The Week in Review: How Long Can Racing Fend off the Sports Betting Juggernaut

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Gulfstream mutuel tickets | Coglianese

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When it was announced last week that a record $748.6 million had been wagered on sports during September in New Jersey that appeared to be more bad news for horse racing. It was the most ever bet in any one state during a month and a sign of the times. The amount legally wagered on sports in this country is soaring, with no end in sight, and it stood to reason that some of that money had been siphoned off from racing.

Sports betting is now available in 18 states plus the District of Columbia, and 13 other states have introduced bills to legalize sports wagering. Despite a near complete shutdown of sports in the spring and early summer, the record $13 billion bet legally on sports in 2019 will be shattered this year.

When the Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA) in May of 2018, it was widely feared that sports wagering would lure away a healthy chunk of racing’s customers, causing a deep decline in handle. That may yet happen, but racing has, so far, been surprisingly resilient in the face of what figured to be a serious threat to its bottom line.

During the same month that sports bettors in New Jersey set a record, pari-mutuel wagering on racing in the U.S. rose by 29.64%. Because the Kentucky Derby was rescheduled and run over the Labor Day weekend rather than in May due to COVID-19, the September numbers can’t be taken on the surface. Perhaps a better indicator is the number for the first nine months of the year. Despite all the havoc the coronavirus played on racing schedules, wagering nationwide for the year is down by just $246 million or 2.86%. With a strong final three months, it’s not impossible that the final numbers for the year will be even with the pre-coronavirus numbers from 2019.

There may be several scenarios in play here. The most obvious is that sports bettors and racing bettors could be two different animals and there is little crossover between the two. The same phenomenon largely occurred when so many tracks opened up casinos. Dennis Drazin, the chairman and CEO of Darby Development LLC, the operators of Monmouth Park, said he has seen no signs that the track’s racing bettors are shifting over to sports.

None of which means racing shouldn’t take the sports betting threat lightly. Estimates are that within three years it will be legal in at least 30 states. That list could include California, Kentucky and Florida, three of the most important racing states. Sports betting is not yet legal in any of them. It is legal in New York, but not on-line and is limited to in-person betting at only some of the state’s casinos.

And sports betting has a lot better chance than racing does of attracting future generations of potential customers.

There’s also the cost of placing a wager. The average takeout on a racing bet is around 20%, a price that was installed when racing was the only sport that could be wagered on legally. That’s more than double the price of making a sports bet, where the effective takeout is 9%. Bettors are rational consumers who react to pricing and racing’s exorbitant takeouts are giving them a valid reason to choose sports. That should mean that racing will make what seems like an obvious adjustment and drastically lower the takeout. That’s not going to happen.

There are other ways for racing to try to keep pace with sports betting. Currently, a racing bet can’t be made on a sports betting app or website. If that can change and a sports bet and a racing bet can be made from the same account that could lead to some sports bettors trying their luck at racing.

“We need to have horse racing on the same platform with other sports betting products,” said NTRA President and CEO Alex Waldrop. “Bettors need to be able to use the same wallet to bet on each. That hasn’t happened and that is a disappointment.”

The other avenue is in creating racing bets that mirror sports bets, starting with fixed odds wagers. Try explaining to the sports bettor why they can bet a horse at 7-2 only to have its odds drop to 2-1 after the race has begun. Once you have wagered $110 to win $100 on the Giants to cover the spread, the bet doesn’t change so that you can only win $80. Monmouth had hoped to institute fixed odds wagering as this year’s meet, but Drazin said that the New Jersey Attorney General’s office has yet to give a green light to the project. It should be available for the 2021 racing season.

It’s hard to tell where this is heading and what impact sports betting will have on racing in, say, five years from now. Racing is holding its own for now, but how long can that last?

Kentucky Downs and the Graded Stakes Committee

Being on the American Graded Stakes Committee is no doubt a thankless job. At the end of the day when the grades are handed out someone is going to be unhappy.

But the complaints expressed by Kentucky Downs management last week that its races aren’t being fairly judged by the committee is a valid one. When you have 16 stakes races that are worth, on average, $537,500, you have every right to expect better. That only five of the races are graded and none higher than the Grade III level doesn’t make any sense.

In fairness, Kentucky Downs probably didn’t deserve much better six or seven years ago when it was having trouble attracting top horses for its many rich events. Trainers, particularly those outside of Kentucky, were slow to embrace the quirky European-style racetrack, but that has changed. It was just a matter of time until the purses became so high that people couldn’t stay away. That’s no doubt the reason that trainers such as Chad Brown, Bill Mott, Christophe Clement, Shug McGaughey and Richard Mandella participated at this year’s meet, joining a strong roster of Kentucky-based trainers like Brad Cox, Steve Asmussen and Mike Maker.

With a $1-million purse, the Calumet Farm Kentucky Turf Cup  is attracting the best long-distance turf runners in training, but is just a Grade III. The Tourist Mile and the Gun Runner Dueling Grounds Derby are both worth $750,000, but neither are graded. That makes them the richest, non-restricted stakes races run in North America that aren’t at least a Grade III. Kentucky Downs also offers five $500,000 races that are not graded.

So far, five horses who competed this year at Kentucky Downs have come back to win graded races, including Grade I winners Harvey’s Lil Goil (American Pharoah) and Ivar (Brz) (Agnes Gold {Jpn}). And a number of Kentucky Downs graduates will participate in the Breeders’ Cup.

Those are facts that will be impossible to ignore, and it is expected that at least some of the track’s stakes races will either be upgraded or receive a grade for the first time for 2021. If so, it will be long overdue.

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