653. Does Horse Racing Have a Future?

Key Takeaways

Thoroughbred auction prices are setting records despite overall industry declines.
The surge in auction value is attributed to a shrinking supply of quality horses, not a racing boom.
Horse racing faces challenges including declining attendance, track closures, and reduced betting handle.
The industry increasingly relies on 'racinos' and Historical Horse Racing machines for revenue.
Advanced bettors and computer models are transforming the pari-mutuel wagering landscape.

The Keeneland September yearling sale is the world's largest, where approximately 40% of major U.S. race winners are purchased as yearlings.
Hinkle Farms, established in 1926, focuses on breeding and selling only horses they have raised from conception.
Ann Archer Hinkle expected sales in the hundreds of thousands, with potential for a seven-figure sale for an exceptional horse like a 'Not This Time' filly.
Mark Taylor of Taylor Made Farm noted 'Not This Time's' stud fee increased from $15,000 to $175,000 per live foal due to successful offspring.

Keeneland's yearling auction is structured into 12 books, with prices decreasing by about 50% from book one to later books.
Approximately two-thirds of buyers are domestic, with the remaining third primarily from Ireland, Japan, and Saudi Arabia.
Keeneland, a for-profit entity with a non-profit mission, charges a 5% commission and reinvests earnings into the industry.

Emily Plant, a thoroughbred researcher, publishes detailed statistical reports on stallion performance and market trends for investors.
It is challenging to correlate horse purchase prices with on-track success, but immense potential for earnings and non-pecuniary benefits drive ownership.
Top colts can secure stud deals up to $100 million, though significant risk exists, as seen with a $60 million deal for an underperforming horse.

HIP 144, a filly sired by 'Not This Time' from Hinkle Farms, was auctioned at Keeneland.
The auction for HIP 144 rapidly escalated, with bids reaching $1.1 million and concluding at $2 million.
Ann Archer Hinkle indicated the $2 million sale exceeded expectations and provides significant capital for farm operations.

The Keeneland sale set a world record, with over 3,000 yearlings collectively selling for more than $530 million.
HIP 144's $2 million sale was not the highest, as a colt by 'Gunrunner' sold for $3.3 million.
Mark Taylor explains record auction prices are driven by a shrinking supply of horses, not a racing boom.
The decline in the industry is linked to cultural shifts and fewer physical racetracks due to simulcasting, resulting in fewer horses bred and fewer races.

Richard Migliore, a former jockey, notes a significant decline in horse racing's popularity, with fewer races and major racetracks closing since the late 1980s.
Concerns about animal welfare are addressed by advocates who assert horses enjoy racing, with efforts like the Horse Racing Integrity and Safety Act (HISA) improving care.
Marshall Gramm, an economics professor, teaches a popular course on racetrack wagering, noting student interest extends beyond typical academics.

Marshall Gramm, a 'horse player first,' recounts a childhood fascination with horse racing statistics, inspired by Andy Beyer's speed figures.
Gramm's academic research on betting markets supported his career as an economics professor and led to horse ownership and breeding.
He won the 2020 Breeders' Cup betting championship, turning $7,500 into $170,000 in prize money, though acknowledging year-to-year variability.

Horse racing uses a pari-mutuel system where the house takes a fixed percentage (takeout), and winnings are distributed among winners, allowing players to compete.
Total betting handle on horse racing peaked around $15 billion annually in 2002-2003, falling to $11 billion, a 57% decrease adjusted for inflation.
The decline began with the legalization of lotteries (1964) and casinos; widespread sports betting further reduced horse racing's handle.
Sophisticated bettors and computer teams exploit advantages in the pari-mutuel system, causing significant price shifts in final moments before races.

Economist Thomas Lambert views the future of U.S. horse racing as discouraging due to its failure to adapt to competition and high retail takeout rates.
Horse racing lobbies for political advantages, including more race days and a share of sports betting proceeds.
'Racinos,' combining casinos with racing facilities, and Historical Horse Racing (HHR) machines are significant revenue streams.
HHR machines in Kentucky generate more revenue than live race betting, raising questions about a potential shift from racing to casino focus.