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

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