ALICE AND WONDERLAND DECISION-MAKING AT PREMIER RACETRACKS

It often appears that some of the individuals and enterprises whose livelihood depends on a viable racing industry go out of their way to ignore what is best for their success in the long run.

Case-in-point 1

Effective with the beginning of the spring meet on April 26, Churchill Downs intends to increase takeout percentages on straight wagers from 16% to 17.5% and on exotics from 19% to 22%. Management stated that the rationale is to maintain purse levels necessary for quality racing.

With the Kentucky Derby upcoming on May 3, this tactic will no doubt enhance profits in the near term because the vast majority of people who bet on the Derby card will do so irrespective of the takeout increases.  Many amateurs, so to speak, bet on Derby Day and they are not concerned with takeout percentages.

However, once the Derby is over, Churchill Downs will have to attract and retain year-round handicappers, who are acutely aware of takeout percentages. In this regard, the Churchill decision is terribly myopic.

Pari-mutuel wagering in North America has been in a persistent downturn. Whenever demand is being so destroyed, price hikes are almost certain to accelerate the process. Rather than increasing takeout percentages, Churchill Downs should be experimenting with making their pari-mutuel products more attractive via price cuts.

Case-in-point 2

On March 31, 2014, the Jockey Club released new statistics from the Equine Injury Database, covering the period 2009-2013. The data continue to confirm the vast superiority of synthetic racetrack surfaces. In 236,167 starts on synthetic surfaces, there were 289 racing-related fatalities, which translates into 1.22 fatalities per 1,000 starts. By comparison, in 1,383,690 starts on dirt surfaces, there were 2,882 fatalities, or 2.08 per 1,000 starts. Finally, there were 411 fatalities on turf surfaces from 251,665 starts, or 1.63 per 1,000 starts.

Elementary logic would lead one to conclude that races run on synthetic surfaces unquestionably and significantly reduce the physical risk to horse and jockey.

Yet, almost in concert with the release of the Jockey Club data for 2009-2013, two of racing’s premier racetracks, Del Mar and Keeneland, announced that their synthetic racing surfaces will be replaced with dirt. Whether intentional or not, they are sending a message to the public, PETA, and the New York Times, “We are choosing to race on the surface that results in the largest number of horse casualties.”

Moreover, the top executive of a prominent industry organization referred to the use of synthetic surfaces as a failed experiment. By what rationale is reducing horse deaths incurred while racing from 2.08 per 1,000 starts to 1.22 per 1,000 starts a failure? To the contrary, it is a resounding engineering success.

Synthetic surfaces at Del Mar and Keeneland are obviously being replaced because of reasons other than safety, so why not just say so and be honest that the safety of horse and rider is not the number one priority.

The collective racing industry seems intent on continually providing ammunition for its critics in the media and animal-rights organizations. This blundering is on its way to eviscerating a magnificent sport.

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Why do some racetrack executives continue to ignore the lessons of history and make choices that are not in the best interests of concerned parties and send the wrong signals to the public?

“That’s the reason they’re called lessons,” the Gryphon remarked: “because they lessen from day to day.” (Lewis Carroll in Alice’s Adventures in Wonderland)

Copyright ©2014 Horse Racing Business

BITCOIN

Thoroughbred breeding and racing is a global enterprise in which buying and selling is transacted in established and familiar currencies; dollars, Euros, yen, and pounds. Bitcoin is a fledgling cryptocurrency that could increasingly substitute for such government-backed money. The software and protocol for the bitcoin digital medium of exchange were created in 2009 by an anonymous individual or group using the pseudonym Satoshi Nakamoto.

Bitcoin enables parties to a sale to transfer virtual cash from one “digital wallet” on an online site like Coinbase to another using the Web and a computer or mobile device. Because bitcoin is not issued by a government central bank, it must be purchased with a conventional currency on private exchanges—BitPay, Mt.GOX, and others

The nascent monetary innovation has been compared to the Internet in terms of its revolutionary potential to disrupt and improve ecommerce. Dissenters disagree and see bitcoin as a flash in the pan or as a risky and unregulated modus operandi for illicit dealings. In December 2013, China’s central bank banned its use and in January 2014, federal prosecutors in the United States filed money-laundering charges against a prominent bitcoin promoter.

Despite its growing pains, bitcoin is beginning to gain traction. Overstock.com was the first major retailer to accept bitcoin and Google and Amazon are exploring ways to use it. Two Las Vegas casinos permit bitcoin to be rendered as payment for rooms, food, and drinks, but not for gambling. Businesses have a monetary incentive to prefer bitcoin to credit cards because its processing fees are much lower.

Companies are generally wary of bitcoin because of wide swings in its value and limited legal recourse in the event of fraud. Thus bitcoin advocates will have to overcome people’s understandable skepticism about using it, perhaps via some degree of government regulation, for the currency to become a major force in buying and selling.

Bloodstock auction companies, leading farms, and ADWs with clientele from around the world, will likely sooner or later have to decide whether they will take bitcoin in addition to government-sponsored currencies.

Copyright © 2014 Blood-Horse Publications. Used with permission.

Postscript: The view here is that bitcoin is too risky at the present time for a merchant to accept.

 

RACETRACK SURFACES AND IGNITION SWITCHES

Recent decisions by Keeneland and Del Mar racetracks to replace their synthetic racing surfaces with dirt have been hotly debated. Horse Racing Business takes a look at the decision using an analytical method rather than simply voicing an opinion.

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Shell Oil Company pioneered a technique popular in strategy formulation called scenario planning. The objective is to evaluate the wisdom of contemplated corporate strategies within the context of future scenarios that have a realistic probability of occurring.

Following is such a scenario, circa 2018, pertaining to the fictional Regal Race Couse. Regal was sued by a jockey, Jim Smith, whose horse broke down during a race in 2017; Smith became a paraplegic. One of the jurors in the court case, Carol Jones, is telling a newspaper reporter why the jury found Regal liable for damages.

Reporter: Please briefly describe the jury’s deliberations.

Jones: I am a chef at a local restaurant and have never been to a racetrack in my life. I might have watched the Kentucky Derby once or twice. The jury was made up of others like me with little or no knowledge of racing and open minds about whether Smith had a good case.

Back in 2014, Regal tore out its racetrack with a manmade surface, called a synthetic, and installed a dirt track. The plaintiff, jockey Smith, claimed that Regal knowingly jeopardized his well-being because it had plenty of hard evidence that a synthetic surface was safer for horse and rider than a dirt surface.

Reporter: How did the jury come to the conclusion that Smith had a strong case?

Jones: Both sides brought in expert witnesses—horse trainers, engineers, veterinarians—to support their version. Frankly, we were mostly confused by the conflicting testimony and did not know who to believe. In the end, we relied on the best information we had, which was a scientific study by an organization called the Jockey Club. This group is the registrar of all Thoroughbreds in the United States and its members are the most prominent people in American racing. The Jockey Club, we found out, is generally regarded to be the most influential organization in racing. The Jockey Club study revealed that synthetic racetracks are much safer than dirt tracks. I don’t recall the exact statistics, but it seems that horse fatalities are about twice as likely to occur on dirt tracks as on the manmade variety.

Reporter: So you relied on the Jockey Club findings in rendering your verdict?

Jones: Yes, indeed, that was the best science we had. What’s more, here is what else was persuasive: Some of the people who run Regal, as well as a few of their board of directors, are members of the Jockey Club. Yet here they were in court arguing against the findings of their own organization [The Jockey Club]. It was a contradiction that we could not buy. They are intelligent and educated folks and had to know that dirt racetracks are not as safe as synthetic tracks. Therefore, we the jury, concluded that they knowingly put jockeys in additional peril by taking out a synthetic track in 2014 and putting in a dirt track. No doubt in the jury’s mind, Regal knew beforehand and went ahead with a dirt track anyway. Reminded some of us jurors of when General Motors was exposed several years ago for putting an ignition switch in cars that engineers knew in advance was more dangerous than a slightly more expensive switch…and customers ended up getting injured or dying as a result.

Reporter: Thanks for your observations.

Jones: One last thing. I heard that the owner of the horse Smith was riding also sued Regal for his death and that Regal settled out of court. Also heard that Regal is going back to a synthetic track.
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If I were in top management or on the board of a racetrack that is about to replace a synthetic surface with dirt, I would assign a fairly high probability to eventually encountering a scenario similar to the one described. In my view, weighing costs vs. benefits, it would be difficult to justify a decision to return to a dirt racetrack.

Copyright © 2014 Horse Racing Business