Best wishes go out to new National Thoroughbred Racing Association president Tom Rooney. And thanks to the Paulick Report for publishing his interesting statement.
Rooney has ambition, which is an essential ingredient in getting something important done. He wants to gain a sense of what's most important to racing and how he can most successfully advocate on behalf of the industry. Also, Rooney is not naïve. He cites opposition from people who can never be convinced that racing is doing what's right by the animals. For sure there is a segment of the population that holds this view regardless of sweeping safety reforms in racing. Unfortunately, continuously confronting this form of opposition seems far down the list of urgent priorities, particularly given the difficulty of changing some minds.
Speaking of the difficulty of changing minds, Rooney sets the lofty goal of building consensus in the industry so he can tell the positive story of the sport of racing in Washington, D.C. Rooney also says, “We need to constantly strive to do the best that we can do for the industry.” Amen to this assertion. However, while Rooney will no doubt do “his” best, the answer to the question of, “What is best for racing?” seems yet to be determined. Rooney is to be applauded for his aspirations regarding the need for consensus. Still, it is critical to recognize that like his predecessor, Alex Waldrop, Rooney is going to find that while he and many others may “want” the NTRA to speak for racing with a unified voice in Washington, the entities controlling the wide range of operating assets in racing are anything but unified as to what comes first.
For racing, agreement on sequencing priorities remains elusive.
Let's tackle Rooney's noble aspirations to see if we can better organize our thoughts in examining the complex task of problem-solving for racing. The “leading issues” facing racing cannot be agreed upon by the participants, simply because racing is not an entity. Racing is a loose collection of mostly unaffiliated participants struggling to benefit from stability. All efforts are conducted individually, while costs run out of control.
The root of the problem is racing suffers congenitally from foundational structures that have actually INHIBITED meaningful industrywide cooperation. This has gone on for decades. Racing is merely one niche competing in a massive modern eco-system we will refer to as the multi-billion-dollar sports entertainment market. Like so many entertainment markets where there is competition for fan dollars, thoroughbred racing's success requires genuine cooperation. Perceptions of the real incentives for cooperation must be imbedded in the foundation of racing.
In other words, changes necessary for racing to prosper must be STRUCTURAL.
Witness the structural revolution of college football in recent years. The Southeastern Conference (SEC) commissioner has gotten roughly a dozen schools to closely cooperate. So successful is the SEC in getting member schools to cooperate, they are now deep into the process of destroying the competitiveness of college football in all other conferences. Through cooperation, the SEC holds down input costs. And in an enormously profitable industry, the SEC dominates a sports marketing niche that generates billions of dollars in sales. SEC revenue streams are now growing and financing still greater advances in its competitive advantages.
The contrasts between the structures of thoroughbred racing and the NFL, NBA, MLB, NHL, and SEC are like night and day. These entities conduct themselves as well-organized niche monopolies in the sports entertainment market. Their commissioners succeed in tests of the perimeters of federal anti-trust statutes. These sports entertainment competitors negotiate as a single entity with suppliers of the raw materials that contribute to the creation of their products and services. They do the same with would-be distributors. They use a wide range of creative tools to control costs at all levels, and as a result, are able to distribute their products efficiently with pricing power. These leagues are prospering mightily while thoroughbred racing entities struggle while going it alone. Why?
Consider the astounding performance of Messier yesterday at Santa Anita. Messier is arguably the most promising 3-year-old colt in the nation on the Kentucky Derby trail. For now, he puts his talents on display at a major racing venue that produces many Eclipse Award winners. Yet Churchill Downs has banned his trainer for two years, while the industry tries to decide what to do about Medina Spirit's Derby win last year. At some point everyone at Churchill, Stronach Group, and the New York Racing Asssociation should consider a private summit to discuss this situation and what it tells everyone about racing, not to mention the difficulty of enhancing the value of individual franchises.
Racing participants continue to operate in a bifurcated and economically unvirtuous doom loop where even those with scale or mini-monopolies tread water. Most other racing participants flounder and many eventually fail. The better outcomes seen with the SEC and professional sports “leagues” is the result of STRUCTURE first, and sound execution second. And ironically, the benefits of real cooperation can be observed right under racing's nose in Lexington in the athletic department of the University of Kentucky, not in perceived power centers like New York City, Chicago or Los Angeles.
What are the barriers in thoroughbred racing that are preventing the sport from taking the same approach?
Many racing entities operate separately while wielding substantial power. Since we live in the midst of a digital revolution, let's start with data in the age of information. Consider that the Thoroughbred Racing Association and The Jockey Club control the vast and mission-critical databases associated with operating the racing industry. The implications of this present arrangement on mission critical data are part of a structural mosaic that inhibits cooperation.
More than 60 racetracks represent the core foundational structure of an anything but “monolithic” list of major participant hosts in the industry. Consider that the major racetrack venues are owned by separate corporate entities including: Churchill Downs (public market cap = $7.7 billion) Stronach Group (private), New York Racing Association (private – non-profit), Penn National Gaming (public market cap = $7.6 billion), and Caesars Entertainment (public market cap = $16.7 billion). Additionally, there are many other significant ownership entities with one or more tracks, including Del Mar, Keeneland and Woodbine Entertainment Group. There are also many stand-alone small racetrack owners.
Most of the major entities still squabble with one another over simulcast signals and television distribution arrangements like feudal lords a thousand years ago. The customer's interests are long lost, as are the long-term interests of most of the major host entities.
Why is it that both vast amounts of capital and the potential benefits of scale still fail to produce cooperation or unity? Again the explanation lies in basic structure. The invested constituent's default state is to gravitate towards the narrow focus of “survival.” Most industry observers are reasonably certain that the Kentucky Derby will always survive, as will the Preakness, and the Belmont Stakes. Accordingly, since Churchill Downs, the Stronach Group, and the New York Racing Association, each owns a slice of the rarest but still fragmented portion of the industry that figures to survive, genuine cooperation with perceived competitors cannot possibly drive the thought processes of their respective leaders.
Churchill Downs, in particular, is necessarily entrenched in enhancing/protecting its most unique franchise. To be fair rather than critical, leadership at large corporate entities like Churchill cannot be expected to forfeit their edge for a vague concept. They must be conservative when it comes to protecting shareholder investments. Something as valuable as the Kentucky Derby franchise should be protected.
However, given current perceptions, leaders at Churchill, Stronach and NYRA are highly unlikely to support a “cooperation plan” that has yet to be articulated, even if it will actually be the only path racing can take to produce a rising tide.
So … we see the alternative playing out instead. The much more narrow scarcity mentality that rightly recognizes the existing structural weaknesses in racing continues to prevail unabated.
What about the sport of racing itself? An end to the beauty of competition hardly defines the SEC, the NFL, the NBA, MLB or the NHL. Less competition need not define the essence of racing either. Tens of thousands of distinctly separate risk takers will continue to participate in racing. This impressive list of participants includes thousands of thoroughbred breeders and breeding entities, thousands of race horse owners and owner entities, thousands of independent contractors (trainers, jockeys and veterinarians), hundreds of stallion farms, and even several horse auction companies. Each can have a much better chance to prosper while still competing with one another if cooperation becomes the hallmark of the industry structure. While these various entities in racing will still compete, they could do so within an overall structure that redefines itself with an over-riding vision for prosperity instead of scarcity. Only constructive cooperation can make this happen.
What about thoroughbred racing's customers? They are frustrated while having a wide range of entertainment choices. Racing host entities continue to embrace far too many short-term paradigms that have nothing to do with serving the thoroughbred racing fan. If we can just get slot machine licenses, or better yet, more slot machine licenses, we can survive, even if our thoroughbred racing product continues to worsen. This is part of the survival mindset.
In the end, a handful of cooperative exceptions fall far short in racing, when compared to better-organized competitors. The “go it alone” mentality prevails in a brutal competitive landscape for fan dollars where real teamwork is essential. Though ownership syndicates and breeding syndicates collaborate and cooperate to produce the sport's stars, the lack of a growing fan base produces overall stagnation and decline. The end result is an overall horse population that is still in full retreat. Even with racing reduced to three days a week, five-horse fields are commonplace in the huge Southern California market that offers phenomenal weather.
Still, even with this disturbing trend in place, consensus for those that own the marquee physical venues in racing cannot agree on the priorities. Small fields in California and the closing of Arlington Park in the gigantic market of Chicago are the most visible symptoms of a huge overarching problem that goes unsolved. And since all of the previously mentioned venue-controlling entities are perceived in varying degrees by their leaders as adversaries, spontaneous combustion that produces “unity” on racing's priorities seems far-fetched. This reality will remain a fundamental truth no matter how hard any one person or group of people tries at the NTRA or anywhere else where hopes for unity remain.
Is it correct to describe as “herding cats” the job description of the commissioners of MLB, NFL, NBA, NHL and SEC? Thanks to a conducive industry structure, these commissioners convince a few decision-making members to cooperate and prosper. Given racing's current structure, imagine the correct way to describe the task Mr. Rooney is facing, considering the complexities and narrow perceptions of most of the interests participating in thoroughbred racing. Getting a bill through Congress is child's play when compared to securing real long-term cooperation in racing.
The first priority for racing will never be lobbying efforts directed toward Washington. The solution to this problem we call the stagnant future prospects for thoroughbred racing rests with the perceptions of the participants who actually possess scale, and the dubious structures they cling to for seemingly sound reasons.
Discovering the abundant benefits of cooperation, in a world where there are well funded competitors everywhere, will have to replace the prevailing provincial mindset. That these perceptions must change is amply supported by evidence supplied by the success of the SEC. But sometimes, even when overwhelming evidence of the narrow path to prosperity is abundant, it does not matter to those firmly entrenched in a scarcity mentality. We are there, and structural changes are going to be required.
If these forces were easy to overcome they would have been re-directed a long time ago. Meaningful change can be accomplished, but only with great difficulty.
Jim Spence, chairman emeritus of Spence Asset Management, is a longtime fan and owner-breeder of Thoroughbreds.
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