NEWS
Pope: Racing must form major league
Posted: Monday, June 01, 2009 3:19 PM
FRED A. POPE
by Fred A. Pope
The Wall Street Journal recently convened a panel called “The Future of Sports.” In a joint appearance were the commissioners of the four major American professional team sports leagues: the National Basketball Association, the National Football League, the National Hockey League, and Major League Baseball. Those major leagues had $21-billion in combined revenue last year, without a cent from gambling.
But, when the Wall Street Journal asked them about sports betting, Roger Goodell, the NFL commissioner, said, “I think sports have taken a much more open position about that, because it does create revenues at a time when everyone’s struggling with budget shortfalls.”
David Stern, the commissioner of the NBA, said he was wrestling philosophically with the issue but noted how the soccer leagues in England are allowing betting in the stadiums, and it has been very successful.
For the first time, the issue of sports betting was not dismissed by the commissioners out of hand.
Why? As healthy as the major leagues might seem, they are struggling for revenue growth from admissions, sponsorships, merchandising, and rights fees. A family of four in New York now needs $410 to go out to the old ball game. Indications are prices may be getting close to the limit. Advertising and sponsorship revenue is down, as is corporate entertaining. The beasts need to be fed.
So, what are the prospects that the major sports will eat Thoroughbred racing’s special lunch? Do you think the American public will demand Thoroughbred racing be allowed to keep its monopoly on sports gambling, or do you think the people will want to start wagering legally on the major leagues’ products?
That’s what I think, too.
You may feel these are already hard times for racing, but to date the major leagues have left racing alone. Competition for sports wagering could be the fatal blow to racing, because our sport is not structured to compete. I wish the Wall Street Journal had asked those commissioners this question: How would the major league structure help the sport of Thoroughbred racing?
It is a valid question, just looking at the NHL. Last year, the NHL had revenue of $2.6-billion and has realized 354% growth over the past 20 years. How could such a minor sport have climbed to such lofty heights? The NHL simply adopted the major league structure.
Success in sports today means organizing the highest level of talent. What does that mean to Thoroughbred racing? Let’s go slowly and break the news gently: The highest level of racing in America is not organized.
Some might say racing isn’t doing it wrong, just differently. No, racing is doing it wrong. We have been able to do it wrong for decades because of legal gambling, but that advantage has run its course.
Pari-mutuel wagering in North America peaked at $15.9-billion in 2003 and seems to be in a free-fall now. The answer for racing, like hockey, is to establish a major league.
Graded stakes program
The highest level of Thoroughbred racing in America is our graded stakes program. Are the graded stakes packaged and presented like a major league? No. The major league model for packaging is rigid and unforgiving; it doesn’t allow mixing the highest level of talent with the lower levels of talent.
Our graded stakes are mixed on the race card with lower-level races. It is painfully established that the public has rejected this packaging of racing’s product. What is being done is the exact opposite of what makes the major leagues successful.
There is no major league where the facilities control the highest level of the sport and let’s not even get into an analogy about the breeders, who determine the status of graded stakes.
There are 488 graded stakes in 2009. That means we have sufficient quality in the sport to package and present a full race card of nine races at the highest level for 52 weekends a year.
So, if the public only buys the highest level of a sport, how do we change and give the public what they want? We need to think nationally. As racing has moved from an on-track focus to off-track distribution, the ability to reach our customers with a major league product is not only possible but already a reality.
The ability to package and present a superior racing product on-track, in our major markets, can once again make racing popular as a national sport. Think about a Breeders’ Cup World Championships-style racing event, with the equivalent of nine graded stakes every weekend. That’s how a major league would operate.
While the distribution of our racing product has evolved, the way we package racing has not changed in 50 years. Tracks still run graded stakes in the middle of the week when very few people are at the track or are wagering off-track.
Structure matters
Individual tracks own the graded stakes, which is similar to how the golf courses used to own the golf tournaments. Actually, that is a good analogy. Before the players formed their major league PGA Tour, the golf courses used to jerk the players across the country with their uncoordinated tournaments for small prize money.
Then the players formed their major league and designed a new schedule that was better for them and the sport of golf. There was a lot of fear mongering that the PGA Tour would fail. How could it fail? Its members were the talent putting on the show. If one golf course didn’t want them, ten others would.
In every major league, it is the owners of the talent who are in charge of the highest level of the sport. That is true in all sports except racing, where the racehorse owners have no role in how the highest level is packaged and presented.
Racehorse owners key
Racehorse owners are the only ones in racing with the commercial rights to establish and operate a major league. If the racehorse owners form a major league and establish a national schedule for the highest level of the sport, how would they change the current system? Here’s one way:
Once a structure is established, the league’s representatives could meet with the tracks and work out a schedule and how they will partner on revenue for the coming years. Included would be a completed contract to present to the state racing commissions for approval. The Breeders’ Cup already has established this protocol.
We currently have more than 55,000 races each year. A major league might initially involve only 500 races, just about the same number as graded stakes. The rest of racing would continue to be conducted as is. We could then have 48 weekends of major league racing (none on Triple Crown and Breeders’ Cup weekends).
Based upon Breeders’ Cup and Triple Crown race-day handles, we could project an average handle of $100-million per weekend day, with revenue to the major league being 10% of that handle. The average major league weekend would thus gross $10-million for purses and operations.
If the league can then use traditional major league revenue sources and achieve a level of success similar to the smallest one, the NHL, we could add another $2.6-billion. Combined with the revenue from handle, this would deliver revenue of more than $3-billion. After operational costs, an average purse for the 500 races could be as much as ¬$5-million, providing a $45-million race day.
That is a pretty good incentive to own a racehorse, to own stallions and broodmares, and to get involved in racing. These are not crazy numbers for a major league.
Just like the other major leagues, the high purses would attract and lead to acquisitions of the best horses from around the world to add further to the quality of the racing product. That would lead to an expanded international revenue stream.
Need the tracks
Every golf course would love to have Tiger Woods play at their course several times a year. But, the reality of the PGA Tour makes that impossible. The Tour works its way around the major markets with the seasons.
The track owners need to make a profit on their investment, and part of the major league business plan will be to deliver that profit to the tracks to keep their operations healthy. The projection above, with 10% revenue from handle, is only half of the total takeout from wagers on the major league’s product. The other half flows to tracks and purses nationwide.
Here’s the difference in what the PGA Tour brings to a community versus what racing’s major league tour could deliver. Once the golf tour moves to the next market, other than watching the sport on television, the people in that community cannot continue to participate in the golf tour.
Before racing’s major league arrives in a community, we can prepare the fans in that market in advance by teaching them how to handicap and make an educated wager. Then, when the tour moves to the next market, they can continue to wager on the tour races. That is residual benefit and an advantage a major league in racing can have over the other sports.
Making it happen
Racehorse owners rely heavily on commercial breeders for advice. What yearlings should I buy? What trainers should I use? What parties should I attend? OMG, can you get me tickets to the big events?
Racehorse owners are going to need to act like the customers they are and get the breeders to support them in forming the major league. The Breeders’ Cup organization can and should help a great deal, because the success of the major league will amplify and provide a sound future for the Breeders’ Cup’s season-ending championship days.
There is a big difference in asking for breeders’ help and putting them on the major league board. Like the other major leagues, the governance must be limited to only those who own the commercial rights of the racehorses in the major league.
The industry has a great appetite for a governing body in racing. The reality is no sport has one governing body that controls both the lower levels and the major league. Only the major leagues have a true governing body, and the authority comes from the members’ agreement to abide by its rules. When the public face of racing becomes its major league, we will finally have a governing body with full authority to act in the best interest of the sport.
Membership in racing’s major league should be open to all racehorse owners who agree to abide by the rules of the league. That way we can have the best new horses coming into the league at all times. Strict pre-entry testing of all participants will guard the integrity and safety of league racing. The major league can be the catalyst for assuring the integrity of the wager as well.
Every sport is different, but every major league has these common elements:
• The owners of the talent assign their commercial rights to the major league, which enables contracts;
• The major league packages and presents only the highest level of the sport; and
• The participants agree to rules and have a commissioner with full authority to enforce league rules.
That is all there is to it. The major league would change Thoroughbred racing from a homogenous, unstructured sport into a branded product that, with wagering, has tremendous advantages over the other major leagues.
Racehorse owners are not children, but because they have never taken any responsibility for their sport and are allowing it to test a new bottom, let’s chide them a bit, because we know they are going to want the breeders to hold their hands.
When you fly commercial, the attendants tell you in the event of trouble to put your oxygen mask on first and then put the masks on your children. (Southwest Airlines attendants quip: Now is a good time for you to pick a favorite).
We are in trouble. It is time for racehorse owners to decide if they are going to reach for the mask, or sit there and hope someone puts it on them. That is a lot of faith.
No consensus
There will be no consensus on a major league. If some breeders do not support it, the racehorse owners will need to act in their own best interests and that of the sport. The things I know about racing relate to how it is structured to compete in the world of sports and entertainment. The problems I have talked about this year are amazingly easy to fix. The answers are clear and require no funds—only leadership.
The sweetest, lowest-hanging fruit for racing is the upside-down, off-track business model, which currently favors off-track bet-takers over the host event that puts on the show. When we correct the 1978 Interstate Horse¬racing Act, live racing revenue to tracks and purses will double with the stroke of a pen.
Recently I met with a large group of breeders and asked their help in correcting the Horseracing Act. In the first year, $500-million would be added to purses. Although $500-million is more than all yearlings sold at auction in 2008, they did not seem motivated to help correct the Horseracing Act.
We need someone to figure out a financial model that projects breeder revenue relative to purses. Say, if $500-million new money goes into purses, perhaps $300-million to $400-million will flow back to breeders as the owners purchase new racing prospects.
There is no such thing as holding your own. You are either on your way up or on your way down. We all know what direction racing is currently headed; yet there is very little feeling of urgency in the industry.
If you are a customer of racing and breeding, get in touch with the folks you do business with and let them know you, their customer, see the problems as urgent.
We can continue to squander the advantages of wagering and get weaker and weaker, or we can move forward by fixing our business model and establishing a major league structure that will make us strong enough to keep everyone’s hands off our lunch.
Fred A. Pope is head of The Pope Advertising Agency in Lexington and founder of the National Thoroughbred Association. This commentary is printed in the June 6, 2009 issue of THOROUGHBRED TIMES
