10/15/2009 11:00PM

Fewer foals means fewer live racing dates


Although the numbers are still estimates, the Jockey Club has forecast that the U.S. foal crop will decline 11.8 percent, or 4,000 foals, in 2010 to 30,000 foals, the lowest number since 1977. With no end in sight to the economic recession, a spectacular bust has hit the breeding industry. Prices for bloodstock at some sales have fallen more than 50 percent, and there has been a roughly 10 percent drop in the national wagering handle. It's a safe bet that the decline won't end in 2010 and that the foal crop will contract another 10 percent over the next two to three years.

What are the consequences of that contraction to the racing industry beyond the breeding farms? Horses are the raw inventory for races, and any decline in inventory will affect the ability to present an attractive product to bettors. Tracks that are able to consistently offer races with full fields should draw betting dollars from those that have fewer horses. Nationally, the industry will struggle as a whole to reduce the total number of races to match the foal-crop decline.

The good news is that the racing industry has been cutting races over the past five years even though the foal crop has remained relatively stable. The cuts have been just short of significant, from 53,503 races in 2003 to 50,119, a decline of 6 percent over the five-year period. The decline is likely the result of persistent erosion in the number of starts horses make per year, a figure that continues to hit a new annual bottom. (The 2008 figure was 6.20 starts per year, down from 6.31 the year prior, which was down from 6.37 in 2006, 6.45 in 2005, 6.57 in 2004, 6.62 in 2003, and 6.80 in 2002.)

The bad news is that additional cuts are likely in the face of more declines, and it's hard to foresee where those cuts will occur. Making matters worse is that there is no central authority that can gather racing's leaders together in a big room and schedule reductions in race days across the board. As a result, local concerns will continue to affect the national picture, with negative consequences in prospect for even the healthiest tracks.

In addition, cuts in race days are likely to be met with resistance from horsemen, who are loath to appear as if they support a reduction in racing opportunities among rank-and-file trainers. Over the past 10 years, horsemen have been spared wide-scale negative consequences from that position because of the effect of slot-machine subsidies on purses, which has skewed the economic incentives in the racing industry by rewarding racetracks and horsemen for holding races.

But sooner or later, racetracks are going to have to demonstrate to legislators that the subsidies are supporting a product the public wants, and if betting on races continues to decline, support for subsidies is going to be more difficult to justify. That will certainly be the case in states such as West Virginia and Delaware, which have already begun to take back a portion of the subsidies and will be under more pressure if the recession continues to wreak havoc on state budgets.

The last time the foal crop showed any significant decline in the U.S. was in the late 1980s and early 1990s, when the number of foals dropped as a result of the last big boom-and-bust cycle in the breeding industry, from 44,250 in 1989 to 32,118 in 1994 - a 27.4 percent decline. As can be expected, the plunge affected the number of races and the number of starters for each year from 1990 to 1995, with both dropping by double digits. Field size dropped as well, because there were not enough races cut to offset the reduced number of foals. With racing struggling to hold on to its fans right now, an additional drop in field size could be troubling.

Here's the raw data from the last bust: In 1990, when 2-year-olds from the contracting 1988 crop made their first starts, 82,314 horses started in a race in the U.S. By 1995, that number dropped to 67,021, an 18.5 percent drop. The number of races at U.S. racetracks, however, did not drop as fast, falling 14.7 percent, from 72,664 to 61,996. As a result, field size dropped 7.9 percent, from 8.91 to 8.20 (at that time, starts per year was steady).

Fortunately for the U.S. racetracks at that time, full-card simulcasting was still in its infancy, and the U.S. racing industry had plenty of latent growth embedded in it to make up for the loss in racing opportunities. So racing avoided any real loss in revenue by giving players in far-flung areas and in different time zones far more opportunities to bet. The result was more revenue for the industry to split up among a smaller number of races, and the average purse per race jumped from $9,833 in 1990 to $12,284 in 1995, a 19.9 percent increase.

This time, racing doesn't appear to have similar potential growth areas, with a few exceptions. Account wagering and offshore betting have made it possible to get a bet down from just about anywhere at any time, but foreign gamblers over the past five years have not embraced the U.S. product. So unless racing creates tens of thousands of new well-heeled gamblers during the current recession, it won't have new revenue sources to count on when its inventory starts to get thinner. That should be enough incentive to begin planning now on how to address a horse shortage.