Deloitte Consulting LLP July 2005
Equine
Activities
| Category | Total | Racing |
| Number of Horses | 9.2 million | 844,500 |
| Direct Economic Impact | $39 billion | $10.7 billion |
| Total Economic Impact | $101.5 billion | $26.1 billion |
| Direct (spending) jobs | 453,600 | 146,600* |
| Total (FTE) jobs | 1,411,300 | 383,800 |
| Thoroughbred Purses 2007 | $1.18 billion |
|
| US Pari-Mutuel Handle | $20 billion ($15 on TB) | |
| US Legal Betting Handle | $728 billion |
| Then: | None! Racing had the monopoly on legal gambling. There were few entertainment options of any kind. |
| Now: | Everything! And anything. Legal gaming is everywhere in the form of Indian casinos, riverboats and the lottery. Six Flags to mega-malls to Wii entertain us 24 hours a day. |
"Social Scene"
| Then: | The "who's who" of "old money" were all involved in racing. Bing Crosby was crooning at Del Mar on a daily basis. |
| Now: | Racing no longer features the "who's who", this generation prefers to own an NFL franchise rather than a track or a horse. |
Regulation
| Then: | Each state made its own "morality" decision about gambling. |
| Overall, gambling was considered a "sin." | |
| It was allowed because of a lucrative "sin tax" (free money for the state). They justified it because it is traditionally thought of as an agricultural business. | |
| Now: | Each state can still make its own morality decision and most have joined in the business (lotteries). |
| Gambling is generally acceptable in society. | |
| Revenue to the state from racing is much smaller now due to the increased competition. | |
| The tax breaks are "justified" to support agriculture and for greenbelt reasons. | |
| Racing is still the only sport legal to bet on (outside of Nevada). |
KENTUCKY
Thoroughbred Takeout & Distribution: At tracks at or over $1,200,000 daily average, total takeout is 16% on straight betting and 19% on exotics; state receives 3.5%. At tracks under $1,200,000 daily average, total takeout is 17.5% on straight betting and 19% on exotics; state receives 1.5%. From state share, Kentucky Thoroughbred Development Fund receives 0.75% Equine Drug Research receives 0.1%; University of Louisville Equine School receives 0.2%. Harness Takeout & Distribution: Total takeout 18%, 25% on exotics. State receives 1.75% (3.75% if average daily handle is $1,200,000 or more. From state share, Kentucky Standardbred Development Fund receives 1.25%, Equine Drug Research receives 0.1%; University of Louisville Equine School receives 0.2%.
Quarter Horse, Appaloosa, Arabian Takeout & Distribution: Total takeout 18%; 25% on exotics. State receives 1.75%. From state share, the appropriate breed development fund receives 1.25%, Equine Drug Research receives 0.1%; University of Louisville Equine School receives 0.2%.
All breeds: On inter-track and account wagering, state tax rate is 3%; of that amount, 2% goes to the appropriate breed development fund. Breakage (10C): all to association. Unclaimed pari-mutuel tickets revert to Kentucky Racing Health and Welfare Fund after two years. Daily license fee of $175 to $2,500, based on the track's average daily handle during the preceding year.
LOUISIANA
Takeout: 17% on win-place-show, 20.5% on two-horse wagers, 25% on three or more horse wagers.
On-Track Distribution: When no conflicting race meetings occur, state receives: on total daily win-place-show pools up to $201,000 - 3% of amount exceeding $60,000; win-place-show pools from $201,000 to $401,000--$4,230 plus 4% of amount exceeding $201,000; win-place-show pools $401,000 and over--$12,230 plus 5% of amount exceeding $401,000. On two-horse exotic wagers--additional 0.5%. When two or more conflicting race meetings occur, state receives: on total daily pools up to $201,000--3% of amount exceeding $100,000; pools from $201,000 to $401,000--$3,030 plus 4% of amount exceeding $201,000; pools $401,000 and over--$11,030 plus 5% exceeding $401,000. On two-horse exotic wagers, additional 1.5%. On three-or-more-horse wagers--another 0.5%. Takeout on special Louisiana-bred maiden races: 8% of total commissions to Louisiana Thoroughbred Breeders Association balance distributed 50% to association, 40% to purses, 10% to state. (Or percentages of total: 8% to LTBA, 46% to association 36.8% to pursue and 9.2% to state).
Off-Track Distribution: State receives 1.5% of OTB facility's total daily handle; of this
amount, 14% for breeder awards, 33 % to education, 53% to racing commission.
Of facility's share: 5.5% to supplement horsemen's purses, 94.5% retained
by facility. Of 5.5% OTB purses 45.45% is for host purses, 45.45% for guest
purses, 0.9% for Breeder Awards. Of horsemen's purses share: 4 / to Horsemen's
Benevolent and Protective Association, 96% for purse supplements and breeder's
awards. Parish where OTB facility is located may receive up to 2% of OTB facility's
total daily handle. When facility located within city limits 50% of parish
share to city governing authority. All Wagering: Overall the state receives
a minimum daily license fee for track or live facility, $1000 thoroughbred,
$500 quarter horse; admission tax of 250 per person; occupational license
fees, 100% (75% to Louisiana State University Veterinary Equine Center, 25
to state general fund/; fines, 100%. Breakage (10C1: In same proportion as
host track's or facility's total handle is to overall (combined) total handle.
At host track: 50% to racing association, 50% to Louisiana Breeders Fund to
supplement purses. At OTB facility: 100 / to facility. California horse racing is the envy of the nation. Only New York is on
a par with California in the national picture of horse racing.
A total of $3,524,519,577 was wagered by fans of California racing during the 1995-1996 fiscal year, and of that money 81 % ($2,842,556,360) was returned to winning ticket holders.
Prior to satellite wagering in 1985, virtually 100% of the wagering on California's races was at the track, but today "on-track" bets make up less than 28% of wagers placed ($980 million).
By John Reagan and Dick Gonzales, CHRB Staff
CHRB
News & Review (1997)
California horse racing is the envy of the nation. Only New
York is on a par with California in the national picture of horse racing
A total of $3,524,519,577 was wagered by fans of California
racing during the 1995-1996 fiscal year, and of that money 81% ($2,842,556,360)
was returned to winning ticket holders.
Off-track betting within the state provides over 43%0 of the handle ($1.53 billion). The balance comes from out of state wagers ($1 billion).
Patrons failed to cash $6 million worth of winning tickets. By law, money from uncashed tickets, except for fairs, is split evenly between a welfare fund for the benefit of backstretch employees and the CHRB for racetrack security and research. Money from uncashed tickets at fairs is turned over to the State's General Fund.
Similarly, money from unredeemed vouchers issued by tracks for use by racing patrons at track self-serve betting machines is used to finance the newly created horse racing revenue data base called the California Horse Racing Information Management System (CHRIMS).
Breakage, a byproduct of the pari-mutuel calculation, is distributed to the State, to purses, and to the racing associations.
Of the $3.5 billion wagered, $660.5 million or 19% was withheld as the "takeout" for such purposes as horsemen's purses, racetrack operations, and government taxation, as follows on the adjoining page:
HORSEMEN'S PURSES
A total of $138 million was distributed last year in the form of purses. This money went to the owners of the horses, the jockeys, the trainers, and through them to the backstretch employees.
Portions of the purse money also went to the organizations that represent owners and other horsemen, such as the Thoroughbred Owners of California ($947,782), the California Horsemen's Benevolent and Protective Association ($429,708), and the Pacific Quarter Horse Racing Association ($280,384).
The racetracks and fairs that host the racing programs collected a total of $143.9 million in commissions. Much of that money went towards the cost of operations, such as rent or mortgages and labor costs, of which pari-mutuel clerks represent a large part. The racetracks also are responsible for marketing the sport -for advertising, promotions, and other forms of publicity.
Pari-mutuel wagering was authorized by the voters in 1933, principally as a way of generating income to the State of California. During the last fiscal year, the State received $108.6 million from horse racing. Most of this money, $69.6 million, went to the General Fund for budgeted operating revenues for State programs.
The allocation of the California Horse Racing Board budget ($7.8 million) comes from the Fairs and Exposition fund through the yearly budget process conducted by the state legislature. This allocation is used to fund the Horse Racing Board's mission of overseeing the horse racing industry on behalf of the State and the California public.
INCENTIVE AWARDS
One of the most important uses of horse racing revenue is for incentive awards, which promote the agricultural program in California by encouraging horse breeding. Last year those awards were divided between programs for thoroughbreds ($11,200,000), standardbreds ($425.550), quarter horses ($452,606), Appaloosas ($47,354), and Arabians ($75,652)
LOCAL GOVERNMENT
For those local municipalities who elect to participate, an additional 0.33 of 1 % is withheld from the handle to reimburse communities for costs incurred due to traffic control, security, and other expenditures resulting from horse racing events. Last year $7.7 million was withheld for this purpose.
HOST
FEES
Host fees are negotiated or mandated payments to producers of live horse racing imported by tracks via satellite and offered to the betting public in conjunction with a California track's live racing program. Last year, California tracks paid $4.3 million to out-of-state hosts and $13.95 million to California host tracks.
INTERSTATE WAGERING FEES
Interstate wagering fees are "takeout" deductions from wagers made on California racing by racing fans at off-track betting systems outside of the California borders. These deductions in other states amounted to $159.8 million.
EQUINE
RESEARCH
A mandated deduction goes to the University of California for equine research. Last year the total for equine research was $2.5 million. Satellite fees are deducted from the off-track handle at California satellite facilities and are distributed in proportion to each facility's handle. This revenue goes to the Stabling and Vanning Fund to offset the cost of off-site stabling and transporting horses to the track; to the Promotion Fund to be used exclusively for the promotion of horse racing at satellite facilities; to the Expense Fund for the purpose of offsetting the costs of satellite broadcasting; and to guest commissions. A guest site is the term used for an authorized off-track betting system, or satellite facility, who is an authorized recipient of a live horse race. These funds received a total of $94.4 million last year: Stable and Vanning Fund: $8.3 million Promotion Fund: $7.4 million Expense Fund: $49.6 million Guest Fund: $29.1 million
A. The return to
bettors varies from 70% to 85% of each dollar wagered and is always legislated.
B. The take out for straight wagering is usually 17-20% (Always legislated). Exotic wagering is often more, with a 20-35% range depending on type of wager, the track and the state racing bill.
C. Breakage is basically the pay-off fractions not paid to public. It is usually rounded down to nearest 10 cents, sometimes nearest 5 cents. The basic rule of thumb for total wagering is 1% of the gross handle. There is less breakage with larger payoffs, more with short priced payoffs. Breakage revenue is usually legislated as to who gets it. It may go to the track, purses, the state, or a combination thereof.
D. The uncashed tickets, or "outs" are simply tickets that were lost, mutilated, etc. It varies, but is usually about. 5% of the gross handle. Uncashed or out ticket revenue is usually legislated as to who gets it.
*This refers to on track wagers. Off track, other track, etc., wagering systems not included
The State's Share (Varies from 5% to approximately
10%)
The tax on each dollar bet is basically a gross receipts tax and is always legislated. No two states have the same exact structure. Refer to the Association of Racing Commissioners International (ARCI) Statistical Study for general structures within each state and/or province. The basic elements of pari-mutuel taxing methods by each state can vary in percentage of gross handle by:
-Types of wagers
-Graduated scales
-Type or breed of racing
-Daily handle
-Yearly handle
-Number of dates
-Ownership of tracks
-Private/Corporate
State/Municipality
Fair racing
From the state/province share of the takeout, it is common to fund different kinds of programs related to racing: -Breeder incentive programs Stallion awards Owner awards Breeder awards Purse supplements
Stakes races
Overnight races (Closed and open, etc.) -Capital improvement programs for race tracks -Various research programs -Promotional funds related to racing, or fair funds, etc.
State Revenue
The majority of tax revenue from the state's share of the take out is earmarked for specific state funded programs, such as education, special building projects, various deficits, highways, etc. A percentage or a lump sum of the state's portion is given to the racing commission for its operation. In Canada, a percentage is also given to the federal government for its regulation of racing. Basic commission operation expenditures usually include:
-Commission employees salaries
-Drug testing
-Supplies, equipment, travel, etc.
- Legal fees
The percentage of money allocated to the regulation, control, and security purposes from the total share of the state varies tremendously. -States with large amounts of pari-mutuel revenue have a relatively small percentage of the total allocated to the commission. -States with relatively small amounts of pari-mutuel revenue usually have larger percentages allocated than above. -The percentages do not necessarily reflect total dollars spent or allocated.
Other forms of state revenue from racing other than part-mutuel taxes include:
-Licensing fees for racing participants
-Property and real estate taxes
-Tax on profit .
\-Employee income tax
-Limited withholding on some winning wagers of patrons,
The Federal Government also has a withholding tax on high payoff wagers of patrons. Naturally, income tax on tracks, employees, horsemen, etc., are also subject to federal taxes.
For Example: The take out is 15%. 5% goes to state, which leaves 10%. The 10% left over is the money that is split between the purses and the track. In some states, the percentage is legislated on how much of the gross goes to the purse schedule, in others, the 10% is negotiated between the track and the horsemen. That ten percent is usually divided close to 50% to the track, and 50% to purses. (1) Terminology from management is that "we pay 48%, or 50% to purses". Or, (2) "we pay 5%," The same from horsemen on "what we get."
A. Purses
Most tracks and their representative horsemen's organization enter into contract negotiations each year, or for a multi-year agreement. Elements are generally in writing, but sometimes with only a gentleman's agreement. Some common elements can include:
-Total purse % to be paid
-Percent of total purse moneys to stakes races.
-Horsemen's bookkeeper account for interest.
-Horsemen's organization funding
interest
a percentage of the total purse moneys paid to organization
pony lead outs, etc.
-Opening/Closing backside and main/training track in relation to actual racing dates.
-Backside living, stall, cleanliness, maintenance, etc.
-Over/Under payment clause on purse payments-Committees on purse schedules, etc.
Other areas may include benevolence programs, dealing with drug usage on the backside, horsemen's performance rights on television revenue and agreements for simulcasting, Off Track Betting (OTB), etc.
Payment and Distribution of Purse Money
Although through legislation or contract agreement, certain moneys are due purses, it is the responsibility of the track's Racing Secretary to allocate purses to the races. This is traditionally done through the condition book and the listed stakes program for 'added money'. Some elements of horse racing purse structures and theory are: -Added money for stakes races is a percentage of the gross money available for purses.
-The remainder of purse money is allotted for "overnight" races.
-A purse schedule is designed for overnight races with the "Better purses for better horses" in mind.
-Basic types of races are a general indicator oaf "Beater" horses. They generally are:
Maiden Races
Allowance Races
Claiming Races
Handicap Races
Also: Trials, Qualifying, Free for AB, Invitational
Other elements of conditions and types of races whose purpose is to have balanced racing and to be
competitive and attractive for the wagering public are: Age Sex Weight Distance Time Speed Index Claiming price Money earned Past performance (number of wins, or money earned/won*)
-In a lifetime
-In a year
-In a number of starts
-In a specific time period
-At a distance
NOTE: In all of the above, many of the elements can be combined together, but all is at the discretion of the racing secretary. Also: Some of the above are used exclusively or more frequently by different types of racing. (Flat-thoroughbred, quarter horse, appaloosa, arabian, paint, etc.) or harness.
*In flat racing, it is generally accepted that a horse's "Money Won" is only that share paid to the winner from the purse, not counting what would be deducted by the winning jockey. "Money Earned"' would include purse money from 2nd, 3rd, etc., finishes, while in harness racing, it is generally accepted that conditions stating eligibility for "Money Won or Earned" is considered for all finishes whether first or fifth. It would not include driver's fees. Purses have to be based on the total` handle and thus the specific money from the handle for them is distributed by the racing secretary through the condition book, and finally from those in the condition book that filled.
Over Payment: when purses designated in the condition book are more than the actual money earned from the handle. Under Payment: when the money earned from the handle is more than paid to purses from the amount posted in the condition book. In horse racing, under and over payments occur on virtually every race. This is due to the basic simplification that purses are designated before the horses enter, and not after they run. When the racing secretary does a purse schedule based on the "Better Purses for Better Horses"; he/she designates a scale that is followed so that a similar or exact purse is given for the same type of race. A condition book is generally written no longer than two weeks in advance of the dates for which it is written. (Exceptions is the first book which can be done months or several weeks prior to the opening of a meeting.) Some of the major reasons are:
1. Determining handle is no more than a forecast or estimate. Factors are:
-Weather
-Time of year
-Competition
-Last year's corresponding attendance and handle figures
-Local economy
-Quality of horses
-Last year's figures
-Other entertainment and sporting events
2. Revenue and expenditures of the purse moneys must be an average of at least a week or two, or perhaps a month, or the entire meeting. This is critical because:
-Weekday handles are generally slower than holiday or weekend dates.
-Certain times of a racing meeting may be significantly better racing dates in terms of handle and attendance than others.
- Handle and attendance figures from previous years) may indicate definite trends such as spring vs. summer vs. winter will vary greatly.
3. Sensitivity of the racing secretary to the above factors, and using the concept of averaging total handles and revenues from a selected. period of time is well illustrated in the following example:
Determining what to do in establishing the purses for a given period of time is not an exact science. From the A. and B. examples on the sensitivity of the racing secretary, we may conclude, that in practice, most try to have a workable combination that is totally tuned to each track and racing situation. One basic that almost all race secretaries subscribe to is:
- “It is easier to raise purses that it is to lower them."
- Having an attractive purse schedule at the beginning of a meet is critical to attract good stables of horses.
- Having an attractive purse schedule at the conclusion of a meet is critical to keep good stables of horses.
Basic Greyhound
System of Purse Structure and Payment
Greyhound tracks and kennels operate on the basic theories employed in horse racing, however, in the payment of purses to winning greyhounds a very efficient and practical system is used. Simply, purse earnings are not paid until after the dogs run and there is no over or under payments. A very simple model illustrated*:
-5 performances for each week at 12 races per performance.
-Graded races assigned point values.
-The total points for the week are added together and then divided into the total purse dollars earned over that period of time. Each point is then assigned a dollar value and the purse oaf each grade of race is determined by multiplying that point dollar value, by the number of points each grade of race is worth.
Point
Value Total Points
For the week: Grade A Races: 15 4.0 60.0
Grade B Races: 20 3.5 70.0
Grade C Races: 15 3.0 45.0
Grade D Races: 10 2.5 25.0
Totals 60 200.0
*This example is very basic and does not include other factors which should be taken into consideration such as different purses to be paid for different distances of races.
B. Revenue to the Association
Revenue that goes to the "track" (the business entity running the race meet) from the take out is one of the most important, but not their only source of revenue. Without a doubt, purses are the mast costly single expense of operating a race meeting.
Other major areas of expenses to a race track can include: -Capital investment & interest on borrowed money.
Construction of facilities: (1) Frontside or patron facility.
(2) Backside or stable area.
(3) Racing surface(s).
- Maintenance and/or upkeep of the three areas.
- Utilities.
- Various management & operations needs.
- Direct racing related costs.
Racing department
Officials
Security
Horsemen's bookkeeper
Payroll & accounting
Pari-mutuel department
Lease or purchase of totalisator equipment
Salaries of mutuel clerks/supervisory personnel
Video/television and photo finish
-Marketing, publicity, public relations & advertising.
-Various licenses, permits, etc.
It is generally accepted that no race track can even conceivably operate on pari-mutuel revenues alone. Typical revenue producers can include:
-Concessions
Food
Beverage
Gift & dry items
Video arcades, etc.
-Admissions ...
- Parking
- Program department
Tip sheets
Advertising
-Television or OTB revenues (Not at most tracks)
- Non racing areas
Swap meets
Horse sales
Horse, pony, & dog shows
Concerts, closed circuit events
Religious & other conventions
Boats, cars, trade, etc.
Year round dining & entertainment facilities
All of the above are potential revenue producers but we must also take into consideration expenses such as salaries, cost of printing, etc. Ownership is very important. Privately owned tracks have almost full leeway in determining policy as to the racing facility. State owned, or County owned facilities change the ability of the race track operator to do non racing revenue producers, and also limits facility construction, remodeling, and maintenance in many cases.
- Race track operators are many times lessees, or tenants.
- Racing facility owners can be operators, as well as lessors.
- Concession companies, totalistor companies, and many other specialized vendors regularly contract with track operators to provide services. Some tracks operate and/or own concessions, totes, or other services themselves. Most have at least a few contract companies providing specialized equipment and/or services.
- Ownership of a race track, or a lease agreement, does not necessarily give that organization the right to race due to the authority held by the racing commissions. If they do get dates, it does not mean they get the number desired nor the time of the year desired.