In the first part our new series asking key questions about horse racing’s future amid worrying indicators, Daniel Ross speaks to owner Marshall Gramm, co-creator of Ten Strike Racing – and a professor of economics
Sliced all sorts of ways, horse racing’s economic pie offers diminishing returns.
Since the turn of the millennium, the nation’s foal crop has seen a 40% decline, while the number of races run each year has dropped nearly 43% and US pari-mutuel handle has dropped over 23% since a high back in 2003.
Reports put the number of trainers making at least one start annually as halved since 2000. According to the Economist, more than 40 tracks have closed since that date, too. That probably explains why they headlined a feature on the eve of last year’s Kentucky Derby around the question: Is horse racing in America on its last legs?
None of the aforementioned statistics should surprise those paying even glancing attention to the sport’s coffers. But the next pertinent question then becomes: Where does it all lead?
TRC has spoken to several key figures from various corners of the industry for answers. Here, our series begins with owner Marshall Gramm.
Racehorse owner and breeder Marshall Gramm (left) is professor of economics at Rhodes College in Memphis, Tennessee, and serves as chair of the college’s department of economics. He is the co-founder (with partner Clay Sanders) of racing syndicate Ten Strike Racing, owning about 130 horses in full or in part.
Marshall Gramm offers a useful twin perspective on racing’s current state of play, his bona fides as an owner couched against his ventures as a professional gambler. Indeed, many of Gramm’s observations were filtered through the lens of the betting landscape.
Gramm sees the fees charged to punters as a low-hanging fruit and thus considers it crucial that horse racing gamblers are offered a competitive product in a crowded marketplace.
Bigger handle means bigger purses
The equation is simple: bigger handle can mean greater revenues leading to bigger purses. According to Gramm, maximizing betting revenues by reducing takeout will have a ripple effect up and down the sport, helping to offset the not-to-be-sniffed-at incidental costs of HISA.
“Handle has not grown – in real terms, handle has declined over time,” he explained.
“And a lot of the increases we’ve seen in handle has been among the [computer assisted wagering] CAW players,” added Gramm, singled out the relatively select number of heavy-hitting players who are handed a major edge over regular gamblers due to their use of slick, sophisticated computer technologies, along with attractive rates and rebates not available to the average player.
“The industry as a whole has failed to realize that if they reduce prices, reduce the takeout for the casual players, there would be a response in increased handle,” said Gramm.
“I know it’s a big leap of faith but just remember, a lot of companies increase market share and succeed through chopping prices and being price competitive. In a US environment where gambling of all sorts is now legal, gambling on horses is a high-price proposition and it shouldn’t be.”
Prune the stakes program
Fruit of a more stubborn nature can be found at the stakes program branches of racing’s tree. As Gramm sees it, the number of G1s needs to be pruned, to make them commensurate with the dwindling size of the foal crop.
“Right now, there are way too many G1 races – there are probably way too many graded stake races,” he said. “If you shave the number of G1s down to about 40, it would make it so that those G1s are more meaningful.
“Maybe that doesn’t directly solve the problem, but at least it tackles the lack of competition in high-end races because so many horses are sitting there in their stalls that are trained by the same trainer.”
In other words, the emerging monopoly of horses towards the top few trainers is ultimately compressing and shrinking the game – a sentiment shared widely, it turns out.
Reasons to be optimistic
But for all the rather depressing economic markers commonly bandied around, racing is many ways in “good shape”, claimed Gramm.
HISA has helped stem the bloodletting of bad PR within the public’s eyes these past few years, he said, with equine fatality rates falling precipitously under the federal agency’s watch. Certain jurisdictions have their own cause for cheer.
“There are reasons to be optimistic basically with the settlements of the racetracks in Maryland and New York,” said Gramm, highlighting the $455-million state investment in Belmont Park’s reconstruction, and the total overhaul of the racing industry in Maryland. Among other things, day-to-day operations fall under the auspices of a stakeholder-led non-profit body.
“Those are two major circuits that seem to be settled for the foreseeable future,” Gramm said. Arkansas and Kentucky, too, garnered a thumbs up – but economic strength isn’t shared uniformly.
“You don’t go a year without a track closing,” he said, pointing to smaller tracks most susceptible to the corrosive winds of commerce. And what does that mean for the industry?
“As we close more and more racetracks, we lose the access point for fans,” said Gramm. “So I do think having tracks in these big urban settings matters.”
Financial foundations
Which leads us to US horse racing’s financial foundations, many of which are vulnerable to the tectonic plates of legislative fealty.
“A major concern over the next decade is going to be the role of handle, and that we draw an incredible amount of purse money that is subsidized through alternative gaming,” said Gramm.
“Ultimately, at some point as states need more revenue, they’re going to come after that money. We’ve seen it before in states like West Virginia and Pennsylvania, so if we don’t grow the betting part of our game and have other ways to directly monetize Thoroughbred racing – if we don’t tie up the connection between that and our product – we’ll always run the risk of state deference going in a different direction.
“That worries me, because in improving the game, a lot of racetracks and a lot of the industry is more focused on lobbying the state government and lobbying the federal government.
“It’s healthier for the business to stand on its own merits.”
• In Part Two of this series, TRC speaks to breeder Craig Bernick
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