Pari-mutuel wagering on horse racing in the United States has been in a downward spiral. Some of the attrition in handle undoubtedly stems from the 9.1 percent national unemployment rate; comprised of 9.6 percent for men and 8.5 percent for women. However, current unemployment is not the chief culprit in the tumble in wagering because the negative trajectory began in 2004 when the unemployment rate was 5.5 percent.
A major cause of the erosion in handle is the well-documented 30-plus year decline in the economic circumstances of the adult American male. This, of course, is the demographic segment from which the preponderance of betting revenues has traditionally come from and still does.
In July 2011, the percentage of all adult men holding a job—either part-time or full-time–fell to 63.5 percent; this was slightly better than the most recent low point of 63.3 percent in 2009. The previous trough occurred in 1948. Similarly, only 81.2 percent of men in their prime working years between 25 and 54 years old now hold a part-time or full-time job; in 1969, the percentage was 95.
Men’s wages have also been in a long-term decay, after adjusting for inflation. According to MIT, the median income of males in the age range of 30 to 50 dropped by 27 percent from 1969 to 2009—to $33,000 annually.
Gaming revenues have taken much less of a hit in the current economic malaise than pari-mutuel wagering because the customer base is far more diversified. Whereas the vast majority of bettors on horse racing (and sports and table games) are men, casino patrons are about 54% women. Moreover, slots are overwhelmingly the favorite gambling activity of both men and women (especially women) and account for the largest dollar component of gaming.
Racing’s fortunes have deteriorated in the face of new competition but also in sync with the economic stagnation of the adult American male. The inherent risk in depending on such a highly concentrated customer portfolio was demonstrated in the recent Jockey Club/McKinsey & Company study. It looked at a group of handicappers from a large rewards program and found that “1.6% of the handicappers accounted for 50% of the handle.”
Although dramatic changes to old ways of doing things are divisive, the status quo for horse racing is manifestly untenable. Purposeful disruption from within, risk-taking, and creativity are de rigueur for an imperiled mature industry like racing that is searching for a worthwhile future. For example, experimentation with significant across-the-board reductions in takeout percentages, exchange wagering, lottery-type bets, and other fresh approaches to reinvigorate the product line and broaden the customer base.
Copyright © 2011 Horse Racing Business
Originally published in the Blood-Horse. Used with permission.
Look for Breeders’ Cup posts on Tuesday, November 1 and Thursday, November 3 and a regular weekly post on Saturday, November 5.