The Enterprise of Racing: What Sports activities Betting Means for New York Racing

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From Steve Zorn

Sports betting, once restricted to casinos in Nevada and Atlantic City, is on the rise in the United States. Eighteen states and the District of Columbia currently allow betting on sports events other than horse racing. Four others have passed laws that allow sports betting but have not yet implemented them. and bills are pending in seven other state legislatures. By the end of this year, sports betting will likely be legal in more than half of the US states.

In some states, including New York, bets can only be placed on casino sportsbooks. In other countries like New Jersey, bets are also available online. And there is the money. In New Jersey, over 80% of sports betting is online. This explains why the state, with less than half the population of New York, generates well over half of the grip recorded in the stationary sports books is located in New York casinos.

At the start of a new legislative period in Albany there are already two legislative proposals with two very different ideas about what online sports betting should look like in the state. Rep. Gary Pretlow and US State Senator Joseph Addabbo, chairmen of its racing and other gambling committees, have proposed a bill that will allow all existing betting shops in the state, including racetracks, OTBs, etc., to host online sports betting Apps. Addabbo’s draft law has just been reported from the committee and further developed in the legislative process. In contrast, Governor Andrew Cuomo has proposed a one-stop online betting model with only one provider licensed by the state. It’s far too early in the legislature to know which model will prevail, or if any legislation will emerge from the black box of New York law, but the governor’s concept certainly wouldn’t help the state’s tracks and horse owners.

During the past half century, the state’s breeding and racing industries in general, and the New York Racing Association (NYRA) in particular, have had four opportunities to benefit from new legal and technological developments. Two of these were basically failures from a racing perspective, one was a solid success, and the fourth, sports betting, stays in balance.

The first opportunity was the advent of off-track betting in the early 1970s. The horse racing aristocrats who were at the helm of NYRA at the time turned down an opportunity to play or even participate in off-track betting in the New York City area, apparently believing that gentlemen weren’t bookies. Instead, the state created the patronage-laden OTB operation in NYC, just conceding to NYRA that the original OTB salons should be as unwelcome as possible, with no chairs, no bathrooms, and no live feed from the tracks – plus a ridiculous surcharge of 5%, in addition to the regular track takeout, on winning bets. After all, many OTB venues in NYC resembled a decent bookmaking establishment – a few even offered bars and restaurants). In 2001, NYRA partnered with Churchill Downs Inc. to apply for the franchise to be removed from control of NYC as part of then Mayor Rudy Giuliani’s privatization plan. But the plan – and NYRA’s ability to operate OTB – was abandoned when Giuliani stepped down. NYC OTB finally went bankrupt and closed in 2009, a victim of political patronage and bad management.

During their lifetime, NYC OTB NYRA and the Riders wallet account never paid more than a tiny fraction of the take-out, even as attendance dipped to the low four on the route of 30,000 or more typical weekend crowds of the 1950s and 1960s. Numbers from today (or rather from times before the pandemic). And one can only speculate what it could have paid for if NYRA had owned or operated it from the start. Assuming NYRA property would have eliminated the heavy cost that shifts of political officials had put into the operation.

The next opportunity for racing was the advent of simulcasting, where bettors on one track could first watch and bet competitions on other tracks, and later at off-track advance deposit betting (ADW) outlets such as Twin Spiers, TVG and Xpressbet. Although simulcasting was legalized back in 1978 with the passage of the Interstate Horse Racing Act of 1978, growth was slow; It wasn’t until 1984 that the Kentucky Derby was first simulated and then only broadcast to 24 other racetracks. And at first glance, Tracks saw simulcast earnings as new, found money, nothing but a dash of icing on the cake of their real-world earnings that came in that the tracks probably believed would always come, mostly from the track handle . With that in mind, they practically relayed their signals, requiring only 3% of the grip from simulcasters, while the rest of 15-20% was on the table for the receiving tracks or ADC operators. Nowadays, of course, more than 90% of all US racing is used off-track, and the circuits, realizing the mistake of their earlier ways, are belatedly trying to recoup some of the money and charging for the better tracks at 6- 8th%. NYRA eventually became a bookmaker as well, through its trapped ADW NYRABets, which receives all revenue from betting in New York and most of it from betting in other countries. So far, however, NYRABets is at a disadvantage; Having gotten into the ADW game so much later than Twin Spiers and Xpressbets, NYRA still has to watch these giants rake most of the grip of even NYRA’s own tracks.

As casinos expanded across the country in the 1990s, racetracks in many states successfully campaigned for some of the action to compensate for the gambling business they might lose to slot machines and table games. Often the result was that either (1) the track was allowed to set up slot machines on their premises or (2) casinos had to divert part of their revenue stream to the racetracks. In New York, the New York Thoroughbred Horsemen’s Association (NYTHA), led by the late Rick Violette, campaigned for more than 7% of the net profit from the machines at the Mammut Resorts World Casino in Aqueduct, which was intended for the US wallet account, along with a similar amount for NYRA operations and a lesser amount for the New York State breeding industry. (Disclosure: I was on NYTHA’s board of directors during this effort.) NYRA’s contract with Resorts World runs until 2036, and slot machine money recently made up about 40% of NYRA’s wallets. In other states like Pennsylvania and West Virginia, wallets are even more reliant on casino subsidies. While the money is nice while it lasts, the pressures on national budgets exacerbated by the COVID-19 pandemic will sooner or later reduce or eliminate this off-track revenue stream. In New York, this means that big league races at NYRA have a time horizon of just 15 years to the end of the Resorts World contract unless the grip grows dramatically or no substitute source of money is found.

Sports betting is therefore the next and perhaps last hope of an external boost to racing, a source of income that is not based on betting off the track. Like the income from slot machines, sports betting can add to the handle in two ways: (1) The tracks could offer their own sports books, possibly by doing business with FanDuel, DraftKings, or another competent betting company to run the show as their agent, or ( 2) an off-track income stream from sports books could be diverted to the tracks. The Pretlow-Addabbo bills in the New York Legislature would follow the first model, while Governor Cuomo’s approach could allow the second model. There’s no legislative text yet, so no way to be sure, although I’m pessimistic, and only partially because Governor Cuomo is known to be anti-racing. More importantly, the second approach requires the state to give up some of the revenue that would otherwise go straight into its own budget – not an easy sale for state governments in these troubled times.

Nor is there any certainty that the income from sports betting will be enough to make a meaningful difference in the finances of the circuit and the horse owner. In New Jersey, for example, sports betting brought in nearly $ 1 billion in net revenue last November after nearly 90% of the money was returned to bettors and spending. Sports betting is run with a significantly lower take-out than horse racing – usually in the vicinity of 5 to 10% compared to 20% or more on the track. So there isn’t that much to do. And with the government so needy, there will likely be even fewer.

In the 1940s, New York racetracks accounted for 10% – half for the track and purses, and half for the government. Then, in 1946, New York Mayor Bill O’Dwyer attacked another 5%, pushed the acquisition down to 15% – still 5% for the route and the remaining 10% for state and city governments – and did us on the way to today’s environment of high takeouts and consequently stagnant holds. Even if racing manages to get some of the sports betting action in New York, it probably won’t be the magic bullet to save racing, just as off-track betting, simulcasting, and slot machines were not. This year’s battle in Albany may not be about rearranging the deck chairs on the Titanic, but neither is it the final showdown that will make the New York race a success or failure.