State Governments - Important Partners in Racing's Fight to be Competitive

I have said more than once on this blog that horse racing’s primary competition is other forms of gaming and wagering, not professional sports leagues or collegiate athletics.  But I couldn’t help but be amazed by a story in this week’s New York Times reporting that nearly all of the National Football League’s 31 stadiums were financed with public money.  It was stated in that article that on average more than half of all building costs came from public sources- a whopping collective total of $8 billion.   Incredibly, many of these stadiums were financed entirely with public funds.   Click here for an eye-opening chart of the various NFL stadiums and the public’s share of building costs.

And there is little doubt the $8 billion figure would double if you included public funds invested in NBA arenas, MLB stadiums and NHL rinks.   And that gargantuan sum doesn’t even include publicly funded operating and infrastructure costs for things like water and sewer lines, gas and electric hookups, and even roads and other transportation upgrades associated with major developments like sports stadiums. Were these good investments?  Ask the politicians in cities that refused to finance new stadiums and watched their beloved home teams up and leave for greener pastures.  They paid the price politically if not in dollars and cents.

So what does all of this have to do with horse racing?  A lot.  While state and local governments were busy investing billions of public funds to support professional sports franchises, those same governments were taxing horse racing heavily, leaving track owners with too little money to reinvest in capital improvements and horse owners without the purse winnings to purchase more and better horses.  Admittedly, we probably brought it on ourselves in the middle part of the 20th Century when we agreed to pay high excise taxes in return for a monopoly on gambling.  But as competition from expanded gambling has eroded our market share and our ability to generate the necessary tax revenues, states have been slow to relinquish their claim on our business and the industry has likewise been slow to transition to a more competitive business model.    

Racing is a complex, labor and capital intensive agribusiness.  That is why states embraced it early on.  It was a great business model.   It provided large tax revenues for government and it created lots of jobs and capital investment at the racetracks and horse farms that proliferated nationwide.  But the world has changed.  The monopoly is long gone.  Our business model is essentially broken.

So where do we go from here?  What do we do to become competitive after all of these years of being sheltered by state monopoly?  Many tracks – to date, almost 50 nationwide - have turned to other forms of gaming on track to generate money for capital improvements and large purse subsidies – not to mention taxes for state and local government.  And these purse subsidies have fueled huge purse increases which have shifted the racing landscape especially in the Mid-Atlantic where states like Pennsylvania, New Jersey and Delaware have emerged as major players in the competition for horses and horseplayers.

This new development works for the lucky “haves” but the “have-nots” in states like Kentucky, Illinois. Minnesota, California, Washington and Texas are left to struggle on their own.  These “have-not” states are eager to assist their professional and college sports teams with shiny new or refurbished stadiums and arenas financed largely by public funds (e.g., Cowboys Stadium in Dallas; Soldier Field in Chicago; Oakland Coliseum; Qualcomm Stadium in San Diego; KFC Arena in Louisville, et al.) but unwilling or unable to give racing what it needs to compete in these markets – the right to offer more gaming and wagering options at their facilities.

There is no question that racing can and should do more to make racing more competitive.  One need only look to changes at Monmouth Park in New Jersey this summer to know that racing can be packaged and presented in new and better ways, though even the Monmouth Elite Summer Meet relied in part on purse subsidies derived from Atlantic City casinos.  Assuming Gov. Schwarzenegger signs Senate Bill 1072 into law, California will embark on a bold but risky -- and also highly controversial -- experiment with higher takeout rates and a new form of betting on horse racing known as exchange wagering.

My point is this.  Yes, racing could do more to help itself transition to a more competitive business model, but certain states could also invest more in racing, if not financially as they do for the NFL, then politically by giving them the tools to compete.  

What do you think racing should do to lift itself from the economic slump?  Let me know what you think.

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