Monday, April 13, 2020

Racing Should Be Back Soon, But Long-Term, Where's the Money?

As we hear more and more talk about portions of the economy coming back online, horse racing probably has a front seat. It's arguably one of the safest areas to bring online, with a baseline of the thousands of people who are, and have been, at work caring for animals. In fact, in the UK a decision this week about a May1st start is expected.

For the entire ecosystem a restart means a lot. Horses, like able-bodied humans, need to be doing something; they can't sit around watching Tiger King all day. For the business, two year olds need to race, because (like in harness) stakes payments are paid. The sales in the fall demand that money to be paid out so breeders can make a living.

That's all fine. However, because racing does not get purse money from just wagering any longer, this might be a world of hurt. Race, sure, but with slots closed for perhaps most of the year (it could happen) where does the money come from?

In places like Ontario where the government supports horse racing to the tune of around $100 million per year it's less of an issue. That money should be there whether slots are turning or not. But for others, do we have any idea how long this cash lasts?

In the big picture, I'd say this is a false question.

In economics we may have heard about the Environmontal Kuznets Curve.  This theory states that as an economy grows with increased economic activity and ROE driven capex it gets dirtier and dirtier, but because wealth is generated it reaches a peak, where the excess wealth allows for better choices to make the economy cleaner and cleaner. Here in North America we see this almost every day - money from excess wealth is directed to new technologies, taxes on dirty industry, mandated cleanups etc. We can afford it.

In horse racing we don't have a Kuznets Curve. If we did, we'd likely be knee deep in money. With nothing else to gamble on, with people watching Tiger King, we'd be blowing handle and revenue out of the water. We'd be making hay when the sun shines; salad days with extra ranch. We'd be one of those toilet paper companies where everyone says, "wow, I'd like to buy some of that stock."

We aren't. Handle is not a metric in a non-Kuznets Curve world.

I don't know what the ongoing budgeting looks like for horse racing if in fact it does come online in mass next month. In terms of slot cash in the barrelhead, jurisdiction by jurisdiction I just don't know. But that we have to ask this question, it signals we've already lost.

Have a great Monday everyone. 

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