Steven Pearlstein of the Washington Post (free subscription required) has written this fine article on the problems in the American horse racing business.
Horse racing was one of the three — along with baseball and boxing — most popular sports in America in the early 20th century. However, abolition shut down almost all tracks in America and horse racing did not make a comeback until the 1930’s. That’s when state governments utilized pari-mutuel betting to generate revenue during the Great Depression era. Racing quickly became popular again, as the recent fine book and movie “Seabisbuit” relates well.
However, as Mr. Pearlstein’s article describes, racing struck a devil’s bargain by accepting dubious state regulation and taxation in return for its right to exist. Accordingly, while other professional sports skyrocked in popularity and value during the generation after World War II, horse racing remained mired in mud of governmental micro and mismanagement.
So, how is the industry attempting to change this course? The less creative approach is to beg the state governments to allow horse track owners to turn their facilities into “racinos” — that is, allow the owners to install slot machines at the tracks and split the take with the state.
On the other hand, Churchill Downs, Inc. is pursuing this consolidation business plan that would create what amounts to a national tour of quality tracks that would host competition of top horses similar in the same way the Tour Players’ Association puts on professional golf tournaments around the country. This approach seems to have at least a flavor of creativity that is utterly absent in the “racino” stategy.
One anecdote about horse tracks. Houston’s race track — Sam Houston Race Park in northwest Houston — was built in Houston during the early 1990’s, and promptly went into bankruptcy a year or two after it opened. A bright client of mine who was thinking about making an investment in the track to bring it out of bankruptcy asked me to sit in on a meeting with a representative of Churchill Downs, Inc. to determine whether they would be interested in being a co-investor and manager of the track.
During the meeting, the Churchill Downs rep indicated that the company had down a feasibility study on building a track in Houston several years earlier before deciding to pass. He disclosed that their study indicated that the best approach to developing horse racing in Houston was to start relatively small and expand the facility as the popularity of the product developed over time. Consequently, the study indicated that initially spending about $40 million (I may be off on the numbers a bit) and placing the track in a corridor between the Astrodome area on the north and the Gulf Greyhound Dog Racing track near Galveston on the south was the way to go.
“So,” I inquired or the Churchill Downs representative. “Where do you think the current owners went wrong with the Sam Houston Race Park?”
“Well,” he replied. “Except for spending more than twice as much as they should have in building it, and then placing it in the wrong location, nothing.”
My bright client passed on the investment opportunity.
Hat tip to Professor Sauer over at the Sports Economist for the link to article and this issue.