05/05/2010 11:00PM

Derby provides reason for optimism


Strong wagering figures, television ratings, and attendance for the Oaks and Derby cards at Churchill Downs last weekend indicate the racing industry's long, slow slide may be finally abating, according to racing officials.

The wagering reversed three years of declines on the Derby and its undercard despite the lack of a strong favorite, the forecast of miserable weather, and a card that did not differ significantly from last year's. In addition, the figures bucked overall trends in the racing industry that have exposed a vulnerability to economic downturns for the first time in its history. Although some racing officials warn against comparing this year's number with last year's, others contend that perhaps the worst has come and gone.

"We've had a tough couple of years as far as handle and purses, and there are still a lot of challenges ahead, especially here in Kentucky," said John Asher, vice president of communications for Churchill Downs. "But suddenly, it seems like horse racing is viable again."

Racing handle has contracted more over the last two years than at any time in its modern history. Handle in 2009 was $12.3 billion, the lowest since 1998 and a 9.9 percent decline from 2008, when wagering handle on U.S. races fell 6.8 percent compared with 2007. Purses have declined a similar amount over the same period. Adjusted for inflation, racing handle is down more than 30 percent over the last 10 years.

It has been hard to quantify the recession's impact on racing handle. Figures hit a high water mark in 2003 and began to decline marginally over several years before stagnating just before the recession, making it difficult to separate the industry's struggle to maintain market share from the impacts of the economy at large.

The decline in handle scraped against long-held notions that gambling industries are recession-proof, but that line of thinking was developed when gambling opportunities fell well short of demand. Where casinos were once limited to Nevada and Atlantic City,

casino-type gambling and lotteries are now legal in all but a handful of states, and many economists believe the market is now approaching equilibrium. In fact, the casino-gambling industry was one of the hardest hit during the recession.

Nick Nicholson, the president and chief executive officer of Keeneland, said the current recession differed from previous recessions because of its widespread impact on consumer willingness to spend. That difference accounted for the sharp pullback on all forms of gambling, Nicholson said.

"By and large, 20 years ago, everyone had a defined pension-benefit plan," Nicholson said. "So if you lost your job, you still had that money. It was protected. That's no longer the case. Now everyone's money is in the stock market through IRAs. So this recession hit everyone's pocketbook in a real, definable way. People weren't spending, because they had watched their wealth get reduced to a fraction of what it once was."

If that's the case, then the public chose a high-profile weekend to open up its wallet, especially considering that handle was down significantly at the major meets that ended in April at Santa Anita and Keeneland. On Oaks Day, all-sources handle soared 19.8 percent. Wagering on the Derby Day card was $162.7 million, up 4.5 percent compared with last year. Betting on the Derby itself was $112.7 million, up 7.8 percent. The cards for both Derby Days were similar, with 122 betting interests in the 13 races last Saturday and 124 betting interests on the 13-race card last year.

Crowds were strong. Attendance for the Oaks on Friday set a record under ideal weather conditions, at 116,046. Attendance for the Derby was 155,804, up 1 percent compared with last year and the fifth-highest despite a forecast of heavy rain.

Asher said local businesses such as hotels, restaurants, and television stations had all reported gains during Derby week compared with last year. In addition, sponsors showed renewed interest in buying packages for the Derby after pulling back significantly for the 2009 running.

"There was much more optimism in the local market than I had seen in a long time," Asher said, "but that still doesn't explain 155,000 people showing up on a miserable day."

Hal Handel, the chief operating officer of the New York Racing Association, sees similar signs of recovery in New York.

"We're seeing a lot better numbers in April than we were seeing in February and March, and we had some good days for the opening of Belmont" over Kentucky Derby weekend, Handel said. "I think what we're seeing here is a little better economy, and that's encouraging."

Tom Chuckas, the president of Pimlico, credited Churchill Downs with reaching out the last three years to a broad audience in marketing the Oaks and the Derby, a sentiment that was echoed by Nicholson. Unfortunately, Chuckas said, the people who are drawn to racing's big events once or twice a year rarely wager enough to make a significant difference.

"The hope of racetracks is that you create a positive experience for that event," Chuckas said. "If you can do that, if they are happy, maybe you can get them to come back once a month. And maybe you can get some of those people to come back once a week."

Chris Scherf, the executive vice president of the Thoroughbred Racing Associations, a racetrack trade group, said the growth in handle for the Derby and the Oaks was somewhat illusory because the figures were being compared with 2009, when the country was more deeply in recession and the Derby's public image was bruised.

"I really thought that last year was the rock bottom," Scherf said. "The economy was in horrible shape, and you had the hangover from Eight Belles. There wasn't anywhere to go but up."

Scherf also cautioned that any recovery should not mask the structural problems facing racing as it adjusts to smaller foal crops and the challenge of staying on the radar in a marketplace that is crowded with gambling and entertainment options.

"You still have the inherent economic conflict of horse racing," Scherf said. "It needs to be fixed. We're still running 5,000 race days a year, and that can't support the current economic model."