Archives for May 2017

The Investec Epsom Derby (the English Derby) bills itself as “the greatest flat race in the world.”  It certainly is the most famous and prestigious turf race.  The 238th edition will be run on Saturday June 3, 2017, at 4:30 PM (British time).  The race covers 1 mile 4 furlongs and 10 yards and has a purse of £1,625,000, the richest race ever in Great Britain.

The 20-entry field is dominated by three interests.  Coolmore Stud and its trainer Aidan O’Brien have seven horses entered; Godolphin has three entries; and trainer John Gosden trains five entries for various owners.  Thus these three account for 75% of the entries.  If that is not enough, Aidan O’Brien’s oldest son, Joseph, a two-time winner of the Epsom Derby as a jockey, trains another entry, though one not owned by Coolmore.

Aidan O’Brien and John Gosden have trained four of the last five winners of the Epsom Derby and Coolmore (and its partner Michael Tabor) are the all-time leading owners with six wins.

The chances for another victory by Aidan O’Brien or John Gosden are favorable, given they together train 60% of the field.  Currently, the Gosden-trained Cracksman is the favorite and the O’Brien-trained Cliffs of Moher is the second favorite.  Cracksman is a tepid choice and there is an opportunity in the large field for unexpected results.

The Epsom Derby is an elegant event on turf with the Queen always in attendance, and is always worth watching.

Copyright © 2017 Horse Racing Business

The current problem for U. S. racehorse businesses (and all employers of unskilled labor) in finding and retaining employees has at least five causes:

• The economy is at virtually full employment.
• The labor-force participation rate has been declining for a decade and hovers close to a multi-decade low.
• There is fierce competition among employers for U. S. Labor Department-issued H 2-B visas for seasonal unskilled workers.
• Stricter federal policy on border security and illegals in the country is having an effect.  The Obama administration stepped up deportations and the Trump administration is accelerating the effort.  The number of illegals leaving the United States now exceeds the number coming in.
• It is increasingly difficult to find employees who can pass a drug test as the pool of available workers declines.

The April 2017 unemployment rate in the United States stood at 4.4%, which is essentially full employment when people moving between and among jobs is allowed for.  However, the labor-force participation rate, defined as the percentage of working-age Americans who are either employed or looking for a job, is only 62.9 percent.  The labor-force participation rate declined from 66.4% in January 2007 to 62.9% in April 2017…and the multi-decade low was 62.4 percent in Setember 2015.

If more potential workers could be enticed back into the workforce, the labor-force participation rate would increase and the labor shortage of unskilled workers would be alleviated to an extent.  In the absence of this happening in a significant way, the competition for workers should eventually drive up wages.

The horse-racing business is already under pressure from stagnant revenues (i.e., pari-mutuel wagering and purses), so hefty increases in costs owing to higher wages would exacerbate the problem.

Even if the federal government were to significantly increase the number of H 2-B visas, horse-racing businesses would have to compete against a plethora of other employers of unskilled workers for the visas.  In addition, horse-racing businesses need full-year workers rather than seasonal.

The alternative is, of course, for employers to continue to hire illegals.  The Wall Street Journal recently wrote in “Crackdown Causes Unease on the Backstretch”:  “At racetracks around the country, many of the grooms, exercise riders, and stablehands have green cards or full citizenship, but a greater number are in the country illegally, according to immigration lawyers and trainers.  Other workers come and go on temporary visas.”

Thus the low-skill workforce in the horse-racing industry is predominately illegal, which is precarious, owing to ethical issues and possible fines and adverse publicity.

Whereas manufacturers can move plants to low-wage countries and service companies–like accounting and computer services–can outsource work offshore via the Internet, restaurants, landscaping firms, and horse-racing businesses on the backstretch and farm mostly cannot.  To the extent possible, the answer is to automate labor-intensive processes and to make the pay more attractive.  Barring that, some businesses will continue to run the risk of hiring illegals and others will downsize or cease operations.

Copyright © 2017 Horse Racing Business

The morning after the 142nd Preakness, the Baltimore Sun front-page headline said:  “Record Turnout” and the sub-headline added”  “Pimlico shows its age, but the fans love all the Preakness traditions.”

The first paragraph read:  “…a record crowd of 140,327 wondered whether they were witnessing one of the last editions of the marquee event at 147-year-old Pimlico Race Course.”

I was in the crowd and wondered myself how much longer the middle jewel of the Triple Crown can continue to be run at such a dilapidated racetrack.  The color and tradition of the Preakness were apparent but the physical surroundings were incongruent with a figurative jewel.

The Sun reported—under a headline “Glue, bubble gum, and duct tape”–that the Maryland Stadium Authority estimated in February 2017 a monetary outlay of between $250 million and $320 million to modernize Pimlico.  The Stronach Group, which owns the facility, countered that a “complete rebuild” would cost $300 million to $500 million.

Shuttering Pimlico and moving the Preakness to Laurel Park in Maryland near Washington, DC is an emotionally-charged issue for many horse racing fans and residents of Baltimore and the state of Maryland.  Moving the event outside Maryland ramps up the level of emotion.

Reading between the lines in what Maryland Jockey Club general manager Sal Sinatra has stated publicly, the Preakness is likely headed to Laurel Park in the near future, possibly even for 2018.  Sinatra has come close to promising that the race will remain in Maryland but has offered no assurances about Pimlico’s future.

Realistically, the Maryland Stadium Authority and the Stronach Group cannot justify a capital outlay of the magnitude required to rebuild a facility for an annual two-day event in May.  If Pimlico is viable as a racing venue, a much smaller infrastructure can be built at a defensible cost.

Copyright © 2017 Horse Racing Business