Doug Reed has been around the horse racing industry as a consultant and stakeholder for 40 years. He has a stark message for the sport to which he has dedicated his career:
“Let it die or promote it.”
He explains swift action is necessary given horse racing in Pennsylvania has ever-dwindling revenue numbers and an aging, shrinking fanbase without recruitment of replacement fans.
At the same time, racing has failed to capitalize on the potential for growth presented by the emergence of PA online sports betting.
Reed, the former director of University of Arizona’s horse racing program, said that it isn’t sportsbooks taking away market share. Rather, it is the failure of horse racing interests to keep pace.
He faults tracks for failing to innovate, not taking risks, and not promoting to a new generation by offering bets mixing racing with sports, offering fixed odds, or staging events aimed at a younger pool of potential new track gamblers and sports bettors.
Conversely, sportsbooks should do more to grow the overall gambling pool, he said, instead of simply working to take more market share.
“Sports betting can be an opportunity. Or it can be a threat.
It needs to be integrated. There needs to be a crossover. They do it better in other countries. Opportunities need to be acted on and they aren’t. Change doesn’t come easy. And it is hard when there are two bodies of regulators, one for sportsbooks and one for racing. They need to row in the same direction.
The problem is we don’t work well together.”
Racing industry wants to see changes
Pete Peterson, president of the Pennsylvania Horse Racing Association (PHRA), acknowledges the problems and said the racing community wants changes.
But he said, “That’s not a decision for the horseman,” but for the legislature, where no legislation has been introduced to address this issue. “Betting regulations and options for horseracing need to change, evolve.”
“We would love to see integration. Put them side-by-side. That’s how the new generation wants it.”
PA law hobbles sportsbooks and pari-mutuel wagering
Current PA law makes integration of sportsbooks with pari-mutuel wagering difficult.
Horse racing and casinos are legally yoked together. Racing and betting on the sport are under the oversight of the Department of Agriculture. Revenues underwriting horse tracks come under the control of the Pennsylvania Gaming Control Board (PGCB), which oversees sportsbooks and casinos.
The awkward linkage was brokered between rural legislators and urban and suburban leaders where casinos were eventually built.
In return for the infusion of slot proceeds, the state-approved legal casinos in 2004. The legislation got tagged as “The Pony Welfare Act.”
PA slots ponied up $242 million to support racing last year
Roughly 10% of annual slot revenue from the state’s 12 casinos is earmarked to prop up the withering track industry. That came to about $242 million in 2018. By comparison, the department that oversees racing has a current annual budget of only about $151.3 million.
PA casino slots have funneled more than $2.5 billion to the racing industry. Pennsylvania’s financial support is extreme but not unique.
Roughly 20 states prop up horse racing via infusions of cash, often but not always, from casinos. For instance, for years, New Jersey casinos underwrote racing. Now taxpayers there provide about $20 million yearly.
In PA, racing is built around three thoroughbred tracks and three standardbred tracks, each paired with a casino.
The thoroughbred tracks are:
- Parx Casino in Bucks County
- Presque Isle Downs & Casino in Erie County
- Hollywood Casino at Penn National Race Course in Dauphin County
The standardbred harness tracks are:
- The Downs at Mohegan Sun Pocono in Luzerne County
- The Meadows Casino and Racetrack in Washington County
- Harrah’s Philadelphia in Delaware County
Indicators down for horse racing in PA
Despite the enormous injection of cash, stats from the PA horse industry are dismal except for creating industry jobs, preserving open space, and adding modest infrastructure investments.
Almost every single data point tracked by the PGCB on the state’s six racinos is down. Most declines are years long.
“I can’t point to a strong data point,” said Kevin Kile, who assembled the data for the PGCB’s annual benchmark report on racing.
Attendance at live on-track events declined 15% in just a year. The number of races and race days are down. Down, too, are handles and the taxable handle.
Most telling is phone and online wagering on races held at Pennsylvania tracks declined 5% in 2018, part of a five-year decline. Conversely, online sportsbook wagering has boomed in just months.
One number went up: Slot revenue dedicated to supporting tracks rose 1.3% to about $242 million in 2018. Slot proceeds pay for purses, health and pension funds, breeding funds, regulatory oversight, veterinary oversight, and promotions.
Not just a PA problem
Contrarily, the Kentucky Derby continues to draw bettors, with 2019’s race handle growing by 10% to an all-time record of $165.5 million wagered. But the draw of the Derby is an exception that does not extend to racing overall.
Racing’s decline isn’t just a PA problem.
According to a 2019 market analysis by IBISWorld, the decline is across the USA and has to do with the graying fanbase and the failure to recruit new fans:
“The majority of these customers are older males. As these customers slowly pass away, the industry has been unable to attract substantial customers from younger generations to fill their place.”
A day at the races illustrates the problems
A race day shows what’s at work.
Harrah’s Philadelphia has a beautiful harness racing track, but you wouldn’t know it exists as you pull up to the casino. The track sits behind the casino and its parking garage.
On the second floor of the casino, there’s an inside bar, simulcast booths, a bank of televisions tuned to races, food service, a pari-mutuel counter, and a ring of pari-mutuel kiosks for self-serve wagering. Out glass doors, there’s an inviting terrace overlooking the grandstand and the track facing the Delaware River.
Almost every seat remains empty even though the first of 14 races is set to go off in just 10 minutes.
Maybe 15 gamblers are outside when the first post goes off on Aug. 9. At no time during the next nine races are there more than about 30 spectators.
Gambling pools are small, generally around $2,500 to $3,000. The bulk of the pools’ bets comes from wagers made by pari-mutuel wire at the last minute, not at the track, which is typical of horseracing. Last-minute betting means odds continually shifting, a turn-off for those new to the track.
Crossover is an issue
After each race, the men, almost all guys in their 60s and above, head inside, away from the heat.
None appears to head to the third floor, home of Harrah’s casino and its small sportsbook. The sportsbook is as far from the racing area as possible. There appears to be no cross-over from the patrons at the track heading upstairs. A Harrah’s spokesman later said that it happens, though he added it is too soon to measure the “capture rate.”
Over the course of several hours, only three younger men in the crowd appear to make their way to the track from the casino floor.
A single race, the seventh, encapsulates the day.
Amigo Volo, a 2-year-old gelded trotter trained by a Hall-of-Famer and driven by a Hall-of-Famer, takes the lead at the first turn and never loses command. It’s a thrilling run with a purse of $47,105.
Yet there are no cheers, no applause, and virtually no reaction as Amigo Volo wins.
No one reacts seconds later when a track record of 1:54.4 is announced. And still, no reaction a bit later when the time is announced as a world record. Fansites make fleeting mentions of the record, but neither local media nor Harrah’s take note.
Aging fanbase for horse racing locked in old ways
“He’s new, no one knows him,” shrugs a regular, a railbird, who drives to the track three days a week.
Like other railbirds, he prefers betting in person, not online. Forty-one of the 50 states allow some forms of online horse betting, including PA. Online pari-mutuel wagers through PA bets are part of the overall pool at Harrah’s.
Promotion could help, he grouses. Then he contradictorily added that he likes it empty. He avoids Sunday when there is a reliable turnout.
He said he never goes to the casino nor the sportsbook, even though there are two pari-mutuel kiosks available there.
Typical for his circle of track friends, he said. And that’s the rub.
Maybe there is a better way to blend books and ponies?
Reed said the laissez-faire approach in Pennsylvania to melding sportsbooks, especially digital sportsbooks, with horse racing isn’t helping as track numbers fade.
He points to Monmouth Park, a thoroughbred track in New Jersey with both retail and online sportsbooks, but no casino, as having figured out a better way to meld sportsbooks with ponies.
Monmouth’s retail sportsbook is in the grandstand, back-to-back with the pari-mutuel area. Kiosks from each area are close to each other.
Promotions mixing sports wagers with racing and sometimes offering fixed odds are promoted.
There are frequent event-driven promotions. A free family-friendly picnic area and a mini-golf course are part of the ambiance. There are multiple dining and drinking options.
That’s all by design, said Bill Knauf, vice president of business operations at Monmouth.
“The shape of racing has changed dramatically,” he said. “You can’t ignore what’s happening.”
“There is a small cannibalization, but the growth is in the expanded pool. Online represents pure convenience. Bettors want flexibility. And that’s the way the world is moving. There is no question it has certainly grown our total revenue dollars.”
Integrated oversight in NJ helps, something PA lacks
NJ has integrated the oversight of racing and the sportsbook at Monmouth. That’s because both the Division of Gaming Enforcement and the New Jersey Racing Commission operate under the New Jersey Attorney General.
On the other hand, in Pennsylvania, the synergy was mandated by legislation coupling agriculture with the PGCB, said Kile, who compiles the pari-mutuel report as an employee of the gaming board. The PGCB “has no responsibilities” for horse racing other than collecting the slot money and issuing an annual report, said Kile.
The agriculture commissioner holds a seat on the PGCG, but he always sends a representative, who stays mum.
There’s been some talk of reconfiguring oversight, but the legislature has never acted, added Kile.
PA racing industry just began outreach last year
Even as racing continues to fade, changes in Pennsylvania law and oversight aren’t on the horizon.
Meanwhile, the PHRA’s marketing director, Ashley Eisenbell, said “pushing what we have” is the way forward for now.
That has meant a promotion and outreach campaign which began in 2018 targeting younger gamblers, and digital advertising buys underwritten by a marketing budget of $1.1 million.
There is no data yet to measure if that’s working or if it is too little, too late.