During the University of Arizona Race Track Industry Program Symposium held earlier this month, Robert Evans, the president of Churchill Downs Inc., gave the keynote address during which he listed many reasons for optimism in regard to the future of the horse racing industry
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Since the keynote speech, Alicia Wincze Hughes of the Lexington Herald-Leader has spoken with Evans, who stated that the horse racing industry might have to go into a period of contraction in order to grow.
During the question and answer session, Evans -- who is also a breeder -- said that he is not calling for a reduction of racetracks and race dates, but he is trying to point out to the industry that the current business model is not working.
Listed below is one of Evans' answers in regard to what his address was trying to convey.
The presentation (keynote address) was kind of in three pieces. The first piece was looking at some of the more interesting trends as opposed to the year-to-year changes about the demand and supply for the business. Demand has been falling; supply hasn't been falling by the same amount. Therefore we have way more supply of races and race days at racetracks than there is demand for.
The middle piece was, where does that go? If you go out, say, 10 years, where does that leave you? So we built a little financial model of the racetrack industry in 2020. And I made the point about 16 different times that I'm not forecasting this, I'm not predicting this, I'm not calling for this. It's a math problem and it's a pretty good math problem in the sense that we have a pretty good idea what the costs are.
What we concluded from that is, in order to be economically self-sustaining, if we make the requirement that racetracks have to earn at least five per cent pre-tax return on their investment capital, what that leads you to is a world where you have about half as many racetracks in the future as you do today. And the number of races and race days sort of fall by similar percentages.
The good news is that at that point in time, you have a business that is economically viable. The bad news is, it's smaller. That's the challenge of the future, is how do we make the business successful realizing it is probably going to get smaller as we go through time.
Evans went on to say, "I'm not calling for action. I'm saying if you solve the math problem of in order for tracks to operate, they have to at least earn their cost of capital. Otherwise, you're taking money from your shareholders, you're taking money from the banks at eight per cent and you're investing it at six per cent, and that doesn't work. What we have is not a viable model.
"Someone grabbed me after the speech and said, 'Well how do you know that?' I said, 'It's obvious.' NYRA (New York Racing Association) just went through bankruptcy, Magna just went through bankruptcy, NYOTB (New York Off-Track Betting) just closed. That's telling you these entities are not earning at their cost of capital."
In the article, Evans also offers his opinion on the Monmouth Park Super Meet and other topics.
To read the Lexington Herald-Leader piece in its entirety, click here.
(With files from the Lexington Herald-Leader)