ITP & Sid Are Both Right

Two of my pals - Sid Fernando and Inside the Pylons - were having a twitter chat today. It began with some chatter about Hong Kong, the way things are done there, versus here across the pond. Sid stated racing in Hong Kong can do many of the right things because it is a stand-alone entity with government as a strong partner.  ITP stated that racing could've been like that here, but it hijacked itself. In the end, I suspect they both agree with each other.

In Hong Kong, racing and governments have a symbiotic, linked relationship. When racing does well, they do well, because revenues are taxed at the back end. This is likely why, when they had to fight the Macau casino's in 2006 and were losing customers, the Vice President of Wagering (they have one of those) reacted quickly with a rebate program. It was done to protect wagering, revenues etc, for the long term. There was no horsemen group, no state, nothing standing in their way. They just got it done.

When that happens here it is not like that at all. It's so bad, governments partially own casino's, so they don't much care what happens to whatever tax or wagering slice they get from racing. It's meaningless to them. It's a different world here.

Sid is right. It's been the opposite for like forever. And there is no comparison.

ITP's point is more nuanced and I think it's strong.

What if racing and government's had fostered a similar relationship long ago? In that case, NYRA would be a gambling mecca where like in Hong Kong, it would've led as a distribution point for other wagering. It would be a part (as operator, for example) of casino's. It would be a part of virtually everything when it came to gambling. Cuomo would not be fighting it, that's for sure.

In about 1930, a government (for example, New York's) came to racing and asked for 5% to be added to takeout. Racing said yes, because they could add another 2.5% for themselves. That began the process of bleeding the sport dry. That strategy never changed, and it's like that to this day.

Doing that, racing lost power; they were not partners, they were "a split". Racing lost any edge it may have had to partner in a new gambling enterprise. It was not able to lead slots or casino deals as operator in chief, it was relegated to asking for a form of rent from slot machines, where that rent could be extinguished at anytime.

In North America, entities - from 100 years or more ago to today - were focused on splitting it up the pie. In contrast, Hong Kong worries to this day (and always has) about growing a pie and splitting it up later. As partners.

To see just how ingrained that system is in North America, look no further than 1996. In Ontario, the Harris government had a revitalization plan for horse racing. In addition to allowing slots at racetracks, they immediately stopped taxing takeout by 7% as a growth mechanism for the sport. Did racing immediately slash takeouts to 6% on the win end and 15% on the exotics end, like any business would? No, they left rakes the same, and kept the 7% for themselves to split up to line their pockets. 

Margaret Thatcher's line,  “The problem with socialism is that you eventually run out of other people's money.” is pretty sharp when it comes to horse racing in North America, in my opinion. The problem with horse racing is that by constantly taking cash off the top it too runs out of money. When there is little money left to take, governments leave you out in the cold. When what's left is peanuts you are peanuts,and you go to the back of the bus. When the government in Ontario killed the slots deal two years ago, it was done because racing was meaningless to them. There was no money left.

ITP wonders what would have happened if horse racing had leadership and foresight to say no to the cronyist, backscratching deals they made many years ago, with those after slices off the top. Sid believes that comparing Hong Kong to here is pure folly and wishing otherwise is silly - it will never change because it can't change.

Both of them, I think, are completely right and it will be a strong reason why horse racing handles will be below $9 billion per year within 24 months.