2000 Purse Review (Cont.)

PURSES UP, BUT PROFITS ELUDE MAJORITY

Increases in overall purses and the average earnings per starter are encouraging but sobering at the same time. While North American purses increased 8%, the percentage of racehorses that covered their average annual operating expenses (estimated conservatively at $25,000) only rose from 15% to 16.3%.

"We are trying to promote and market Thoroughbred ownership, and that is difficult if you tell people only 10% will make money," said Dan Metzger, president of the Thoroughbred Owners and Breeders Association. "These numbers do cause concern, just like it does at the sales. We are very concerned about the middle and lower ends of the market."

Metzger lowered his estimate of horses covering their costs to 10% because he said owners probably pay closer to $40,000 a year in expenses.

Some horsemen's groups have argued for redistributing purse money away from stakes programs and into allowance and claiming races, according to Metzger. But he doesn't believe that is a solution.

He said strong stakes programs are necessary because they keep the quality of racing high. Higher quality races also attract more fans and higher handles.

"It begins with bringing fans back to the racetrack and increasing the handle through things like TVG," Metzger said about the TV Games Network, a satellite horse racing network and interactive wagering service that is a marketing partner with the National Thoroughbred Racing Association. "We need to increase the fan base because that is where all the funding comes from."

NTRA officials also were concerned about the percentage of racehorse owners losing money on their investments.

"A primary mission of ours is to improve economic conditions for all industry participants," said Eric Wing, the NTRA's media relations director. NTRA commissioner Tim Smith was traveling and unavailable for comment.

Wing said the association aims to increase purses at all levels by making betting on a horse race as easy as possible, and by moderating or eliminating overly intrusive government regulations.

Betting on horse races doesn't get much easier than on the Internet or through interactive television, which are the next major sources of revenue for the Thoroughbred industry, according to Sebastian Sinclair, a gaming analyst with Christiansen Capital Advisers.

Internet gambling revenues for 2000 were an estimated $2.2 billion, up from $1.167 billion in 1999. Sinclair predicts that by 2003 Internet gambling revenues will be an estimated $6.3 billion.

"With the changes we've seen in interactive television, gambling this way is going to be as commonplace as a Budweiser commercial during the Super Bowl," Sinclair said.

Pari-mutuel industries in the United States, however, could miss out. U.S. Rep. Bob Goodlatte (R-Va.) and U.S. Sen. Jon Kyl (R-Ariz.) have said they will reintroduce their Internet Gambling Prohibition Act this year. Sinclair said both politicians have promised a revised bill that should pass, which could mean removing some controversial exemptions for the pari-mutuel industry.

If the prohibition bill passes, Sinclair said the United States would lose a lot of money to countries like the United Kingdom, which just eliminated its betting tax to lure back home major bookmakers that set up businesses overseas. Britain's five major bookmakers--Ladbrokes, William Hill, Coral Eurobet, Stanley Racing, and the Tote--have already said they will return or not move out.

Major U.S. racing companies can avoid being shut out, even if prohibition passes, by setting up foreign operations now, according to Sinclair.

"I do believe that if racing businesses--like the Hong Kong Jockey Club or Churchill Downs and others--go out into the marketplace now and compete, they have a window of opportunity," he said. "I don't think the situation will be the same four years from now."