Hidden Handle - By Eric Mitchell

(Originally published in the June 19, 2010 issue of The Blood-Horse magazine. Feel free to share your own thoughts and opinions at the bottom of the column.

By Eric Mitchell

By Eric Mitchell“If you don’t know where you are going, every road will get you nowhere,” former U.S. Secretary of State Henry Kissinger.

Handle is the engine driving Thoroughbred racing. What people wager on our sport provides revenue for purses, which in turn provides revenues for owners and trainers as well as influencing the commercial value of horses sold at auction based on the racetrack earnings of their sires and dams. So it’s disturbing to see that despite the growth of advanced deposit wagering since 1998, the total handle on Thoroughbred racing in the United States in 2009 was below the level it was 12 years ago.

Sure, we saw some growth years. U.S. handle increased from around $13.12 billion in 1998 to $15.18 billion in 2003. That should have been great for purses, right? It was for three years, growing an average of $40.58 million each year from 1998 through 2000. Then the growth slowed in 2001 to about $11.74 million and lost ground in 2002 and 2003—falling an average of $20.17 million per year from when handle was at its highest.

We can always blame the lingering effects of a weak economy, except total handle began to slide in 2004—four years before the global financial markets melted down. With purses declining, we’re losing an important incentive to keep owners in the game and attract new owners.

The Blood-Horse has spent the past few months digging into the issues affecting handle and purses to understand better where we are as an industry and where we need to be. The first article in our four-part series runs in the June 19 issue. News editor Tom LaMarra sets the stage by taking a broad look at the U.S. pari-mutuel model. The second part looks specifically at the ADW market, which is a challenge as no one knows how much money is collectively being wagered through ADW companies or how much U.S. handle is being lost to offshore bookmakers. Part three considers some solutions being proposed to fix what is seen by many to be a system out of balance.

In the early days, offtrack betting was considered found money by the racetracks so the revenue splits agreed on between host tracks and offtrack betting outlets were not much of a threat to purses and racetrack revenue. Now, offtrack betting accounts for 89% of the U.S. handle ($10.99 billion out of a total of $12.32 billion in 2009) and the revenue splits, which have not changed appreciably since the 1990s, are hampering growth. Racetracks are simply not getting enough to support the live product.

In part four, economist William Shanklin looks at the future of wagering and what new products—betting exchanges and proposition wagers—may become available.

Much of what we discovered as this series evolved relates to the Henry Kissinger quote above this column. The information the industry must have to understand what is influencing handle and how these changes affect purses is simply unknown. More troublesome is that no one seems interested in knowing. The racetracks have these figures but justify not releasing the information by claiming it is proprietary. How can these numbers be so elusive in an industry as regulated as pari-mutuel wagering?

Every racing commission should have these numbers. Take a look at a Gaming Revenue Report from the Nevada Gaming Control Board. These reports show by month, by quarter, and for the previous 12 months the number of locations offering every type of card game, slot machine, and sports wagering. Broken out for each type of game is the number of units, the total win amount, and the percentage change.

Wouldn’t it be useful to see by racetrack how much is being bet on track for each type of wager as well as at bricks-and-mortar offtrack betting outlets and through ADWs? Individual racetracks have this information, but the industry needs it, too.

Let’s get back to Kissinger. The racing industry cannot find solutions without first understanding the problem. The industry has stepped up and is collecting more reliable data on racetrack injuries and catastrophic breakdowns. Addressing handle, while not as emotional an issue, is no less important. Either beef up the racing commissions so they can do their jobs better, or find an industry solution through a data-collection effort by an organization such as Equibase. If we choose to do nothing different, then every attempt at progress will go nowhere. 

Eric Mitchell, Editorial Director and Editor-in-Chief

16 Comments

Leave a Comment:

Ken Woodall

Usefulness of knowing track details on how much total handle was recieved from each type bet by be slightly useful, but mostly for the track. Overall handle industry wide by type of bet would be much more useful. But a major reason for this and other secrecy is for the track, its owner, the local horsemen, the local community, and the state to keep local control of racing and to keep it fractionalized for supposed financial gain.

Unfortunately one of the myths of racing that "horsemen" buy into is that a financial, legal, promotional, and cunsumer fractionalization results in more money for the local track.

Protecting home territory as opposed to wider cooperation causes racing to lose ground yearly on a per capita basis in handle, following, patronage, public perception, and otherwise stronger control of legal and rules issues and enforcement.

And,i n my opinion, it is the perpetuation of some of the myths that surround the actual running of races that keeps some prospective new new patrons from "contributing" to handle!

15 Jun 2010 3:30 PM
Steven McCoy

You have already identified the problem.  To quote, "no one knows how much money is collectively being wagered through ADW companies or how much U.S. handle is being lost to offshore bookmakers."  What we do know is that patrons of racing who used to wager at their local racetrack now do so on-line, and the percentage of those wagers that flows back into the purse pools is less than for on-track wagers.  And in many cases, the ADW companies use that difference to offer rebates to our former patrons and reduce on-track handle even more.

The ADW model was sold to us in the racing industry as a way of tapping into an expanded base of bettors.  What has really happened is that wagering is likely to have remained no worse than level, but purses have declined because of the reduced percentage that the ADW companies pay to the purse pools.  We in the Standardbred industry in Ohio believe that ADW's have been the scourge of live racing, not the saviour that they claimed to be.

15 Jun 2010 4:03 PM
rwwupl

Yes, the business model is broken,and we need full accountability with review authorization (CHRB)of all income for California Horse Racing...everyone must get their fair share,including purses, no deals off the books ,and unaccountable.

I will be reading this with interest,and thanks to Eric Mitchell and Bloodhorse.

15 Jun 2010 4:30 PM
C Bea

Another example of where our Industry leaders have failed us! How can NTRA, TOBA, TRA, etc. help guide us if they don't even know where we are definitively?

Much like Congress in Washington racing industry leadership is blind and clueless and in desperate need of replacing.

16 Jun 2010 10:33 AM
Chris McConnell

There were several areas that need to be addressed in regard to the decline of the overall wagering of the horseracing industry.

The year on year comparison is correct, but to truly represent the actual reasons lie in further scrutiny.

Track closures is just one parameter... if tracks close and don't reopen, that revenue is lost. Weather is also important...loss of racing days affect that...is the total number of racing days declining. Just those two areas could show a large portion of the decline.

In regards to ADW reporting...every track knows exactly where each dollar comes from that is bet into their pools.

The question is the VALUE of that wager...

Racetracks that take wagers from different sources such as live track, OTB, ADW, Off-Track and simulcast wagers all have a different value for each dollar wagered and the percentage that goes to the track and whether the horsemen share in any and all of those wager.

The other factor is the proliferation of other gaming opportunities, especially tribal and regional casinos.

Understanding the whole landscape first will lead to a better and truer reason of the decline in wagering for the horseracing industry.

16 Jun 2010 3:14 PM
Bill Liberty

To say that track handle is porprietary may be in error, depending what state the track is located.  I know in New York and here in Florida, handle is public record and the public has a right to know. If you call Calder or Gulfstream, they refer you to Louisville or Toronto. The public be damned.

16 Jun 2010 4:54 PM
David

The math says about 78-80% of the people should be happy or at least revenue-neutral following each race.  We all know that’s not entirely true any more than (about) 94% of slot players walk away winners.  The dynamic of churn, average win payout and degree of difficulty makes for far more losers than winners.  Ironically, I believe, the advent of account wagering has aggravated the problem.  A visit to the track means being with friends and witnessing color, athleticism and pageantry.   Moreover, most fail to audit purses and wallets even though they intuitively know there’s less than when the day started.  With account wagering there is no escaping the black and white result of playing the horses.  The graphic that illustrates withdrawals versus deposits is something you will not see reported by an ADW operator.  In short, while the industry is smart to develop internet-driven channels, I fear the nasty secret may be revealed – betting on the horses is a losing proposition.

16 Jun 2010 5:29 PM
dgrayone

Recently the San Antonio Express News printed an article on Retama Race Park in Selma, Tx. It appears our track will close live thoroughbred racing next year (2011).I'm not in favor,but, I can't stop them if no money is available. Texas horsemen need to make a stand to their politians or whoever to vote in slots at all race tracks. Just in case, maybe the Texas State Lottery could apply all race tracks to the Lottery System, like they did for Education System. Even a special lottery scratch ticket representing thoroughbred horse racing could be published, sounds like a good idea. Thanks, Go Texas racefans !!!!!

16 Jun 2010 10:54 PM
Bruce

Leaving aside the other important issues, the author's reliance on the Kissinger quote as a framing device overlooks Henry's own misappropriation and re-working of an axiom reportedly favored by Zen Master Ikkyu:

"If you don't know where you are going, any path is the right one."

17 Jun 2010 1:48 AM
David

My quote of the day is "many involved in Thoroughbred Racing look at things the way they are and ask why . . . some even dream of things that never were . . . unfortunately, nearly all readily explain why not."   If nothing else this business is a legitimate expert on the science of small thinking and articulating why change won’t work.

17 Jun 2010 11:46 AM
claimer booster

The question is how to get people to the track. Racing always has been a sport where there is no skill level that guarantees even proble success. Experts are blantantly wrong many times and people's perception of the mystery of racing and uncertainty of a return makes the lottery or just plain gambling more attractive, and patrons can stay home or drive a few miles to a casino for that. If pagentry, jockey's stories, and horses aren't highlighted more, there is little hope of connecting the public to  physical track attendance.

17 Jun 2010 1:20 PM
Elizabeth

I am no expert on the racing industry but I think that there is no interest because it is basically boring to go to the track. I have a horse website that is more interesting than sitting with nothing to do in between races. The chance of winning any instrument of betting is pure luck, in horse racing their is the added element of betting on a horse that goes lame. Besides I can sit in my living room bet on television and be more comfortable so why should I go to the track? Horse racing has to be made exciting again and I'm afraid that won't happen until another Secretariat comes along. The closest we've come is Barbero and we all know what happened to him.

17 Jun 2010 5:14 PM
rlm

Are the tracks being told the correct amount of money wagered by the ADWs in their specific areas.  They should be getting a percentage of that handle and I don't believe anyone is auditing that money. I have tried to confirm and am told it's not for public release.  Something is not right.

17 Jun 2010 6:19 PM
barry k schwartz

I really hope someone examines take-out rates in this series as it is the single most important factor in driving handle. After lobbying state legislators and OTBs in 2001 NYRA was able to make a meaningful cut in rates. The next 12 months saw a $150 million increase in handle.We will never grow handle with 20++% rates. It amazes me that no one seems to address this issue anymore

19 Jun 2010 3:47 PM
EJMitchellKy

Bruce, I cannot speak to the original source of the "If you don't know where you're going quote...," and I'll have to take your word that it was a favorite of Zen Master Ikkyu. But I have to believe that Kissinger was well aware of the original quote since it is one of the most often quoted sentences in Lewis Carroll's "Alice in Wonderland." Kissinger was an intensely logical person who seemed to be taking a jab at people who believed--regardless of their circumstances--that things would always just work themselves out in the end.

Kissinger also said: Intellectuals are cynical and cynics have never built a cathedral.

There is another quote from Carroll that I think also applies to the options the Thoroughbred industry has in front of it today to begin correcting past missteps, adapt to the changing entertainment market, and grow the sport.

"Door: Why it's simply impassible!

Alice: Why, don't you mean impossible?

Door: No, I do mean impassible. (chuckles) Nothing's impossible!"

— Lewis Carroll

Industry leaders cannot look at potential solutions and immediately think of all the reasons they cannot be accomplished. Change is possible if the will to implement it is strong.

20 Jun 2010 7:36 PM
Ted Levis

I have read BH articles on the decline of the sport and handle etc. each week as I am an avid thoroughbred fan-it is my favorite sport. That being said it is getting increasingly difficult to stay interested for two reasons.

First, I have an account with Philadelphia Park which is grandfathered due to my state of residence, no longer can residents of MO obtain an account.  But due to the inability of the racetracks and Philly Park to agree to takeout sharing I never know what track I can bet.  So, I don't bet.  Simple as that.  It is turning me off and I don't want to spend time handicapping and find out this signal or that signal are not available today.  So if the industry could get its act together and allow fans to bet then I think we would see handle grow.  But until then fans like me will gradually lose interest.  I have two good friends and we used to meet all the time on weekends to have fun and wager.  No longer.  I am sure we are not alone.

Secondly, the medication issue needs to be resolved.  Different states different rules.  Top trainers slapped on the wrist for violations and convicted cheaters like Patrick Bioncone allowed back in the game to train in CA but nowhere else.  It is a joke.

Simply the industry needs to go drug free to be able to overcome the image ingrained in the public.  I push the sport everywhere to anyone who has interest.  The first question anyone asks me is:  Is the sport fixed?  What kind of sport can overcome this image?  The answer is simple-None.  Get the drugs out of the sport so a new marketing effort can begin and the sport can compete.

Thanks,

29 Jun 2010 12:04 PM

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