2020 California Handle, Purses in Numbers

After a pandemic-stricken year in which ADW revenues hammered California industry coffers, the first month of 2021 brought with it a flurry of budgetary and purse account developments in response.

First came the announcement from the Thoroughbred Owners of California (TOC) that they had reached an agreement with TVG, the Del Mar Thoroughbred Club, The Stronach Group's 1/ST Racing, and NYRA to inject some $15 million into the purse fund over the course of two years.

In response, a subsidiary of the gaming corporation Churchill Downs, Inc. (CDI) filed a federal lawsuit against TOC, asking a judge to rule that TOC is precluded from using a state law to force CDI into either accepting lower rates, abandoning its just-signed agreement with Santa Anita Park, or else entering into arbitration to settle the dispute.

Litigation aside, what are the numbers underpinning some of these decisions?

At the beginning of the year, TDN asked TOC to put together a handle and purse comparison of the years 2018, 2019, and 2020–a more complete picture to the numbers the organization supplied in October of last year.

In summary, the data tells this broad story: A 30.3% decrease in races last year (compared to 2018) constituted a 15.7% decrease in all-source handle, and a 22.3% decrease in overall purses.

The numbers also tell another tale, one with potential implications for the Golden State's racing product.

That's because the lone major wagering growth area concerned California residents betting on non-California races, while out-of-state wagering on California races also took a sizeable hit. How much of that trend, however, was due to a COVID-shredded racing calendar last year in California?

To see the numbers in full, click here.

Main data points:

Handle

To get a representative comparison of what impacts the unprecedented swing toward ADW wagering had last year, we've primarily compared 2020 numbers to those of 2018 (2019, of course, being the year that Santa Anita was embroiled in its welfare crisis).

With a 30.3% decrease in races last year, as compared to 2018, there was a 15.7% decrease in all-source handle, and a 22.3% decrease in overall purses.

Out-of-state wagering on California races decreased by 18.6%, from $1.34 billion to $1.09 billion.

Handle from all-source wagering within California decreased by 12.9% percent, from $1.43 billion to $1.25 billion.

When it comes to betting revenues from within California, the most noticeable growth area concerned wagering on out-of-state races.

Looking at wagering within California on California races, handle from wagering at brick-and-mortar facilities dropped 36.5%, while handle from ADW platforms rose 5.2%.

Looking at wagering within California on non-California races, handle from wagering at brick-and-mortar facilities dropped 24.1%, but handle from ADW platforms rose 36.7%.

Purses

When it comes to wagering in California on California races, purses generated through brick-and-mortar wagering decreased 78.5%, while purses generated through ADW platforms increased 31.6%.

What's more, total purse generation in this area decreased 47%, from $50.6 million in 2018 to $26.5 million last year.

When it comes to wagering in California on non-California races, purses generated through brick-and-mortar wagering decreased 85.4%, while purses generated through ADW platforms increased 96.4%.

What's more, total purse generation in this area increased 10%, from $29.3 million in 2018 to $32.8 million last year.

When it comes to out-of-state wagering on California races, purses generated through commingled exports decreased 22.2%.

Per-race figures

All-source, per-race handle increased significantly from $785,692 in 2018 to $951,306 last year. The per-race purse yield, however, increased only very slightly from $35,531 in 2018 to $39,657 last year.

But again, zeroing in on which races are most attractive to California bettors, the baseline numbers raise questions.

Combining wagering from both within and outside of California on California races, the per-race handle grew 4% from $576,366 in 2018 to $599,669 last year.

Compare this to nationwide figures (using numbers from Equibase), however, and per-race handle grew 28% from $307,875 in 2018 to $394,412 last year.

Back to California, when it comes to the purse retention rate, as compared to 2018, the overall percentage of money taken from handle for purses dropped from 4.52% to 4.17%–what constituted a nearly 8% drop.

Analysis

TDN asked Thoroughbred Idea Foundation (TIF) executive director Patrick Cummings to weigh on the numbers and provide some critical analysis on what these numbers mean in terms of industry sustainability.

P.C: “Greg Avioli's point in your recent interview was spot-on–without detail on the composition of handle and customers, horsemen are at a distinct disadvantage when it comes to understanding how the betting business is being managed. In California, that is of even greater concern given that wagering is the only source of prize money.

“A track could say, 'look, handle was flat,' or 'handle was up slightly, we did well' and everyone feels good about that. But if the high-volume rebate shop players increased their handle, a function of sweeteners to rebates and the like, and mainstream customers saw their effective takeout rise and reduced overall participation, there is little reason to be positive with a total handle figure either staying flat or being up slightly. Horsemen need more insight to the quality of handle, not just raw quantity.

“There are some signs, nationwide, that high-volume play, that which comes from customers betting nearly $100 million a year or more, sharply increased in the second half of 2020. We are awaiting some additional data to flesh that out more, but if this trend holds, and mind you it has been shifting in this direction strongly over the last 15 years, it is a terribly bearish indicator for the sport, and specifically for horsemen and purses. And that doesn't even factor the tremendous competition racing faces from legalized sports betting.

“When the biggest customers in our pools are given added financial incentives to increase play, on top of the significant technological advantages they already receive, being able to dump massive bets in at the last second and know exactly what odds they are getting, the mainstream customer will only take the hits for so long before abandoning racing altogether. Our estimates, published in July, showed that the high-volume rebate shop players have increased their handle by an inflation-adjusted 115% over the last 15 years while all other customers, anyone betting less than tens of millions annually, have seen their handle drop by more than 60%, adjusted for inflation.

“And don't forget, the biggest racetrack owners also own most of the ADWs, the majority of tote companies and even some of the high-volume betting shops.

“The deck is stacked highly in favor of the status quo.”

 

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The Good, Bad and Ugly of 2020 in California

Most, I’m sure, will have seen the television advertisement for an online dating site that’s as on-the-nose as a well-placed left hook.

In it, Satan falls in love with the year 2020, played by a hellraiser masquerading as the girl-next-door. As flaming asteroids pelt the earth, Satan and 2020 watch on while lamenting the imminent turn of the calendar. “I just don’t want this year to end,” says Satan, wistfully.

Wistful nostalgia is hardly something many will be feeling when they eventually look back over this annus horribilis–yet somehow, it hasn’t been all tears and recriminations. Here’s a year-end review of the good, bad and ugly of the last 12-months in the California horse racing industry, with a few pointed questions that will roll over into the New Year…

The Bad: Pandemic in numbers

While the old racing game has proven surprisingly resilient to the schedule–shredding machinations of a global pandemic–especially compared to other sports whose calendars were taken to with a chainsaw–the Golden State has hardly walked away unscathed.

Earlier in the year, live racing was suspended at Santa Anita Santa for nearly two months. Del Mar management had to nix a weekend of racing near the start of their summer meet after 15 jockeys tested positive.

Golden Gate Fields, with more than 300 positive cases, is currently sitting idle, handbrake on, while they await the greenlight from local authorities. And when will that be?

The news out of the track continues to be open-ended. Dave Duggan, the facility’s general manager, explained via text how they continue to work with the local health department. At the same time, he remained mum on things like a tentative opening date and the current situation regarding positive tests.

Both in the near and long term, however, a more consequential fallout is the economic impact on the industry’s daily operations from an unprecedented betting shift towards ADW platforms–a trend that may prove hard-baked into the bettor’s psyche, even when the pandemic lifts.

This should make for stark reading for anyone who makes their living from horseracing in the state. Why?

The way the industry operates in California, many vital programs receive a good bulk of their funding through bets made at brick and mortar facilities, and decimated revenues in this sphere are going to have a profound impact on the bottom line of these programs, some of which were anemic as it was.

In an October Q&A with the TDN, Thoroughbred Owners of California (TOC) CEO and president Greg Avioli dug down into the complicated financial weeds of this issue.

Just look at the state’s stabling and vanning fund. In that Q&A, Avioli explained how that program–primarily funded from wagering at the OTBs and satellites–is operating with a $3.7-million deficit this year. Other effects are less obvious but just as astringent.

Revenues, for example, from uncashed or unclaimed refunds, tickets and vouchers are used to fund such things as health and welfare benefits to jockeys and to programs benefitting the backstretch community. While those funds aren’t limited to bets made at brick and mortar venues, ADW wagers never go uncashed. And we’re talking hefty amounts lost as a result.

During the fiscal year 2018-2019, funds from unclaimed tickets used to benefit the backstretch community totalled $836,090, according to the California Horse Racing Board (CHRB).

Then comes the issue of purses–an imperative for trainers who don’t make a living from their day-rates.

As I reported a few months back, against a comparable eight-month period in 2018, the number of races this year had declined 30%, and while the overall handle fell only 18.8%, purses dropped more than 26%.

In other words, a boon for the ADW industry hasn’t necessarily translated into a windfall for the California horsemen. Which begs the question: How much of Santa Anita’s recent record opening day handle funneled back into purses?

The deadline for the latest round of ADW contract renegotiations is the end of the year, when the hub agreements expire.

I’ve asked the TOC for a primer when the details have been inked. The TOC has also promised a full annual breakdown of handle and purses–much like the organization did for the first eight months of 2020, but this time month-by-month–when the new year rolls around. Watch this space.

The Good: Equine safety

This is an easy equation: California’s improving equine safety record, with Del Mar once again heading the safest racetracks in the country. In their case, this marks four years of hard work and proven results–an achievement that can’t get noticed enough.

I’ve written about this topic pretty extensively, trying to parse the whys and wherefores–no easy task by virtue of the multifaceted nature of any equine injury. One common thread has been this, however: Catching brewing problems early enough.

In this regard, Santa Anita’s new diagnostic tools–the MRI and PET scan technologies–are a central piece of the puzzle. Since their inception at the track, researchers have unearthed a veritable treasure trove of new information to help explain the epidemiology of fetlock fractures.

But a broader panoramic view is of an evolving culture shift across California’s backstretches, with the “one-more-run” mentality being eschewed in favor of a more holistic “one-more-month-off” approach.

Many will say that this should always have been the norm–they’re right.

Nonetheless, California’s trainers, owners, veterinarians, grooms, hotwalkers, exercise riders and jockeys should be applauded for sticking with it and doing the grunt work of steering this unwieldy boat towards calmer waters–especially when the lure of bigger purses at more permissive states has made jumping ship an altogether tempting proposition.

The Ugly: Arbitrary decision making

At the latest monthly CHRB meeting, a point of contention proved to be the board’s decision to grant Los Alamitos a six-month license as opposed to the usual year.

As my colleague at the TDN, Bill Finley, subsequently put it, “The CHRB was being unreasonable when it voted to only give Los Alamitos a six-month license to run in 2021,” arguing that Los Alamitos “deserved better” than the way the matter was handled.

But what this speaks to is a much larger, more pressing and ongoing problem: When it comes to equine safety, by what specific set of standards and metrics are California’s license holders being held to so that decisions with professional implications are made with objective rigor rather than a subjective flavor or political bent?

As Mark Twain once said, “Facts are stubborn things, but statistics are pliable.”

On the surface, it looks like Los Alamitos has had a bad year–28 racing or training fatalities, the vast majority of which are Quarter Horses. This looks especially troubling when held up to the smaller fatality numbers at Del Mar and Santa Anita this year. But the devil, they say, is in the details.

For one, Los Alamitos is open to year-round training and racing. At Santa Anita, there have been 16 racing and training fatalities so far this year, but with training suspended during the summer months and a racing calendar in 2020 much smaller than Los Alamitos. How does the basis of comparison look when you factor in the number of horses at a facility, number of racing starts, number of workouts and the sort?

And then, did the board members also take into account how unlike Santa Anita, Golden Gate and Del Mar, Los Alamitos is only just instituting a fetlock arthrodesis program, which ensures that some horses who suffer severe fetlock injuries–those typically requiring euthanasia–undergo a complicated surgery to the ankle?

For context, eight reported Thoroughbreds have undergone fetlock arthrodesis surgery over the past year or so in California. If Los Alamitos had followed suit sooner, would that have skewed any of the numbers game in their favor?

I asked the CHRB for clarification on the basis by which the board made its decision. This is the response I received: “No statistical evaluation was performed.”

Let’s then step back and look at the ongoing legal battle between Jerry Hollendorfer and The Stronach Group (TSG), which revolves around TSG’s assertion the Hall of Fame trainer’s horses were disproportionately at risk during the track’s benighted winter-spring meet a couple years ago.

For their part, Hollendorfer’s legal team have released a number of counter-figures showing the trainer’s broad safety record as statistically normal. But let’s wear our analytical hats a moment longer.

One trainer has saddled three of the seven racing fatalities that have occurred at both Santa Anita and Del Mar this year, making this license holder responsible for nearly 43% of catastrophic racing breakdowns between Southern California’s two highest profile racing venues.

I’m not raising this statistic as a disciplinary call to arms–rather to bring attention to the necessity of context when looking at these multifaceted issues in isolation.

When digging down into this particular case, for example, all sorts of factors would have to be weighed for it to be analyzed fairly, including the number of starts over a lengthy period of time, number of horses in training, the trainer’s regulatory history. You’d also have to ask tough questions about the rigor of the regulatory scrutiny with which this trainer’s horses are given prior to running. Blame is nothing if not an egalitarian beast.

TSG’s actions against Hollendorfer, of course, took place prior to the adoption of a rule which requires the CHRB to conduct a thorough review of every fatality at a CHRB facility, including a review of the medication records.

But at the end of the day, if matters of professional import are being decided on some kind of proportionality, what exactly are the rules of the game?

Clearly, the state’s regulators and track officials need to do a much better job of explicating the lines in the sand, if indeed lines have been drawn. And if some of the newer horse racing board members aren’t savvy to the nuances underpinning the issues they’re required to vote on, they need to tip their hat to that publicly.

When livelihoods are on the lines–especially in the midst of a global pandemic, the harsh economic ramifications of which have yet to fully play out–it’s the least that can be asked.

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Pandemic in Numbers: Great for ADWs, Not So Much for Purses

Like an overzealous professor, the pandemic has taken a bright red marker to the status quo, with the racing industry very much on the receiving end of this economic revisionism.

When it comes to California alone, startling betting patterns have emerged with potentially serious ramifications for the long-term sustainability of the sport in the state–that’s according to handle and purse data from the first eight months of the past three years put together for the TDN by the Thoroughbred Owners of California (TOC).

Among the key takeaways is this: While a dramatic reordering of betting patterns has facilitated a quarter-billion dollar boon for the advance deposit wagering (ADW) industry, that hasn’t translated into a windfall for California horsemen.

Purse revenues in California during the first eight months of 2020 have fallen by $23 million when compared to the first eight months of 2018, and a $12-million loss from the same period last year.

The primary reason for such a marked drop in purse revenues is a fundamental pivot away from brick and mortar betting facilities shuttered during the pandemic–those which provide the highest purse retention rates–to lower yield ADW platforms. More specifically, the shift has been toward ADW monies wagered in California on out-of-state races, which have the lowest purse retention rates of all the potential betting avenues in the data table.

But other factors are certainly at play and, in another respect, the massive handles garnered by the ADW industry have helped to buffer the steep declines in the number of races run in California this year.

For the purposes of analysis, the TDN has primarily compared this year’s numbers to those of 2018 due to the Santa Anita welfare crisis skewing last year’s totals.

   Races and cards

There have been roughly 30% fewer races run this year compared with 2018, and nearly 32% fewer cards compared with two years prior.

   Brick and mortar

Overall handle–including all wagering from within California and out-of-state wagering on Californian races–has fallen by $368 million from 2018. This works out to a drop of 18.8% from two years prior on about 30% fewer races.

Unsurprisingly, the largest decreases can be observed at brick and mortar facilities.

The amount wagered in California at brick and mortar facilities on California races dropped some $252.7 million from 2018, and on out-of-state races at brick and mortar facilities by some $169.1 million.

Combined, that decrease amounted to some $421.8 million less wagered in California at brick and mortar facilities–a drop of over 70% from 2018 numbers.

   ADW and purse retention

The amount wagered in California through ADW platforms on both California races and out-of-state races constituted a roughly quarter-billion dollar windfall for ADW platforms from two years ago–a 59% increase.

Interestingly, the average ADW amount wagered per race on California races has grown from $67,000 in 2018 to $110,000 this year–an increase of 64%.

Despite the ADW companies reaping such prolific profits during the pandemic, the purse retention percentages from ADW handle are so low, and the losses to brick and mortar revenues–those with the highest purse retention percentages–so precipitous, that purse monies have suffered a hefty body blow this year compared to years prior.

To highlight just how costly a hit this has been to California horsemen this year, purse revenues have shrunk from roughly $87.8 million in 2018 to $64.3 million this year–a decline of just over 26%.

While that’s with 30% fewer races run in California this year, the overall decline in handle from 2018 was only 18.8%.

This purse decline has been exacerbated by a noticeable swing not only toward ADW platforms, which carry a lower purse retention rate than brick and mortar facilities anyway, but specifically toward ADW betting in California on out-of-state races, which have the lowest purse retention rate of all the various betting avenues.

Indeed, the amount of money wagered in California on out-of-state races on ADW platforms increased by $225.5 million between 2018 and 2020, but purse revenues from these monies grew by less than $7 million. During that period, the purse retention rate dropped from 3.46% to 3.29%.

While the amount of money wagered in California on California races on ADW platforms increased by $25.3 million between 2018 and 2020, purse revenues from these monies rose by only $1.3 million. During that period, the purse retention rate dropped from 5.94% to 5.81%.

The all-source purse retention rate has decreased by nearly half a percentage point since 2018–a drop that has cost the California horsemen over $7 million in potential purse revenues alone this year.

It should be noted that purse percentage retention rates are hard-baked into contracts, all of which are up for renewal at the end of the year.

   Wagering from outside CA

The amount of money wagered out-of-state on Californian races fell from $944 million in 2018 to $747 million this year–a drop of about 21%. To put that into perspective once again, there was a 30% decline in the number of races run in California this year.

Interestingly, because the percentage of handle that goes to purses is so low on out-of-state wagering–3.62% this year–the loss of purse revenues generated from these monies was slightly less than $5 million from 2018.

   Questions for the future

The numbers raise all sorts of pivotal questions. For one, exactly how will the industry continue to oil critical daily operations–things like the running of the California Horse Racing Board (CHRB), the stabling and vanning fund, the off-track wagering network, and workers’ compensation. These have traditionally been funded primarily through on-track and satellite wagering revenues.

Stepping back, these numbers also raise fundamental questions about the long-term viability of the industry in California in the event the economic toll from COVID-19 is sustained, especially if brick and mortar facilities stay closed, and the current betting patterns and purse retention rates remain unchanged.

How long, for example, can California purses–already the poorer cousins of some other states–remain constricted before that parlays into lasting economic harm to the horsemen in terms of a decline in quality product?

And what about the betting environment post-pandemic? Will discretionary spending patterns revert to type from before the pandemic, for example? Or will the marked swing toward ADW betting prove hard-baked into the behaviors of the betting public?

   Thoroughbred Idea Foundation

The TDN shared the data with Pat Cummings, executive director of the Thoroughbred Idea Foundation (TIF). Just recently, the TIF argued that horsemen should be better compensated for the content they provide. Cummings’s response is as follows:

“Probably our most fundamental problem, nationwide, is that racing is trying to survive a nearly two decade-long decline in handle in what is the most competitive legal wagering marketplace in American history with a product that, mostly by design of its own industry, is increasingly uncompetitive.

“California’s purses are subsidy-free and sustained only by wagering on racing. If they want some sort of stimulus, it is going to have to come from finding ways to increase wagering on its own product. Making actual wagering on actual horse racing as competitive as possible in light of the ever-expanding options for bettors should be the goal.

“Horsemen want a larger share, and they deserve it–ADWs retain the majority of the takeout dollar, and it is a wholly unfair system to the people whose work enables a wagering product to be delivered in the first place. The splits on betting were established when internet wagering was microscopic and while the world has evolved, the splits have not. If the horsemen got into the ADW business 20 years ago, it would be a different story, but they are boxed out of that space and now need to demand a fairer cut. There is one major caveat. While purses need to rise, and horsemen need a larger split, it is tempting to hike takeout on bettors–make no mistake, that would only hasten racing’s handle decline.

“Tracks, horsemen and all stakeholders need to focus on ways to stimulate betting on racing–this should include a focus on reducing pricing where possible (in California, that involves the legislature), finding ways to increase betting churn as opposed to highlighting churn-killing jackpot wagers, and leading with improved measures of transparency that will be appreciated and engaging for customers. We recognize the challenges of implementation are significant, but the greater betting marketplace is getting more crowded and a path to success will get tougher the longer it takes to revolutionize the racing wagering space.”

 

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Thoroughbred Idea Foundation: Horsemen Deserve Fair Compensation

Horsemen should be properly compensated for content. A major source of funding for the sport and its stakeholders, is in jeopardy.

Horsemen have been pawns in the operation of racing for decades, not receiving their fair share of compensation for the content that their horses provide. The effects of the global pandemic have only made this clearer. Through the first six months of 2020, wagering on American races is down nearly 11 percent. Purses, however, are down 40 percent.

When the doors to casinos closed, and racing was put on hold, horsemen suffered. The owners and operators of advanced deposit wagering outlets like TwinSpires and Xpressbet did not. In fact, profits from Churchill Downs Incorporated's online wagering business rose 39 percent in Q2 2020 from the previous year despite not hosting its flagship event!

These two entities, among other ADWs, were pressed into service like never before because of the pandemic's impact which effectively closed on-track betting. While undoubtedly helpful, the customers forced to switch online may never return to betting through the sport's most lucrative channels – on-track wagering. This will hasten the imbalance in contributions to purses.

As most horsemen realize, online, out-of-state bets on racing are often the least valuable to purses. Now, ADW betting is the vast majority of wagering and unlikely to change soon. Even worse, the ADWs continue to retain an outsized portion of the commissions from wagering takeout. Without racing, the ADWs have little to offer customers. They should not take advantage of the horsemen who enable their very existence.

In its latest publication (click the link to read more), the Thoroughbred Idea Foundation (TIF) calls on horsemen, and their representative groups, to begin asking critical questions about the composition of wagering on its races, increasing attentiveness to approvals of wagering contracts and to better understand the delicate balance needed to continue sustaining racing purses. Racing operators act purely from a position of self-interest.

Horsepeople need to start doing the same.

The time to fix the broken model is now.

Roughly 65 percent of all wagering on racing in Q2 2020 came from the major ADWs, like TVG, TwinSpires, Xpressbet and NYRA Bets. So if doors were closed to tracks, where did the rest originate?

TIF estimates that approximately one-third of all wagering on American racing comes from entities we characterize as “high-volume betting shops,” or HVBS, which are the equivalent of private, high-end wagering platforms which do not need separate ADWs. As HVBS wagering increases, a series of disadvantages are created, increasing costs on all other bettors, and having the effect of reducing participation from, or outright eliminating, non-HVBS players.

The impact for all racing stakeholders, particularly horsemen, will be felt over time because HVBS players (which number in the dozens) are often the least profitable towards purses. HVBS wagering has increased over time, from only 8 percent of U.S. betting in 2003 to the estimated 30 to 35 percent now. When you adjust for inflation, racing's least valuable customers (relative to their contribution to purses) have increased by 114 percent in the last 16 years.

Meanwhile, participation from racing's most valuable customers – recreational players wagering under $100,000 annually – is declining at alarming rates. Make no mistake – our sport needs ALL of its customers, both from HVBS and non-HVBS sources. TIF estimates that all non-HVBS play has declined by a staggering 63 percent, adjusted for inflation, since 2003.

The most valuable source of prize money has dropped by a significant amount while the least valuable source has increased substantially.

This situation threatens purse levels in the intermediate and long-term across all racing jurisdictions, but particularly in light of the evolution of competitive wagering products – legal sports betting, daily fantasy sports and the growth of online casinos, which do not contribute revenue to purses even if the online license is granted to a track operator.

As racing faces declining contributions from casino-related revenues towards purses, or worse – loses all casino-based contributions to purses – along with a steady rise in wagering competition, horsemen must get involved in these contracts and start asking questions, increasing attention on the racing wagering business.

If you would like more information, please reach out to TIF Executive Director Patrick Cummings or one of the TIF board members.

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