An investment or a gamble?

The Maryland General Assembly will be asked during its upcoming session to place a $375 million bet on the future of horse racing in Maryland. And it will be asked to do so at a time when the odds of horse racing surviving as a viable industry are dropping rapidly.

The City of Baltimore and The Stronach Group announced last month that they had reached a deal that would keep the Preakness Stakes in Baltimore. Stronach owns Pimlico Race Course in the city, Laurel Park in Anne Arundel County, and the right to run the Preakness.

Amid the rejoicing by politicians and editorial boards over the prospect of the second jewel of horse racing’s triple crown staying in the city was nary a mention that horse racing faces not one but two existential threats. Ignoring the threats will be at the taxpayers’ peril.

The deal to keep the Preakness in Baltimore calls for the state to invest $375 million in racetrack construction. About $200 million would be used to rebuild Pimlico Race Course and about $175 million would go toward renovating Laurel Park in Anne Arundel County.

The Stronach Group would continue to own Laurel, but ownership of Pimlico would be transferred to the city or state, which would lease it back to Stronach for the Preakness. About $27 million of the $375 million would come from money in the state’s Racetrack Facilities Renewal Fund. The rest, $348 million, would be raised by the sale of bonds issued by the Maryland Stadium Authority and repaid by the state over a period of 30 years.

The problem is that no one knows whether horse racing will survive as anything other than a niche industry for the next five years, let alone the next 30.

Two factors have caused the strength of the headwinds facing the industry to increase dramatically. One is competition from legalized sports betting. The other is the growing sentiment that horse racing is inhumane and should be banned.

Competition from legalized sports betting

In 2018, the Supreme Court sent shockwaves through the horse racing industry when it struck down a federal law that banned commercial gambling on sports other than horse racing, dog racing, and jai alai in most states. Some states, including New Jersey, Pennsylvania and West Virginia, already have responded to the decision by legalizing sports betting, including online betting. The Maryland General Assembly is poised to take up the issue in the upcoming session.

The consensus is that legalized sports betting will have a negative impact on horse racing revenues by reducing track attendance and betting handles, although it is too early to tell how significant the impact will be.

The effect in Maryland would depend on which land-based facilities (casinos, racetracks, off-track betting locations) are permitted to offer sports betting, and whether online betting is approved.

Even optimists within the industry acknowledge that it will have to change to survive, believing, for example, that pari-mutuel wagering will have to give way to fixed odds wagering to compete with sports betting. There is no doubt that horse racing in Maryland faces major challenges to its financial model if sports betting is legalized in the state.

Public concern over the mistreatment of racehorses

Even if horse racing can withstand the competition from legalized sports betting, there is a darker cloud on the horizon: An anti-horse racing movement that is gaining momentum.

For anyone concerned about the future of horse racing, the headline of ESPN’s story about the marquee race of the Breeder’s Cup in California earlier this month was ominous: “Breeders’ Cup ends with death of 37th horse at Santa Anita.” ABC captioned its account of the race “Breeders’ Cup, the Super Bowl of racing, marred by another horse’s death at Santa Anita.”

It was the rash of equine fatalities during the 2019 racing season at Santa Anita, owned by Stronach, that propelled animal cruelty accusations into the mainstream media. In April, Sports Illustrated published a story by one of the country’s most prominent sports journalists, Tim Layden. He described the deaths as horse racing’s “biggest problem.” Layden observed that, although there have been “surges of awareness” in the past about the sport’s toll on horses, “this does not feel like a blip.”

In May, National Geographic ran a story titled “Why horse racing is so dangerous.” Ironically, the story featured a photograph of horses running at the 2017 Preakness. There have been many similar stories, and even The New York Times weighed in with a piece captioned “Horse Racing Deaths Threaten the Racing Industry. Is the Sport Obsolete?”

Although the deaths at Santa Anita drew the most attention, it is hardly the only racetrack where they occur. Last month, USA Today reported that its research revealed that an average of more than 600 thoroughbreds a year died because of racing over the past decade.

And then there are the slaughterhouses. USA Today also pointed out that an estimated 7,500 thoroughbreds end up in slaughterhouses in Canada and Mexico after their racing careers are over, with the horse meat shipped to Europe and Asia for human consumption. A previous study calculated that 70% of thoroughbreds bred in the United States end up in slaughterhouses.

The thoroughbred industry, led by Stronach’s president, Belinda Stronach, has been working to burnish the sport’s public image by making it more humane. It may be too little, too late.

Animal rights protests now routinely accompany racing events even in Kentucky, the de facto capital of horse racing in the United States. If anti-racing sentiment reaches a flash point on social media it will only be a matter of time before its impact on the industry becomes catastrophic.

Stop and think

There is a story about an exchange that took place during the first meeting of the Board of Public Works presided over by newly elected governor William Donald Schaefer. Schaefer favored quick action on an agenda item, explaining that as mayor of Baltimore he had a saying, “do it now.”

The state comptroller, the venerable Louis L. Goldstein from Calvert County, replied that in Southern Maryland they had another saying, “stop and think.” This is a stop-and-think moment for the General Assembly.

The threats to horse racing posed by legalized sports betting and the perceived mistreatment of racehorses could accelerate the decades-long decline in the popularity of horse racing. Attendance at racetracks is becoming increasingly geriatric. Suffice to say that the availability of online sports betting and a reputation for animal mistreatment will do nothing to attract a younger crowd.

The deal allows Stronach to divest itself of Pimlico, a derelict racetrack that it doesn’t want. The state would take on the responsibility for building, operating, and maintaining a new Pimlico. The state also would assume the risk of the rebuilt racecourse becoming an expensive white elephant if horse racing revenues tank, putting enormous pressure on the state to increase industry subsidies to protect its investment.

I am not saying that the above concerns necessarily make the proposed deal a bad one. I am saying that it would be absolutely reckless of the General Assembly not to consider them in the course of ensuring that the deal is an investment rather than just a gamble.

[Published as guest commentary by Maryland Matters on November 15, 2019 but not posted to my blog until December 19, 2019. The date of posting that appears above was backdated to place all posts in the order in which they were written.]

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