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Thoroughbred Idea Foundation: ‘Racing’s Wagering Business Needs To Evolve’ To Afford HISA

The creation of the Horseracing Integrity and Safety Authority (HISA) is the most significant development in American racing at the federal level since the passage of the Interstate Horseracing Act in 1978.

Questions now being rightly considered include how much HISA will cost and from where will its funding originate. Below, the Thoroughbred Idea Foundation offers some perspective on the costs. But as the greater industry determines from where the funding will come over time, racing should proactively adopt policies which seek to grow the wagering business.

The industry already has a plethora of obligations – aftercare, backstretch programs, integrity matters, jockey health and equine research, not to mention purses, the main driver for investment from owners. HISA adds to these. The best way for horse racing to afford all of its obligations is to grow the business.

Racing's wagering business needs to evolve – appropriate pricing of bets, improving access and reducing costs to accurate data, complementing pari-mutuel betting with fixed odds options, modernizing existing bet processing and infrastructure, all while increasing transparency to the public in many areas. Increasing costs to our already fragile wagering markets, or to a declining base of horse owners, without these needed improvements is a recipe for disaster.

Any step where costs to betting are increased to help pay for HISA programs will hurt the greater racing business.

PROJECTING COSTS

There is every reason to expect that a new level of federal bureaucracy functioning on top of individual state commissions will be expensive.

As it relates to testing, these expenses are fairly clear. For example, if the per-race spending on testing alone from the more than 5,000 races across all breeds overseen by the California Horse Racing Board were extrapolated across the entirety of U.S. Thoroughbred racing, nationwide testing alone would run approximately $20 million annually at current standards.

This is a cost already borne by individual commissions.

Factoring improvements and upgraded requirements it should be understood that the $20 million – just for testing – merely represents a starting point.

Administratively, what it will cost to start a federal authority from scratch is more challenging to envision. The HISA creates a layer of federal bureaucracy where one never previously existed. This isn't necessarily good or bad, it is a reality in development with little insight on costs to this point.

HISA requires the registration of all “covered persons” – an umbrella term which, according to the language of the bill, includes “all trainers, owners, breeders, jockeys, racetracks, veterinarians, persons (legal and natural) licensed by a State racing commission and the agents, assigns, and employees of such persons and other horse support personnel who are engaged in the care, training, or racing of covered horses [basically, all active Thoroughbreds].”

Most are already licensed by existing commissions, but some are not. Will that information be shared or require completely new registrations? The exact administrative requirements are (understandably) unknown to this point, but all of this will come with costs.

The United States Anti-Doping Agency (USADA), which will assist in the development of HISA, serves as a potential reference point to understand the possible administrative expenses.

According to its annual report, USADA conducted more than 14,000 tests in 2019 across various groups which include America's Olympic and Paralympic athletes, services to the UFC or contracted services for other events, such as the Boston and New York City Marathons. Off a base of just 30,000 Thoroughbred races, down from 36,000 run in 2019, it is reasonable to expect the number of annual tests in U.S. Thoroughbred racing would be no less than five times larger than those conducted by USADA, and very likely more.

USADA's testing costs in 2019 ran more than $13.5 million, but non-testing expenses, which includes results management, science, research and development and drug reference, education and awareness, as well as general and administrative expenses totaled an additional $9.3 million.

It would be reasonable to estimate that HISA's costs would be similar, if not more given a substantially increased number of tests, across a far larger base of competitors and events (races) requiring tests.

Whatever the exact costs, it will be more than pre-HISA times.

GROW THE BUSINESS

The best chance racing has of covering HISA costs is if racing finds a way to actually grow the business, turning around two decades of decline.

Grow the business. Grow the business. Grow the business.

State commissions are, for the most part, funded through fees assessed to, or withheld from, the sport's participants. Receiving a portion of the hold from wagering takeout is one source of funding, licensing fees and starter fees are another. Some receive funding through a share of alternative gaming revenue too.

If wagering on racing continues to decline, recalling that it has dropped roughly 50% adjusted for inflation over nearly the last two decades, the ability to pay for HISA and plenty of other programs required of the industry – aftercare initiatives, jockey health, equine research, among others – would grow increasingly difficult. Takeout hikes would be a completely counterproductive measure to pay for HISA as betting churn would decline.

The path to a brighter future, where the industry's liabilities can be covered, is wagering growth.

More wagering on racing yields a more sustainable business for all stakeholders. But yet, many of the decisions made by racing operators over the last two decades have been in opposition to growing wagering on racing. This has to change.

Whether it is the continuation of churn-killing jackpot bets, high takeout rates, an aversion from many to exploring fixed-odds options, or continuing to operate antiquated pari-mutuel bet-processing systems without modernization – these and other actions have greatly limited racing's growth all as the sport's liabilities increase and its social license to operate becomes tougher to retain.

As racing and humanity emerge from a troubling calendar year, make no mistake that 2020 was a year of tremendous growth in legal sports betting. Those states doing the best with sports betting are those which have embraced online betting and competitive markets. While the overall environment for betting has never been stronger, racing's wagering product remains stagnant.

If racing wants to succeed, and cover its growing liabilities which now includes HISA, it must undertake measures to radically improve – and grow – the wagering business.

The post Thoroughbred Idea Foundation: ‘Racing’s Wagering Business Needs To Evolve’ To Afford HISA appeared first on Horse Racing News | Paulick Report.

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Thoroughbred Idea Foundation Raises Jackpot Bet Concerns To Ohio Commission

Speaking during the public comment period of Wednesday's Ohio State Racing Commission (OSRC) meeting, Thoroughbred Idea Foundation (TIF) Executive Director Patrick Cummings raised concerns regarding changes to the provisions of the jackpot pick six wager at the state's Mahoning Valley Race Course.

“Seemingly without public notice, Mahoning Valley has flipped the terms of the jackpot pick six from where it was in March to where it is through its current meet,” Cummings said after the meeting, “and we wanted to ensure the Commission was made aware through the proper channels as it seems the Ohio Racing Rules require, and to investigate the measures the track took to make the public aware of the change.”

When racing closed for the season at the eastern Ohio track, the jackpot pick six wager had a 20 percent takeout with 30 percent of the daily pool withheld if there was no single ticket winner – yielding an effective daily hold of 44 percent. A total of 70 percent of the net pool was paid to the multiple winners on a given day should no single ticket winner exist.

A carryover of $2,620 was held from the end of the meet in March and offered, per Ohio rules, at the start of the next meet, which opened on Oct. 23. Written approval is required to change elements of the bet.

“The difference is that while the actual takeout remained the same, at 20 percent, the track has changed the daily withholding for the carryover to 70 percent, which is what they had been paying out back in March. Combining this takeout and withholding rate yields an effective daily hold of an astounding 76 percent, which we believe to be the highest such rate in North America for this bet type in Thoroughbred racing.”

“This is not a category where Ohio wants to be at the top of the pack,” Cummings told the Commission.

TIF has been critical of racing operators for allowing jackpot bets to proliferate across racing in the last decade.

“Jackpot bets are the opposite of what racing needs,” Cummings added after the meeting.

“These bets limit customer churn, which limits the opportunity for horsemen to earn purses from racing wagering. It defies all conventional logic to offer jackpot bets and limit the opportunity to grow wagering on racing, a metric in our business which has declined by nearly 50 percent when adjusted for inflation over the last 20 years,” added Cummings.

“Some tracks have paid greater attention to this in recent times, either eliminating jackpot bets or offering them on far more favorable terms.”

On a very positive note, several tracks have recently removed jackpot provisions from some wager types, while others carry more favorable terms on returning a large chunk of daily wagering which limits the daily hold.

Fair Grounds removed the jackpot provision from its pick five pools when its 2020-21 season launched in November, while Century Mile in Alberta abandoned the jackpot provision in its super high five midway through its 2020 meet. Today's card at Fair Grounds features a $27,704 carryover on its late pick five, paid to any number of winning tickets with all five winners.

Churchill Downs, whose “Single 6” bet pays 90 percent of the daily pool with just a 15 percent takeout, yielding an effective daily hold of just 23.5%, is among the most player – and horsemen – friendly jackpot wagers given the substantial daily payout provision.

Scott Borgemenke, Chairman of the OSRC, indicated his appreciation that the topic was raised and that, at least to his knowledge, the remarks from the TIF included new information to him. Chairman Borgemenke requested a copy of the remarks for review so that the issue could be examined further.

The entirety of the Cummings remarks to the OSRC are printed below:

Thank you, Chairman, for the opportunity to offer a public comment on behalf of the Thoroughbred Idea Foundation once again.

I wanted to raise your attention to a situation at Mahoning Valley as it relates to that track's jackpot pick six wager.

When the Mahoning Valley season concluded in March, it was operating a jackpot pick six bet type with a 20% takeout. When no single ticket winner existed for a particular day, 30% of the net pool (after takeout) goes to the carryover jackpot with 70% of the net pool paid to all winning tickets with the highest number of winners that day.

This sort of division yielded a daily, “effective takeout” of 44%, meaning that if there was no single ticket winner, 44% of the daily amount bet was withheld, combining the takeout and the carryover.

Obviously, a 44% effective takeout is quite high, but in the nationwide landscape of jackpot bets, falls in about the mid-range of pricing for such a bet.

When racing resumed at Mahoning Valley in October, and without seemingly any public notice to the change, the terms of the jackpot withholding were altered. While takeout remained at 20%, if there was no single ticket winner, Mahoning Valley transferred 70% of the net pool to the jackpot and paid 30% of the net pool to the multiple ticketholders with the most winners that day.

So, the numbers were flipped – in March, 70% of the daily pool was paid and 30% withheld. In October, and every race day since with a carryover, 70% of the net pool is withheld and 30% paid.

This is troubling for a few reasons, but most notably, the impact to the bet's daily effective takeout has changed substantially with this adjustment, going from being in middle of the pack at 44% in March, to where it is now, with a daily effective takeout of an astounding 76%.

The Mahoning Valley Jackpot Pick Six now has, to our knowledge, the highest daily effective takeout on ANY bet offered to Thoroughbred horse racing customers in North America.

This is not a category where Ohio wants to be at the top of the pack.

For some comparison, in recent months, the daily, effective takeout from others with similar bets types include Churchill at 23.5%, Charles Town at 34%, Aqueduct at 40%, Laurel at 52%, Indiana at 60.75% and the California Fairs at 70%.

Turning horse racing wagering into lottery-type bets is bad for horse racing. Sustainable wagering from horse racing emanates from supporting high churn bets, not lottery-type bets such as this. Racing benefits from continued customer wagering – but on days when the bet is not hit by a single ticket (which has been 25 of 27 race days to date this meet), 76% of the daily pool is withheld.

So besides offering this comment, we wished to submit two items for your consideration upon further examination – has Mahoning Valley received written permission by the Commission to make this change, and why was it not better communicated to the public?

There was a carryover when racing stopped in March – a total of $2,620 – that money was available in a revised Jackpot Pick 6 bet with these new withholding terms when racing there resumed in October.

By changing the terms of the jackpot withholding – from 30% in March to 70% in October and every day since, there has been a substantive change in the wager, which based on a reading of the Ohio Racing Rules, specifically, Chapter 3769-3-40-J-2, should have required written approval.

It's entirely possible this was received.

Less understandable, however, is the lack of transparency regarding the change.

So, while we are unarguably against the proliferation of these bets, especially ones which carry an outrageous daily effective takeout, almost no communication about the change from Mahoning Valley is a poor experience for customers.

We would greatly appreciate the Commission's attention to this matter.

The post Thoroughbred Idea Foundation Raises Jackpot Bet Concerns To Ohio Commission appeared first on Horse Racing News | Paulick Report.

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TIF: There’s Still Time To Make Handle A Top Priority For Racing

Racing needs a long-term plan which will put the sport on a path to raise handle to nearly $50 billion annually with more than $5 billion held by the industry by 2040.

Sound optimistic?

Falling well short of that goal would still be a monumental accomplishment given we are on track for another year at just $11 billion in handle, and down nearly 50% in the last two decades, adjusted for inflation.

So where are the plans from the industry to start thinking long-term about not just surviving, but thriving, and building a robust, wagering-forward industry?

Horse racing has a tremendous opportunity to lean into a massive culture of betting liberalization, but it has otherwise failed to capitalize on it. Time is still there, and the opportunity is not yet lost.

There is no doubt horsemen should be thankful for the enrichment they've received through purses over the last two decades coming by way of slot machines, video lottery terminals, historical horse racing or other revenue sharing from casino-related operations. In many cases, tracks and horsemen lobbied relentlessly for them. It makes sense that they continue to fight for them, but not at the expense of racing's most obvious source of sustainable revenue – actual wagering on racing.

These significant purse supplements have allowed the industry to minimize the importance of presenting a modern wagering product. Most tracks have not focused on making racing wagering more competitive and most horsemen's groups have not advocated for meaningful improvements to stoke wagering, either.

In some cases, 90% of prize money has come from subsidized sources beyond racing, wagering on the sport has not seemed as important – a reality which is reflected in annual handle figures over the last 20 years. Many owners and trainers within horsemen's groups do not possess a detailed understanding of racing wagering. They don't know what to advocate for to improve their own futures.

This is problematic, because as it relates to prize money for racing, the future is not bright.

Subsidies to racing from gambling beyond racing, in whatever form they take in states that have long enjoyed them, are changing. Some states are in worse shape than others. The pain of the industry's likely contraction will be widespread.

Horsemen cannot just want a bigger slice of a shrinking pie, it must advocate for growing the pie so that the slices grow for all parties.

Existing groups – including TOBA, state THAs, HBPAs and others – must begin to develop a meaningful strategic plan. Transformational steps to ensure the best possible future for racing must be embraced. At the forefront, a radical rehabilitation of wagering on racing is needed. No ideas should be off the table.

The sport is in no position to turn away from unexplored revenue streams or customer bases. Fixed odds betting on American racing is evolving, albeit slowly, and while there is no denying that the cut from fixed odds betting to tracks and purses is smaller than that provided by pari-mutuel wagering, ignoring the fastest growing legal wagering opportunity in modern American history cannot be an option. Racing's path through fixed odds must be navigated delicately and adjusted over time, but racing needs to be co-located with all other wagering opportunities.

Racing can make its pari-mutuel offerings better and get its wagering product in front of far more customers. The question, of course for all of this, is in the specifics. How?

The sport needs short, intermediate and long-term strategic planning, identifying and plotting courses to achieve goals over the next 10, 20 and 30 years.

Racing had no such plan in 1990 when annual wagering was an inflation-adjusted $18 billion and a decade later, topped $21 billion, also when adjusted for inflation. But what has happened in the intervening two decades is a mass legalization of wagering opportunities combined with significant technological innovations and a substantial increase in personal entertainment options. Racing has to compete if we are to preserve our sport, let alone grow it.

Where are the attempts to voraciously advocate for a most robust wagering offering for our sport which will likely rely far more on it in the next 20 years than it has in the past 20 years?

Just because we lack a centralized structure to oversee an industry master plan does not mean that those groups which exist now are hamstrung from starting one. Owners, breeders and all horsemen should be as interested in growing wagering as anything else they do. Many don't have the first clue where to start, and while unfortunate, it's understandable. There should be no further delays in correcting our course.

The Thoroughbred Idea Foundation was launched to advocate for progressive change in racing because we believe it is possible to turn the sport around.

With a concerted effort, racing could double handle in the next ten years, and double it again in another decade, but only if changes are adopted which would offer more realistic pricing of pari-mutuel wagers, complement tote wagering with fixed odds betting, modernize technology, improve access to data and substantially increase transparency across the sport.

Racing must be more open in reporting on the business of betting – where it is coming from, what it contributes to purses and how it has changed over time. This movement should be driven by owners. Racetracks have proven insufficient leaders of the sport and industry organizations have been distracted by other topics. Nothing should be more top of mind than how we fund our business and keep racing viable.

Racing needs a new generation of horsemen's leadership to propel it forward. Those who might not think it is the role of horsemen to relentlessly pursue improving the wagering business should think again – their role is federally protected by the Interstate Horseracing Act and should be the envy of any professional sporting endeavor in the country. Racing needs increased wagering to survive, let alone thrive.

The business of betting has been ignored for far too long. A new future for the sport promotes a modern wagering business at the heart of racing.

The post TIF: There’s Still Time To Make Handle A Top Priority For Racing appeared first on Horse Racing News | Paulick Report.

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A Conversation About Accuracy: 30,000 Falsehoods Annually

by Thoroughbred Idea Foundation

While Aunt Pearl’s performance in the [GII] J.P. Morgan Chase Jessamine S. on Oct. 7, 2020, was an impressive gate-to-wire score in a sizzling time, smashing the stakes record by more than two seconds, the pesky un-timed portion of nearly every American race played a role in the eye-popping clocking.

“Run-up” is the distance from where the gate is placed and the timing of the race begins–that is, the point at which the horses reach the published distance of the race. The Jessamine, and nearly every other race in North America, is not run over the distance listed in the program or past performances. So, when reporting the race was “1 1/16 miles”–that is really only the portion of the race which is timed, not the full distance run.

The actual distance the race covers, naturally, is the point from where the gate is placed to the finish, but depending on how far the gate is from the published distance of the race will dictate how much of ground at the start is covered before the horses reach the point which is 1 1/16 miles from the finish.

In the case of the Jessamine, the initial Equibase chart of the race reported 216 feet. Keeneland later informed Equibase that distance is closer to 100 feet, and the chart was amended.

The Daily Racing Form‘s Marty McGee covered the issue in the days after the race:

“[Bob] Elliston said additional gaps for entry to the turf course have been added this fall ‘in an attempt to try to preserve the surface by not placing the starting gate at the same position on the turf course at [often-run] distances. The gate can rough up the course through that kind of repetition.’

“For the Jessamine, the gate was ‘placed the farthest back of all the gap options,’ Elliston said. ‘Obviously, this is the kind of thing handicappers have a right to know about beforehand, so we’re making that information available on a regular basis.'”

At the suggestion of the Thoroughbred Idea Foundation (TIF), Elliston confirmed that Keeneland would begin updating the daily run-up information on the track’s website, which can be found here on the “track conditions” page.

“We thank Keeneland for their attentiveness to the situation and getting the updated information to the public,” said Patrick Cummings, Executive Director of TIF.

“There needs to be an industry-wide discussion about accuracy in our sport. Every time entries are drawn for a new race, and they are published, our industry is misled into believing a race is being run over the distance that is listed. That is false–our sport reports about 30,000 falsehoods a year just in terms of the accurate distance of races run. We report the distance timed, not the distance run, and in so doing, disrespect everyone in the sport, but most especially the horseplayers and the horsemen.”

From the break of the gate to the finish in the 2020 Jessamine, Aunt Pearl ran for about 1:46. Last year in the same race, Sweet Melania ran for about 1:45. Images [found on] YouTube of each race show the gate in different positions relative to the distance poles on the various courses.

Craig Milkowski of TimeformUS confirmed from video timing software that the 2020 Jessamine field ran for about 5.31 seconds before timing began. He added that, based on this method of timing one-mile dirt races at Santa Anita, which have a reported 160 feet of run-up, routine run-up times are around 4.95 seconds. At Del Mar over the same distance, run-up is reported at 200 feet and the time is about 5.75 seconds of un-timed racing before the clock begins and horses reach the point one mile from the finish.

TIF published a report several weeks ago which highlighted gross inaccuracies in distances run at Saratoga, Gulfstream Park and Kentucky Downs. There have been few changes.

On the last day of racing at Gulfstream prior to their seasonal shift to Gulfstream West, Mo of the West won Race 9 carded at one mile on turf. The published final time was 1:36.44, but the horses actually ran for about 1:44.

“Aunt Pearl looks a very nice filly,” Cummings said, “but the raw information our sport presents to customers suggests she was potentially 12-14 lengths faster than any previous winner of the Jessamine.

“Even if Aunt Pearl is to be a future superstar, the next Zenyatta, it is almost impossible to believe she is that much faster than all previous winners of the race. What is not doubted is that she covered a longer course in the 2020 Jessamine, which seems to have had the longest run-up of any previous edition, and thus made the times faster given she got up to a higher speed once the clock started.

“This is just another reason that the sport’s speed and pace figuremakers are valuable for racing, they serve as an incredibly valuable check-and-balance to the raw data the sport presents. Take nothing away from the horse, but the times can be very misleading to the public given that tracks are not putting the gate in the same place and races are not effectively run over the same distance, particularly on turf, from year-to-year. In a sport where the difference between a big win and total loss can be incredibly small, accuracy matters so much.”

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