August 6th, 2011 U. S. pari-mutuel handle peaked in 2003 at $15.2 billion and dipped in 2010 to $11.1 billion. As a result, major metrics in the U. S. racing and breeding industry have followed suit. Gross purses in 2010 were $1.03 billion, the same as in 2000. The average auction price per yearling was $39,982 in 2010, the lowest average since 1997; the median of $10,000 in both 2009 and 2010 was the lowest since 2001. (These dollar figures are not adjusted for inflation, so the nominal decreases are greater than they appear.) The Jockey Club forecasts a foal crop in 2011 of 24,900—a drop of 38.3% from 1990.
This downsizing or rationalization is usually correctly attributed to intense competition from casinos, offshore pari-mutuel companies, and global Internet gaming that is illegal in the United States but difficult for authorities to stop. A languid economy is also often cited, although the Thoroughbred industry has been in a downturn too long to place much fault on “current” economic conditions—a secular trend is a more accurate description.

An often overlooked long-term development in the U. S. economy is a key contributor to what has transpired with pari-mutuel handle. Personal income, as measured by The Department of Commerce, consists of three components: (1) wages, salaries and employee benefits; (2) dividend, interest, and rental income; and (3) government benefits. In 1970, wages, salaries, and employee benefits comprised approximately 75% of personal income, whereas by 2010 this component had dropped to 64%. As the nation has aged, government benefits have risen as a percentage of personal income, as has dividend, interest, and rental income. Moreover, the bulk of the latter category accrues to the more affluent segments of the population, which exacerbates wealth differences.

Despite its “sport of kings” image, horse racing in the United States has a long history of being heavily supported financially by low-to-middle income bettors wagering at blue-collar tracks in large industrial cities. These are precisely the individuals who have had less to spend as the wage, salaries, and employee benefits element of personal income has shrunk. Moreover, they are least able to cope with rising food and gasoline prices and underwater house mortgages. Hoping for the imminent financial recovery of racing’s proverbial $2 bettor to stem the tide in pari-mutuel handle is a chimera, although offering lower priced bets like the .10 Superfecta is a step in the right direction in terms of making wagering more affordable to cash-strapped people.

A statistic indicative of this transformation in U. S. personal income distribution is that households with an income level placing them in the top 20% of all households now account for about 40% of consumer spending. The racetracks and advance deposit wagering firms that are able to attract more of these customers are the ones that should do relatively well.

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