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Purses increasingly reliant on added-gaming supplements

Posted: Thursday, May 27, 2010 5:52 PM

by Frank Angst

A Thoroughbred Racing Associations study establishes numbers that support a trend many had suspected: Racing is increasingly using added-gaming revenue as a crutch.

The TRA study shows that 29% of total U.S. purses paid in 2009 were derived from non-pari-mutuel sources, such as video lottery terminals, video poker, slot machines, card rooms, and direct casino or state subsidies.

“What is disturbing about this trend is the real or potential downstream effect,” TRA President Roy Arnold said. “American racing depends upon a national distribution network of track and retail wagering locations to sustain and grow an essential base of customers.

“Tracks without other gaming revenue are finding it necessary to consolidate their live racing dates, which impacts not only their handle but also reduces the amount of wagering produced by their fans on imported simulcasts. If we settle for gaming subsidies ‘replacing’ pari-mutuel wagering revenue rather than ‘enhancing’ it, pari-mutuel wagering simply will continue to decline.”

Non-pari-mutuel revenue money directed to purses in 2009 was $318,580,638.

According to annual handle and purse statistics assembled by Equibase Co. and the California Horse Racing Information Management Systems and published by the Jockey Club, U.S. pari-mutuel handle on Thoroughbred racing in 2009 was $12.315-billion, a $1.333-billion decrease (9.8%) from ‘08. Total U.S. Thoroughbred purses, however, declined by only 5.7% or $66.8-million in 2009 as alternative gaming revenue or subsidies for purses increased $21.3-million.

A chart of non-pari-mutuel revenues to U.S. Thoroughbred purses is available in the Thursday issue of THOROUGHBRED TIMES TODAY.
           
Although pari-mutuel Thoroughbred handle has declined almost $3-billion since a record high of $15.18-billion in 2003, purses since then have risen slightly from $1.055-billion to $1.098-billion. The record high for purses was $1,180,600,000 in 2007, but even with the addition of another $63-million in purse subsidies from non-pari-mutuel sources during the past two years, total purses have declined 7% during that time period.

West Virginia was the first state to authorize expanded gaming options in 1993, but since then Arkansas, Delaware, Florida, Iowa, Indiana, Louisiana, Minnesota, New Mexico, New York, Oklahoma, and Pennsylvania have passed and implemented alternative forms of gambling as a source of industry funding. In addition, New Jersey racing has received legislatively mandated funding for purses from the casino industry eight of the nine years during 2001-‘09. Maryland also supplemented purses with money from the state’s general fund from 1999-‘09 to help its racetracks compete with the VLT-supplemented purses in Delaware and West Virginia.
           
Purses derived from pari-mutuel wagering were 6.33% of the total U.S. handle in 2009. That percentage has varied since 1993 from a high of 7.26% in 1995 to a low of 5.97% in 2003, but has remained around 6.3% during the past three years. Variations in simulcast takeouts and fees are responsible for the fluctuation in return from year to year.
           
“Returns to the industry are higher for each dollar wagered at a racetrack, so understandably the rate of return was higher before simulcasting, particularly with the expansion of account wagering, [as it] became the principal source of revenue to the industry,” TRA Executive Vice President Chris Scherf said. “Despite the growth of third-party account-wagering companies and their retention of some of the takeout, the racetrack industry has recovered some revenue through higher simulcast fees to those outlets.”
           
The TRA reports that percentage of U.S. handle directed to purses still exceeds other major racing countries. Australia and Japan are next with a less than 4% return.

Frank Angst is senior writer for Thoroughbred Times