NEW HORSE OWNERS VIA CROWDFUNDING?

American horse racing got a tremendous boost from American Pharoah’s Triple Crown conquest.  A lot has been said and written about how the racing enterprise can leverage the result to its benefit.

Along with stagnant pari-mutuel revenues, the other major problem racing has is that there are not enough owners and in particular owners new to the sport.  To my knowledge, crowdfunding is an untried concept in racing for attracting owners who would each have a very small investment in a racing partnership.  Eventually, some of the neophyte owners would be apt to increase their involvement in racing by investing larger sums and perhaps even becoming sole owners of horses.

The federal 2012 Jumpstart Our Business Startups law, or JOBS, removed much of the regulatory red tape from equity crowdfunding in order to allow entrepreneurs to raise up to $50 million for new ventures online.  (Currently, there are about 80 crowdfunding websites but many are inactive.)  Until June 2015, crowdfunding investments were limited by law to accredited investors (individuals with a net worth of at least $1 million or who earn over $200,000 annually.)  Now, non-accredited investors are permitted to participate in crowdfunding.

An established horse racing partnership could use crowdfunding to allow people to get their feet wet, so to speak, as owners.  For example, a partnership might offer a package of four yearlings and 2-year-olds for, say, $600,000, which would include ongoing expenses.  Because billing a plethora of owners for maintenance expenses would be cost prohibitive, the overhead would need to be built into the amount of money asked for from investors.  In addition, communication with owners would be primarily by mass email.  The goal might be to raise the $600,000 in $500 increments.

In contrast, a more attractive package to new owners might be a stable of claiming and allowance horses that would provide immediate action.

Whether crowdfunding racehorse ownership would work or not is an open question.  Considerable experimentation and pro-forma financial analysis would be required to determine the package with the best chance of attracting owners.  I’d like to see an experienced racing partnership try crowdfunding, as the process has worked well in a wide array of ventures and it just might work in horse racing.

Copyright © 2015 Horse Racing Business

PETE ROSE’S BETTING, NBA GAME-DAY PAINKILLERS, AND PUBLIC PERCEPTION IN SPORTS

The ESPN headline read:  “Entries in long-hidden notebook show Pete Rose bet on baseball as player.”  The accompanying story explained:  “The documents are copies of pages from a notebook seized from the home of former Rose associate Michael Bertolini during a raid by the U.S. Postal Inspection Service in October 1989, nearly two months after Rose was declared permanently ineligible by Major League Baseball.  Their authenticity has been verified by two people who took part in the raid, which was part of a mail fraud investigation and unrelated to gambling.”

Substitute, for example, the name of D. Wayne Lukas for Pete Rose in the ESPN headline:  “Entries in long-hidden notebook show trainer D. Wayne Lukas bet on [his winning entry Charismatic in the 1999 Kentucky Derby].”  This disclosure would not be scandalous because pari-mutuel wagering is legal in Kentucky and owners and trainers are permitted to bet on their horses to win.  Yet why is this lack of transparency acceptable in horse racing when a baseball player who bet on his own team is barred from the Hall of Fame or when a celebrity entrepreneur and businesswoman like Martha Stewart is imprisoned for insider trading?

Several people, including a well-known sports commentator, were discussing the Rose revelations on a television program.  One person said Rose was only betting on his team, the Cincinnati Reds, to win, implying what was so wrong about that?  The rejoinder was that in the games in which Rose declined to bet on the Reds, he evidently did not like their chances, possibly because the starting pitcher was in a slump or did not match up well with the opposing hitters.  In so doing, he was using inside information to distinguish between likely winning and losing wagers.

Meanwhile, another sports report, this one in the Plain Dealer, revealed how Cleveland Cavaliers starting guard Iman Shumpert coped with injury and pain in the recent NBA Finals:  “…Shumpert…gave the Cavaliers all he had as he essentially played the last four games of the postseason with one arm…He was shot up with painkillers [emphasis added] before Game 4 of the NBA Finals in order to continue playing through the excruciating pain of a bruised shoulder, a source revealed, and he may have been injected more than once during the Finals.”

Substitute, say, American Pharoah into one of the sentences about Shumpert, as follows:  “American Pharoah was shot up with painkillers [in the Belmont].”  Why is it appropriate for an NBA guard to take painkillers on game day and not a racehorse?  Perhaps because a horse has no choice or because jockeys’ lives are at risk when a sore horse runs with a masked ailment.

There are often no easy answers to ethical questions.

Major League Baseball’s first commissioner, Kenesaw Mountain Landis, demanded the power from club owners for the commissioner to be able to investigate “any act, transaction, or practice” that is “not in the best interests of baseball” and to ascertain “what preventive, remedial or punitive action is appropriate.”

Horse racing does not have a commissioner, much less one with dictatorial power, but it does operate under the aegis of increasingly cooperating state regulators and may eventually come under federal authority regarding medication.

When it comes to provocative image-laden issues like race-day medication, insider betting, and aggressive whip use by jockeys, my opinion or your opinion is anecdotal and irrelevant.  What counts is how such matters are viewed by the betting cohort and the general public.  An enterprise that does not maintain a generally favorable standing is on a slippery slope if not doomed.

Copyright © 2015 Horse Racing Business

VIRTUAL RACETRACK ATTENDANCE

Attendance at horse racetracks has dropped dramatically over the years, for several reasons.  First, the quickened pace and increased demands of modern society are not compatible with spending a leisurely day at the races.  Second, people of today do not have the same appreciation for horses that their agrarian ancestors did.  Third, the gambling side of horse racing has been eviscerated by proliferating casinos in the United States and offshore.  Fourth, advance deposit wagering in many states has allowed people to bet legally without setting foot on a racetrack.

Falling racetrack attendance is part of a larger and likely irreversible societal phenomenon in which brick-and-mortar retailers are having a difficult time competing with online retailers.  According to Green Street Advisors (as reported in the New York Times), in the past four years about two dozen malls have gone out of business in the United States and 60 more are on the verge of closing.

As mall anchors like Sears, J. C. Penny, and Macy’s continue to close stores, malls suffer the consequences.  Gap just announced that it will close one-fourth of its 675 stores in North America, J. Crew laid off 10% of its headquarters personnel, and Abercrombie & Fitch and Aerospostale are paring the number of stores in their chains.

A few showcase horse-racing events do attract large crowds.  The New York Racing Association capped attendance for the 2015 Belmont Stakes at 90,000 and tickets for the Kentucky Derby and Preakness are always in high demand.  Barring unusually bad weather, the 2015 Breeders’ Cup at Keeneland will be packed with fans.

Peter Guber has a provocative idea about enabling more people to attend sporting events through virtual reality, which would, of course, expand the revenue base for the events.  The 73-year-old Guber has serious credentials in both sports and entertainment.  He is the former Chairman of Sony Entertainment, current CEO of Mandalay Entertainment, part owner of the NBA’s Golden State Warriors and Major League Baseball’s Los Angeles Dodgers, and chairman of Dick Clark Productions, the premier global producer of live event programming.

Guber has a significant investment in NextVR, a company that he says is capable of providing virtual reality technology that is “a game changer for live sports, festivals, concerts, shopping, and travel.”  For sports, a virtual viewer would have a real sense of being at an event like the Kentucky Derby that it is not possible to experience by watching on conventional television.  The business behind the virtual reality could offer the customer either a pay-per-view subscription or “clips” that supplement a conventional telecast.

As with any incipient technology, there are barriers to commercialization that have to be addressed.  For instance, Guber said that an unanswered question is whether people would be comfortable watching entire games in a virtual reality headset.  Moreover, until sufficient economies of scale are reached, the technology would be prohibitively expensive.

The concept of enabling an avid horse racing fan to (virtually) attend the June meet at Royal Ascot or the Kentucky Derby seems to have great potential.  Millennials and ensuing generations raised with iPhones and social media should feel comfortable with the technology, especially as it is refined and costs come down.

Copyright © 2015 Horse Racing Business