Slow Growth in North American Purses
by Eric Mitchell
Date Posted: 12/26/2001 3:10:37 PM
Last Updated: 12/28/2001 2:14:55 PM

From the Dec. 22 issue of The Blood-Horse
The boom from simulcasting is over and North American purses are now growing progressively slower every year like a freight train struggling up a mountain pass. The problem this time around is that the next mountain peak may still be a ways off, and the downhill side does not appear to be very steep.

As of Dec. 10, purses paid in the United States, Canada, and Puerto Rico were collectively tracking about 3.43% ahead of last year during the same period. The rate of growth is less than half what it was in mid-December of 2000 when North American purses were about 7.4% ahead of 1999 and ended the year 8% higher.

The slowdown doesn't surprise gaming industry experts.

"Simulcasting is mature," said Eugene Christiansen, chief executive and principal for Christiansen Capital Advisors, a gambling consulting and research company. "There is not much growth left in that market."

The primary reason purses are growing at all is slot machines, according to Christiansen.

Canada is proof. While purses in the United States are tracking about 2.9% higher than last year and Puerto Rican purses are a slight 1.6% higher, Canadian Thoroughbred purses are up by 10.6%. Woodbine Race Course, the country's largest Thoroughbred track, has been able to increase purses 60% since opening its slot machine casino in March 2000. United States purses also have gotten a bump from slots. Slot machines operating at racetracks in West Virginia (purses up 48.8%), New Mexico (purses up 12.6%), and Iowa (purses up 8.4%) have helped increase American purses from a year ago. Last year, U.S. purses grew just over 1%.

Slot machines, while they help purses, will never provide the same kind of growth as simulcasting. The purse freight train won't gain much momentum from account wagering either, according to Christiansen.

"The industry and the purse structure will never see again what simulcasting did," he said. "It was an unrepeatable experience." Simulcasting created seven consecutive years of growth and drove purses up 38% between 1994 and 2000.

The great unanswered question for horse racing now, according to Christiansen, is how it will relate to the online wagering market. He believes the industry is in a poor position.

"A massive change in the consumer market is occurring today," he said. "There are people taking advantage of that and it is not racetrack operations."

Large public companies like British bookmaker William Hill and small desktop operations in the Caribbean are taking in tens of millions of dollars in Internet revenue annually, according to Christiansen. Meanwhile, most American racetracks have already lost ground in the online revolution because they're hesitant to launch their own Internet wagering services.

Christiansen said he understands that companies don't want to risk their pari-mutuel licenses by diving into a legal gray area. The penalties for doing nothing, however, outweigh the reasons to wait, he said.

"The only way to deal with this is to go out and compete," Christiansen said. "If the Wire Act has done anything to curb wagering on football, I'd like to see it."

Unquestionably, slot machines and other alternative forms of gambling, such as card rooms, have done good things for purses at the tracks where they're offered. It is also clear how terrible it can be for tracks in neighboring states without alternative gaming. For example, purses this year dropped 16.4% in Kentucky, 6.3% in Maryland, and 3.6% in Texas.

Christiansen, however, warned that slot machines will hurt the racing industry in the long run unless racetracks stay focused on their primary mission of increasing the number of racing fans. In the past, purses increased when a track either attracted more fans or its fans wagered more money. With slot machines, Christiansen said racetracks could lose fans and still increase purses. The shareholders of publicly held companies won't complain because the slot machine revenue is keeping earnings up, and horsemen won't complain because purses are rising.

"It means a lot of these companies can be happy with fewer fans, and anything that starts to make people satisfied with fewer fans is pretty dangerous," he said. "The racing fan is the basis for the racing industry."

Thoroughbred racing's fan base has been stagnant for years and 2001 was no different, as indicated by handle. Total handle for 27 of the country's largest racetracks is tracking about 3.1% ahead of last year and on-track handle is tracking about 4.2% behind last year. Growth in handle has been about 3-5% for the past 20 years and has never kept pace with inflation, according to Christiansen.

"What that says is that your consumer base is not growing," he said. "It would be a catastrophic problem if it hadn't been for off-track betting and now slot machines.  

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