Racing, Including Track Operations

Industry Snapshot

The thrill of competition and the overall excitement of racing drew millions of American spectators to the wide variety of events in the racing industry, including horse races, dog races (greyhound), automobile races, and motorcycle races. In 2008, there were 4,638 promoters and participants in racing activities, with an estimated workforce of 62,600 people. The industry reported nearly $8 billion in revenues.

Organization and Structure

Horse Racing.
In the horse racing sector of the industry, most U.S. racetracks were privately owned, and racing operations were governed by state commissions where the tracks were located. Most tracks were operated for a profit, as were the horses, while the trainers and jockeys worked as independent contractors. Some U.S. tracks, such as the ones operated by the New York Racing Association, were non-profit organizations. By contrast, racetracks in some other countries were owned and operated by the national government.

All horse racing, except quarter horse racing, involved thoroughbreds, usually three-year-olds. A racehorse achieves peak ability at age five, but few races included horses older than four due to increases in purses, breeding fees, and sale prices. Owners of thoroughbreds tried to produce superior horses through complex mating strategies, with the most desirable horse being one that performed well during long races. But as Patrick Cunningham, a professor of animal genetics at Trinity College in Dublin, claimed in Fortune, "Only 35 percent of the differences between horses is attributable to genetic factors; the other 65 percent reflects diet, training, and random health-affecting events around the barn."

Early horse races featured a simple system of wagering in which spectators tried to pick the winner. In modern horse racing, however, spectators placed their bets on the first three horses, and most of the purse money was provided by the stakes fees of the horse owners. This practice, called pari-mutuel betting, created a common betting pool and paid off numerous winners. Those who wagered on horses finishing in the first three places (win, place, or show) shared the total amount betted, minus a percentage for the track management. Most purses allocated 60 percent to the winner, 20 percent to second place, 10 percent to third place, and 5 percent to fourth place. The system always provided the operator a profit and allowed any number of bettors to win.

Racetrack management began to offer pari-mutuel betting with the invention of the totalizator in the 1920s. The totalizator collected all bets and provided an instantaneous picture of the betting pools, displaying the approximate odds to win on each horse. Computerized totalizators at modern tracks flashed these totals to spectators at regular intervals, and also displayed race results, payoff amounts, and running times.

Dog Racing.
The dog racing sector of the industry consisted of events featuring a group of greyhounds chasing a mechanical rabbit around an enclosed track. Based upon an older sport where dogs hunted by sight rather than scent, the first greyhound race was held in Emeryville, California, in 1919. In U.S. races, eight dogs competed per run, with up to 11 quarter-mile races per program. Similar to horse racing, dog racing in the United States included wagering and was governed by state commissions. The 1990s saw animal rights groups start widespread lobbying efforts to secure homes for retired greyhounds.

Car Racing.
In the 1900s, many cities and states began banning car racing on public roads, which led to the advent of closed circuit courses built specifically for the purpose of auto racing. The automobile racing sector of the industry included several types of events. Stock cars--American production cars with some modifications to their bodies and engines--generally raced on oval tracks with banked corners. Stock car racing was governed by the National Association of Stock Car Auto Racing, or NASCAR. Formula One or Grand Prix cars--open-wheeled, race-prepared cars--competed at a number of tracks and street courses in the United States and around the world. Formula One racing was governed by an international authority. The American version, often called Indy cars, raced on both oval and road courses around the country. Indy car racing was governed by the United States Auto Club (USAC) at the Indianapolis 500 and by Championship Auto Racing Teams (CART) at all other venues. Dragsters--which included a wide variety of cars with significant modifications to their tires and engines--generally raced for a quarter mile in a straight line. Drag racing was governed by the National Hot Rod Association (NHRA). Various other professional and amateur auto racing series existed, including sports cars, dirt-track racers, and go-carts.

The Daytona International Speedway, known as the "World Center of Racing," became one of the best known racetracks in the United States and featured stock car, sports car, and motorcycle events. The track's most popular race, the Daytona 500, began in 1959 and remained the premier event and opening race of the NASCAR Winston Cup Series. The Daytona 500 was started in February of 1959, when prize monies totaled $67,000. By 1999, that figure had jumped to over $3.6 million.

The Indianapolis 500 became the main event of the 12-race USAC drivers' championship. For many years, following its inaugural running in 1911, the race took place on a surface of paving brick, which gave rise to the speedway's nickname, "the Brickyard." The modern track, however, featured an all-asphalt surface except for a 36-inch strip of the original brick at the starting line. The 500 was the only annual race at the speedway until 1994, when the first Brickyard 400 race for NASCAR Winston Cup stock cars was held. In 1959, Lee Petty, the winner of the first Dayton 500 took home $19,050; in 2009, the winner, Matt Kenseth, left with a paycheck of $1.53 million.

Motorcycle Racing.
The motorcycle racing sector of the industry included two main types of events, road-bike races and dirt-bike races. In road-bike races, professionals and amateurs rode low, sleek racing motorcycles on asphalt tracks. In dirt bike racing, participants rode all-terrain motorcycles with knobby tires and special shock absorbers on dirt tracks. Street and off road racing has become more and more popular, with regular appearances on the popular sporting television channels such as ESPN and ESPN2.

Background and Development

Horse racing was one of the oldest sports known to mankind. Some of the earliest races, both chariot and bareback, were held at the Olympic Games in Greece from 700 B.C. to 40 B.C. England's King Charles II, who ruled from 1660 to 1685, inaugurated the first races that offered prizes to winners, which were called the "King's Plates." The original King's Plates were standardized four-mile heat races for six-year-old horses carrying 168 pounds. A horse had to win two heats to be declared the winner. Although heat racing continued in the United States well into the 1860s, dash racing took over in Europe. A dash was any race decided by one heat, regardless of distance.

Thoroughbred breeding began in the 1700s, and all of the 500,000 Thoroughbreds born since that time were said to have descended from the same small group of Arabian and English horses. In fact, Cunningham proved that modern Thoroughbreds drew half of their genes from only ten horses. A famous horse known as the Godolphin Arabian, born about 1725, contributed 14.6 percent of the genes.

In North America, horse racing began in 1665 at Hampton Plains, Long Island. Richard Nicolls, governor of the colony of New York, offered a silver cup as the prize--the first known North American racing trophy. During the modern era, horse racing evolved from an activity to amuse the leisure class into an enormous business providing public entertainment. The three best known American races were the Belmont Stakes, inaugurated in 1867, the Preakness Stakes, first run in 1873, and the Kentucky Derby, which began in 1875; these races together were dubbed the Triple Crown.

Americans began racing automobiles virtually as soon as they were invented in the late 1800s. The first racetracks generally formed either where people gathered to race their cars--like on the flat sand beaches at Daytona--or where manufacturers tested their new products--like the facility in Indianapolis. Speeds increased dramatically over the years, as did the stakes. Prize money for the Indianapolis 500 topped $9 million in 1999, and the race was won by driver Kenny Brack.

While the gambling industry in general soared 67 percent from 1982 to 1988 to reach $253 billion, the annual amount betted on horse racing climbed barely 17 percent during the same period, to $13.7 billion a year, according to Business Week. Horse racing faced intense competition from other forms of legalized wagering, including riverboat gambling, casinos, and state lotteries--which alone drained about 11 percent of potential bettors from horse races. Many analysts claimed that racetracks became complacent in their marketing efforts and were unprepared for this new competition. Because illegal horse racing bets are still taken throughout the country, the exact amount of money wagered on such events is hard to pinpoint.

Thoroughbred horse racing attracted 60 million spectators to racetracks in 36 states at its peak. On a total of 8,000 racing dates, visitors bet more than $13 billion at the tracks and at off-site locations. In the late 1980s, however, the horse racing industry began to fall behind more publicized and simplistic forms of legalized gambling, particularly the state lotteries. Unprepared for the influx of competition, track operators scrambled to make their courses more inviting to spectators in order to attract new and younger customers.

Even off-track betting (OTB) shops presented a threat to the racetracks. Although the tracks received a percentage of OTB commissions, customers watched simulcasts of live races at off-track sites rather than coming to the racetrack. So while total wagering on thoroughbred racing nationwide increased, paid admissions fell. According to Business Week, "From 1986 to 1990, nationwide betting from off-track sites soared 86 percent, to $4.1 billion, while on-track wagering fell 36 percent to $6.1 billion." The drain caused by simulcast races magnified the need for track management to attract new spectators to their venues. By the early 1990s, many tracks began to market themselves more diligently, adding customer relations departments and special services.

However, several industry analysts felt that the horse racing industry suffered from a more fundamental problem: many Americans simply did not understand the sport. For example, Ken Alhadeff, executive vice-president of Longacres Race Course near Seattle, told Business Week, "Kids grow up with football, but horse racing remains a mystery to most of us. The savior of racing will be our ability to attract new fans by ripping down the intimidation factor." Longacres' attempts to retain spectators included handing out "First Timer's Kits," which explained how to read the Daily Racing Form, and offering a "New Comer's Corner," which taught betting techniques.

Several track operators also began hedging their bets by adding other gambling venues, like video poker machines. Hollywood Park in Los Angeles, for example, opened a card club, and Louisiana Downs planned to run a riverboat casino. Moreover, some racetracks began adding non-racing entertainment, such as restaurants, video arcades, music theaters, and parks.

By the late 1990s, there were finally signs that horse racing was making a comeback. The average purchase price for horses of all ages increased, with an impressive 35 percent increase in the sale price of yearling horses, the most popular age. Television ratings were up as well, thanks in no small part to the near Triple Crown performance of the horse Real Quiet. A strong 1999 season by the horse Charismatic continued this trend. Though the horse racing industry is still not where it once was, it is now making positive strides.

In June of 2005, the American Horse Council (AHC) released a study titled The Economic Impact of the Horse Industry in the United States, conducted by Deloitte Consulting LLC. At the time of the study, there were 844,531 racehorses in the United States generating $26.1 billion from the racing industry sector. Whether it is the horse owners themselves, racetracks, or "off-track betting operations," these sectors all complement the industry's bottom-line. Funding for the study was provided from the American Quarter Horse Association, The Jockey Club, the National Thoroughbred Racing Association and Breeders' Cup Limited, Keeneland Association, American Paint Horse Association, American Association of Equine Practitioners, U.S. Trotting Association, Thoroughbred Owners and Breeders Association, and the U.S. Equestrian Federation.

Since riverboat gambling came onto the scene in 1991, it has reduced horse racing's market share. Some observers place the reduction in wagering at tracks at $350 million. Thus, casinos were still giving some racetracks a run for their money. However, that was about to change for Illinois. On May 26, 2006, then-Governor Rod Blagojevich signed horse-track subsidy legislation that translated into 3 percent of the four largest casinos' annual receipts, or an estimated $36 million. In 2006, Internet gaming legislation was legalized, providing a source of additional revenue to the struggling horse-racing industry. The effort was the result of an eight-year effort by the industry to protect licensed, regulated account wagering.

Current Conditions

In 2009, there were 125 horseracing tracks in operation in the United States. California, New York, and Ohio were home to the most tracks with 25, 10, and 8 tracks, respectively. However, some of those tracks were falling on hard times due to economic pressures caused by a recessive economy in the late 2000s. Race horse owners usually consider their horses as an investment; however, payoff, if any, only comes several years down the line, after spending tens of thousands on keep, care, and training. Thus, when the economy tightens, horses are often the first investment that gets shed from investors' portfolios. As a result, in some parts of the country, the bottom fell out of the horse market as owners tried to unload their horses. Some owners simply gave their horses away. That left tracks short on horses on race day. Many tracks in California reduced the number of horses raced from 14 to 8, and some had to cancel races because there simply were not enough horses to race.

Because so much of horse racing is based on discretionary income--from the horse owner's investment in the race horse to the spectator's willingness to bet on the race--the deep recession was causing serious problems for some racetracks. In 2009, California's Hollywood Park closed, and Santa Anita's parent company filed for bankruptcy. In Oklahoma, Remington Park also entered bankruptcy proceedings. In April 2009, Maryland's governor signed emergency legislation to issue bonds to save Pimlico, where the Preakness is run, from its bankrupt parent company, Magna Entertainment Corp. Iowa's Prairie Meadow's track ran at a deficit of $29 million, which was subsidized by on-site gambling. In general, tracks that offered on-site slots and other gambling opportunities were doing better than those that either chose not tp or were prohibited by law (e.g., California) from offering such services.

In 2009, 44 greyhound race tracks could be found in 13 states. Florida had, by far, the most of any other state, with 16 race tracks. Like horseracing, dog racetracks that included other forms of gambling were tending to do better than those that did not. In 2009, after Miami-Dade County voted to allow slot machines at racetracks, Miami's Flagler Racetrack announced a $91 million expansion project. Some states also allowed tracks to pad their live races with betting on simulcast races from tracks around the country.

In the latter 2000s, auto racing remained popular in certain segments of the country as fans watched their favorite drivers accumulate points during the season on their way to earn the title. However, overall attendance was down as was television viewership. The decline has been blamed on a number of factors from a change in start times to appease West Coast viewers to tougher sanctions for unsportsmanlike conduct. In addition, regulations on the build of the cars increased parity within the field, changing the dynamic of the races over the decade. For their part, auto racing drivers and teams were scrambling in the late 2000s to secure sponsors to fund their expensive cars as the economic recession of the time had many either cutting their sponsorships or backing out altogether.