The future of wagering on horse racing in America must include fixed-odds betting to complement pari-mutuel offerings argues Patrick Cummings is the Executive Director of the Thoroughbred Idea Foundation.
Legalization of pari-mutuel wagering on horse racing spread across America in the 1930s. While initially rebuffed in many jurisdictions, eventually there would be little choice in light of the impact of the Great Depression. State governments favored the tax revenue generated while tracks and horsemen embraced it as a better way to fund the sport.
Arne Lang’s 2016 book, “Sports Betting and Bookmaking – An American History” offers tremendous insight to the state-by-state machinations in which nearly all wagering on horse racing in America transitioned from fixed-odds, on-course bookmakers to pari-mutuel over that decade.
Now almost a century later, there is little doubt that American racing’s wagering product, one which is wholly pari-mutuel, is festering.
Pari-mutuel offerings are stale, takeout remains high, bet processing technology is antiquated and concerns over the integrity of the system remain nearly 20 years on from a brazen hack, uncovered thanks to a series of unexpected race results at the 2002 Breeders’ Cup.
Meanwhile, the entities which operate legal online betting for the sport, which has accounted for nearly all handle in a pandemic-impacted 2020, retain the majority of the takeout thanks to a division of revenues which was established in the dawn of the internet era and has failed to evolve fairly.
Total handle on American Thoroughbred racing in 2019 was $11bn, but that’s down an inflation-adjusted 48% since 2000. Across those two decades, horse racing had a veritable monopoly on interstate, online wagering in America…and squandered it.
Little incentive to invest
Track and betting operators have little incentive to invest in modernizing the pari-mutuel wagering product or system, enjoying the spoils of the monopoly during this 20-year run, a period which also included many tracks becoming slot parlors or full-fledged casinos, with a slice of revenue going to racing. In 2019, an astounding 90% of prize money for racing in Pennsylvania came from a cut of slots, just one state of many where there are signs that the patience associated with subsidizing racing is starting to wane.
Unlike nearly every other sport on which wagering is offered, racing exists almost exclusively BECAUSE of betting. Prize money drives horse ownership, allowing owners to cover costs while a smaller number earn occasional profits. As such, horsemen need a fair cut to fund the purses that keep racing going, but many have been getting roughly the same split from internet betting when it was a microscopic share of wagering compared to 2020 where those channels are responsible for nearly all wagering.
It does not take much creative thought to recognize that a sport which remains manacled to the pari-mutuel model seems ripe for ruin.
Racing constrained by pari-mutuel system
While sports betting is an entirely fixed odds gamble, racing suffers today from the constraints of the pari-mutuel system. Potential returns for some bets are unknown until the race is underway, others are unknown entirely, bets are limited to only those with pari-mutuel pools available, and an estimated one-third of all betting comes from a highly-concentrated segment of super high-volume players who are technologically advantaged with the ability to transmit massive amounts into the pools directly, bypassing mainstream bet processing portals.
Fixed odds betting on racing can return the sport to its Main Street roots. Customers will get price certainty, co-location with existing sports bets, a common wallet and a more robust menu of betting options which meet their modern expectations and go well beyond today’s sleepy offerings. Exotic wagers like pick fives, trifectas and superfectas will remain pari-mutuel stalwarts.
Positive developments are underway in this space, mostly in New Jersey through a deal between the state’s horsemen and Australian firm The BetMakers. More states, tracks and representatives of horsemen need to strike deals, as required by the Interstate Horseracing Act, to facilitate fixed odds betting on their races. Remarkably, this may take as much time – but hopefully not more – to modernize in the 2020s as it did to accept pari-mutuel betting in the 1930s.
For a great sport and its dedicated horsemen, it will be worth it, and for bettors, not a moment too soon.
Patrick Cummings is the Executive Director of the Thoroughbred Idea Foundation, a privately-funded think tank for horse racing, based in Lexington, Kentucky. For more information, visit RacingThinkTank.com.