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Will Sports Betting save the U.S. Horse Racing Industry?

There sure seems to be a lot of pressure on the newly regulated sports betting market in the United States. An influx of tax dollars into the coffers of state governments was one of the main reasons to finally allow gamblers to make bets legally.

The entire reason this fight to repeal PASPA started in the first place was that the New Jersey stave government was looking for a way to prop up the failing Atlantic City casino scene. However, the one group that seems to need this the most is the horse racing industry. Once considered the Sport of Kings, it has seen far better days in the U.S., and given the number of tracks making noise about getting sports betting licenses, there is a real hope that it will return to glory in the coming years after sports betting is legal.

A snapshot of the U.S. horseracing industry today

While many casual sports fans may see coverage of events like the Kentucky Derby and the Breeders Cup and think the sport is full of romance, pomp and circumstance, the truth is far different. There are races going on every day at tracks account the country, but the crowds at the track are dwindling to almost nothing.

The fact that these tracks need to stay open to run the races means many of these properties don’t look like they have been renovated since the 1980s. For nostalgia buffs, that can be fun but for someone looking for a nice evening of racing entertainment, it doesn’t have the allure that it once did.

Off-track betting was both a blessing and a curse for the industry. First, it did allow bettors to make wagers without having to go to a track, which was good for the purses of the races. However, this meant even less reason to go to the track, which has a detrimental effect on the food and beverage numbers along with the ambiance inside the grandstand.

The industry has tried many ways to modernize their offering, but the easiest way out was to sell off the track to a casino entity. The problem with that is there is far more money in slots than in racing, so while the track remained unchanged, the rest of the facilities started to look far more like Vegas casinos.

When all is said and done, the numbers don’t lie. The amount of handle in the thoroughbred horse racing industry in the U.S. has been stuck around 11 Billion USD a year for a decade. Without a major shot in the arm, the industry will start to decline.

Can Sports Betting come to the rescue?

Since the repeal of PASPA, there has been a significant amount of movement in licensing and regulating in states like New Jersey, Delaware and Pennsylvania. Racetracks like Monmouth Park and the Meadowlands were quick to sign partnership deals with William Hill and Fanduel, getting their sportsbooks up and running in no time. The initial numbers were very promising, with millions of dollars of handle over a few short weeks in a slow period for U.S. sports.

However, the question that remains is will there be a large crossover between the sports bettor and horse bettor. Early indications are positive, but not to a point that makes the horse racing industry jump for joy. To make matters worse, between tax rates and the large percentage of revenue that the sportsbook providers are taking, there just isn’t that much left for the tracks from the sports betting pool. It is likely that these initial turnkey relationships will stay as originally negotiated, as the tracks will want to keep a bigger piece of the pie.

Another thing that tracks and the horse racing industry need to come to grips with regarding sports betting is the hold on bets. In horse racing, seeing that it is pari-mutuel betting, the takeout is a standard 20%. It is much lower in sports, with Nevada reporting a 5.3% hold on handle in 2017.

However, the handle numbers for sports betting will dwarf that of horse racing bets. The illegal betting numbers in the U.S. are estimated to be near 50 Billion in handle alone, so with regulation, we can expect the number to be much higher. This means that tracks will be generating much more revenue from their sports betting operations than from racing…which is good for the bottom line, but at what cost?

So, what is going to happen?

With sports betting having so much potential for driving business and revenue back to the horse tracks and OTBs around the U.S., it is a no-brainer that the horse industry should be fighting for licenses. These companies have been takin legal wagers for decades, so the infrastructure is already there. What has yet to be determined is the effect it will have on horse racing handle, or best to funnel sports betting profits back into the horse racing industry to prop up the Sport of Kings.

Horse racing betting is still immensely popular in other areas of the world, and the possibilities that come from a regulated sports betting market in the United States has given a glimmer of hope that it can return racing to the same levels in this country.