top execs from General Electric probably reflected the CDI Board’s decision to pivot away from racing; if the company were still run by people who actually cared about horse racing, they might not have moved so fast to adapt the company to the new business reality.
         And those top executives have done very well personally while shepherding CDI out of its old reliance on racing and into the new world of casino and online gambling. Last year Carstanjen earned $10.6 million in total compensation – an astonishing 447 times the median compensation ($23,670 a year) of a CDI employee - while Mudd and Dall picked up $5.3 million and $2.6 million respectively. The three top execs collectively own more than $100 million in CDI stock. Yes, the folks in the executive suite did a good job – at least for the shareholders, if not necessarily for the horsemen at CDI’s various tracks – but still, 447 times the median salary?
         Compared to CDI, The Stronach Group and NYRA must seem to be terribly old-fashioned, actually thinking that horse racing is what they’re about. Perhaps they still make money at the race track, but in the absence of public financial reports, we’ll never know, though NYRA’s last public financial reports, in 2015 and 2016, suggested it was pretty close to break-even. Meanwhile, what is clear is that the Churchill Downs Inc. of today would hardly be recognizable to Col. Matt Winn, the Churchill Downs President who, a century ago, made the Kentucky Derby into the world’s pre-eminent horse race. The Twin Spires may still be on the cover of CDI’s annual report, but, recognizing reality, the company is no longer about racing.
Why Trainers Are Quitting the Game

Steve Zorn
(Originally published March 6, 2020, at

         Amid all the rest of the chaos in racing over the past few weeks, two of New York’s leading trainers, Kiaran McLaughlin and Gary Contessa, announced that they’re closing their barns and leaving the work that each of them has done for more than 20 years. They’re not leaving racing entirely – McLaughlin has become a jockey agent, and Contessa is hoping to join racetrack management – but they each concluded that it’s impossible to make a living as a trainer, especially as a trainer based in New York, in the current economic environment.
         McLaughlin and Contessa aren’t exactly low-profile horsemen. McLaughlin, who trains for Shadwell and other prominent owners, is the trainer of 2006 Horse of the Year Invasor, as well as Belmont Stakes winner Jazil, Met Mile winner and hot new sire Frosted, and Woodward winner Alpha. In his career, he’s won 1,577 races from 7,707 starts – a 20% success rate – and his horses have earned $120 million. And Contessa was for many years the king of the New York claiming circuit, with 17 race-meet titles as the winningest trainer at NYRA meetings and four New York trainer-of-the-year awards. Over the years, he’s won 2,364 races from 18,147 starts, a 13% strike rate, with total earnings of $84 million.
         But now the economics of racing in New York have caught up with them. Whether at McLaughlin’s elite level or in Contessa’s blue-collar barn, it’s just become too hard to make a go of a job that requires 24/7 attention 365 days a year.
         Over the years, I’ve often chatted with McLaughlin as we watched horses working on the Belmont training track. More recently, I had a long talk with Contessa about the costs of training in 2020. Both trainers were on the Board of the New York Thoroughbred Horsemen’s Association during the 14 years that I was a Director. Here’s what I learned.
         Trainers in New York charge their owners anywhere from $100 (Contessa) to $125 (McLaughlin) a day to care for the owners’ horses. After adding in the other costs that owners bear – vet bills, van charges, insurance, trainers’ and jockey’s fees when horses earn money, etc. – that means a horse has to earn somewhere in the neighborhood of $65,000 a year  in purse money for the owner to break even, but that’s another story. What about the trainer who’s getting that daily fee?
         New York is probably the most expensive jurisdiction in North America, if not in the world, for thoroughbred trainers. Any trainer’s biggest cost is labor. In New York, the minimum wage is $15 an hour. And if the trainer has even one foreign employee on an H-2B visa (temporary foreign workers), then the trainer must pay all employees – not just those on the H-2B visas - the “prevailing wage,” which in New York is $20.20 an hour. And most trainers depend on H-2B visa workers for a significant part of their workers. So, in practice, all but the smallest trainers are paying everyone at least $20.20 an hour.
         So, trainers pay hot walkers $30,000-$40,000 a year, and grooms, who tend to work longer hours, get $40,000-$50,000. In addition, trainers also pay assistants, exercise riders and, in larger barns like McLaughlin’s and Contessa’s, night watchmen. At a ratio of about six horses per hot walker and four horses per groom, and factoring in employment taxes, freelance services like bookkeeping, and workers compensation insurance, Contessa calculated that labor costs alone add up to $109 per horse per day, or almost 10% more than he was charging his owners. And that’s before feeding the horses. Hay, straw (or other bedding) and feed amount to another $23-25 per day per horse. And there aren’t any meaningful economies of scale. Every four horses means another groom; every six means another hotwalker. In addition, trainers buy various supplements, anti-ulcer treatments, etc. to keep their horses in shape, and they buy tack and other barn supplies. Sometimes these costs are passed on to the owners on the monthly bill, but not always.
         So, even without the supplements, tack and supplies, it costs a trainer in New York more than $130 a day to care for each horse. For the 35 horses that Contessa had in his barn early this year, that translates to losing more than $30,000 a month, or $360,000 a year, on the day rate. Now it’s true that trainers do get a share of what their horses earn on the track; the usual figure is about 10% of earnings. Historically, most public trainers have aimed to break even on the day rate and take home that 10% of horses’ earnings to cover their living expenses, their kids’ college funds, their own medical bills, really all the necessities of life. But when you’re already bleeding $30 per day per horse, that formula doesn’t work. Contessa, for example, won 30 races last year, with total purses of $2,352,769. Not his best year ever, but a pretty decent result. But 10% of that wouldn’t even cover his day-rate shortfall. McLaughlin has a bigger cushion, since he probably loses less per day per horse, and since his owners send him more high-profile stakes horses, but even he is no longer confident that training can provide the income he needs to support his family.
         Add to these ongoing issues the effect of recent New York State and federal labor department investigations, which not only required trainers to start keeping accurate time records for their worker and pay overtime but also went back as much as five years to identify workers who had not been paid what the law required. Both McLaughlin and Contessa are facing six-figure fines for past timekeeping and payment errors; there’s no way those amounts can be made up from future earnings.
         And don’t forget the owners who somehow never manage to pay their bills. Recent publicity about Ahmed Zayat’s stiffing Rudy Rodriguez and Mike Maker, and about upstart big-spending owner Phoenix Thoroughbreds actually being a money-laundering operation is just the tip of the iceberg; every trainer I know in New York has at one time or another had to take over ownership of a horse whose owner had stopped paying the bills.
         So it’s no surprise that these talented trainers have finally decided to leave. If anything, the surprise is that so many New York-based trainers are still in the game, mortgaging their houses and juggling the bills to continue taking care of the horses they love. With New York racing currently on hold, as Aqueduct is repurposed into a coronavirus hospital, I suspect we’ll see many more trainers finally accepting economic reality and looking for jobs that actually pay a salary.