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Are purses restraining growth?

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By Caton Bredar

In 1953, the average cost of a Cola drink at a U.S. racetrack was around ten cents; the minimum bet on a race, two dollars. In 2007 the average cost of a Cola drink at a U.S. racetrack is around a dollar seventy-five; the cost of a bet, in most places, still two dollars.

In 1953 John Ward, Sr., a respected Midwest horse trainer charged $13 a day to train a racehorse.  That thirteen bucks covered labor, feed and daily care of your horse…costs which ran Ward around $11.34 a day. 

Flash forward to 2007.  Trainers based on major racing circuits in the Midwest or East will charge between $85 and $100 a day to train your racehorse.  Even at one hundred dollars a day, most trainers say their actual costs run significantly higher.  The cost of just about everything is up, with the exception of the minimum wager.  And while wagering in the US, the vehicle which drives purses, is up over-all, purses have, with a few exceptions, remained stagnate. 

For most trainers in the United States winning may not be everything.  But it is pretty much the only thing keeping them economically viable.  And in order to survive, regardless of what level they compete at, trainers almost have to win every time.

Ward’s son, John, Jr., reached the pinnacle of American racing in 2001 with a win from John Oxley’s Monarchos in the Kentucky Derby.  Today, Ward and Oxley, one of the more dynamic stables in the Midwest and East, continue to pare down that stable, from, at one point, as many as 200 horses to the 40 they now have either in Kentucky, Florida or New York.

“It’s a purging process,” Ward explains, “We’re trying to be cost effective while not lowering the quality of the stable…or of the care they receive.”  The fifth-generation horseman says the goal is a “leaner, meaner” racing operation, where the average earnings potential of each runner is realistically taken into consideration, in relationship to the costs that runner will incur.  According to Ward, it’s a business plan most trainers have failed to develop.  And even if they have, it’s a plan very difficult to put into practice given the economics of today’s game.
“It’s tough,” he offers.  “Most trainers train below their actual costs, in the hopes of getting better horses.” 

Ward lists rises in employment taxes—major adjustments in workman’s compensation insurance post September 11th as just one cost, often absorbed by the trainer, that has gone up significantly, particularly in the last five years. Ward’s annual workman’s compensation bill runs approximately $250,000 a year.  That, for a trainer who modestly describes himself as “middle of the road”, at least as far as the size of the stable goes.   For the newly ordained “Mega Trainers” trainers like Todd Pletcher or Doug O’Neil, who deal in high numbers of horses, Ward says those costs are even greater.

Some obvious costs, according to Ward, have gone up.  Over the past two years, with rising gas prices, feed and van companies have to pass their added costs on to their customers.  While shipping is often paid directly by the owners, trainers generally pay for feed directly then recoup some of that cost through their daily rates.  With higher prices due to fuel surcharges, they recoup less.

And trainers aren’t immune to higher gas prices.  “If you spend $25 to $30 a day in gas,” Ward explains, “and you train 30 horses, that’s $1 a horse,” or one less dollar a trainer actually makes on that horse, or puts toward his out of pocket costs.

Those costs--gas bills, cell phone bills, even rental rates, both in terms of housing the human help as well as housing horses—have all gone up over the past few years and are all costs Ward considers “hidden”, and most of the time, for trainers, unrecoverable.  While labor costs (with the exception of workman’s compensation insurance) have remained fairly consistent over the past few years, it’s those “little” things that have actually driven up the costs of training.

“It’s really hard on the trainer himself, and the organization he runs,” says Ward.  “It forces him to be taking away from the available cash flow.  On the other side of it, we haven’t had purses go up to be commensurate with the costs.  Purses have been stagnate for the last five to six years.  Trainers are caught in a squeeze.”

A slow, steady squeeze, it would appear.  To the point about purses, an NTRA Wagering Systems Task Force report, released in 2004, titles Chapter 2 “Handle Up, Revenue and Purses Down” and goes on to state, in part, “Handle Up, Purses Down is not a new occurrence specific to 2003.  In general, purses have not grown as fast as handle for more than a decade…”

The lack of parity, between purses and handle, can be attributed, in part, to the boom in off-track wagering.  Tracks receive a significantly lower percentage of revenue toward purses, from dollars wagered off-track than they do from live, on-track wagers.  The effect on purses, and therefore, trainers, is profound.
The report goes on to say that, from 1995 to 2003, total Thoroughbred handle grew by 45 percent, while total purses paid to horsemen grew only 38 percent.  In some particular cases, the statistics are even more dramatic.  According to statistics released by the Jockey Club, in 1995, the average available money per race for 63 days of racing at Gulfstream Park in South Florida, was $27,941.  Ten years later, in 2005, for 86 days of racing, that number went up less than $2,000, to $29,561. 

Gulfstream Park may be an extreme example; many tracks, such as Keeneland, Churchill Downs, or Saratoga in New York, posted gains over the ten-year period of at least $20,000 more available in average purse money per race.  Still, over the course of ten years, that’s just a gain of $2,000 per race per year—and that’s the best-case scenario, and not the case for every category of race.

It’s actually at the lower end of the scale, that Ward, the nephew of a Hall of Famer, believes it’s possible to remain economically viable. “The guys who are making the most,” states the 61-year-old, “are the claiming horse trainers.  They don’t have the big investment in the horses, they can drop horses in for a cheaper price, they can keep churning out starts, to keep commissions coming in.”  And in theory, adds Ward, “there may be fewer expenses connected to running a claiming horse operation, because generally, although not in every case, the size of the labor force is smaller”. 
 
Purses, of course, are smaller, too, but it’s the differential, Ward claims, you have to consider.  The difference in a trainer’s ten percent commission on a win in a $15,000 claiming race at most tracks is only a few hundred dollars at the most, less than his stake for a win in a $7,500 claiming race.  A claiming trainer, therefore, has more flexibility, and stands to make almost as much for a win in either case, as opposed to a trainer of higher caliber horses running almost exclusively in allowance races or stakes.

“The quality guys, the trainers who deal primarily in better-bred, or higher priced horses…” says Ward, “The trainers who take their time, give their horses a lot of time in between races, those trainers either have gone out or are going out of business, because it’s such an investment, and they’re losing money every day.”
Regardless of locale, Ward says the economics are the same.  “In Eastern circuits, you make more money, but it costs more to operate and live there.  The squeeze is there.  Midwest, California, it’s all the same.  The same hidden, overhead costs have been driven up everywhere.”

And the same applies to the Mega-trainers.  While the trend is to blame at least a portion of the racing industry’s woes, on trainer’s who appear to have the lion’s share of the horses…and the majority of the purses, Ward doesn’t believe they are immune to the economic disasters striking so many in these difficult times.
“While Mega Trainers, to some extent, can do what claiming trainers can do,” says Ward, “but they operate on a much larger scale, which, in turn, costs a lot more.  Think what Todd Pletcher’s workman’s comp runs.  Mega trainers will feel it, too.”

Ward, like many in racing, believes casino wagering could be at least be a help to the present financial plight of the trainer, and the sport itself.  Case in point, Mountaineer Park, who was on the brink of closing in 1994, when the state passed video lottery legislation.  In 1995, according to the Jockey Club statistics, Mountaineer was down to an average $2,886 available per race.  Average daily purse distribution at Mountaineer was 22,000 dollars and at nearby Charlestown, thirty-six thousand dollars a day.  By 2005, both tracks were giving out more than $100,000 a day.  At Mountaineer, in 2005, the average daily purse was up to $15,728, and that number is sure to be even higher for 2006.  Still, Ward believes casino wagering is not necessarily a pancea.

“The slots have helped Gulfstream so far, somewhat,” he reports, “But it’s been an interesting phenomenon.  They had a tremendous opening.  Now they’re starting to lose those crowds.  More and more people are going to the dog track, or the other facilities with casinos.  So it can only help so much, unless it’s controlled completely by the tracks and there’s no competition.  It’s looking like slots and racing have to go hand in hand.”   
A few fundamental problems, according to Ward, remain and, if not addressed, may jeproadize everyone’s stake in the game…not just trainers. 

“In 1945, a coke was a nickel and the game revolved around the $2 bettor.  It’s 2007, and everything costs at least twenty times more.  But racing is still chasing that two-dollar bettor.  By today’s standards, the minimum bet should be forty dollars.”

“Racetracks are taking more and more of the things they used to give in the past.  Instead of a fifty-fifty partnership, it’s at the very best, forty-sixty.”

If it costs $50,000 a year to train an allowance horse, that horse should have to earn a minimum of $65,000 in that year to pay his way.  Even at a day rate of fifty dollars a day, for a claiming horse, a $20,000 horse according to Ward has to win around $26,000 a year.  Given the current purse structure of tracks across the nation, Ward sees the situation as bleak.

“You’re seeing people go out of business, and I think you’re going to see more and more leave, as the cost breakdowns go up every month.  If trainers don’t charge according to what it costs, they’re going to go out of business.  If money is lost, you’ll lose owners.  As there are fewer owners, you’re going to lose trainers.  It’s a free-fall inside the business over the next few years.”

“If you don’t win a five million dollar race, you’re out in the cold.  And there’s a whole lot of people who don’t even ever run in a million dollar race.  My father made a dollar fifty a horse per day in 1953.  Today, most trainers are losing twice that every day just in costs.  It all goes back to the purses.”