Racing’s sports betting revenue won’t be a windfall, but it could be beneficial

Projections of market size and racetrack revenue are a minefield, but data is beginning to trickle in.

by Dean Towers

The doors were opened at the FanDuel sportsbook at the Meadowlands this past weekend. Early reports suggested the book generated approximately $1 million in handle for the weekend. On the surface that number might be considered a disappointment because of the racetrack’s proximity to New York City, but, other than the World Cup final, it was one of the slowest weekends in the sports betting calendar. There’s not much you can read into one weekend either way, but the stakeholders all seem pleased.

Meanwhile, downstate at Monmouth Racetrack the numbers are a little clearer. Their William Hill book has been in business for almost two months, and last week they reported that in May, bettors wagered around $500,000 per day.

It’s great to see the top-line filter in, and everything seems to be humming along, but what most want to know is – can anything be concluded from these numbers?

I think the short answer is yes, with a whole lot of caution.

First, it’s important to remember that there are a number of unknowns in play. Estimates of the size of the sports betting market in the U.S. varies from $50 or $60 billion to hundreds of billions (that’s handle, not revenue) and we don’t know the proposed make up of this new industry. Many states have not even passed sports betting yet, and, of course, we have no idea what (if anything) racing will receive from hosting this new competitor. In a nutshell, we’re not flying with a very good set of instruments.

We do know the size of the market in Vegas, though, and we have the Monmouth (and Big M first weekend) numbers, so with that we’ll take a shot at making a few wide error band predictions.

In Las Vegas, sports betting handle has been growing rapidly and this year it is expected the books will handle about $5 billion. In May, where Monmouth generated about $20 to $25 million in (extrapolated) handle, Vegas took $315 million in bets, so it’s probably fair to say Vegas will generate about 10 times or so what Monmouth does. Yearly, this would mean (Monmouth has hoped for as much as $1 billion) about $500 million in handle.

Of this $500 million, about 7 per cent is historically held as revenue through takeout, about 9 per cent of the profit is taxed, and the rest is split between the track and the sportsbook operator. After some quick math we can reasonably conclude Monmouth would net about $16 million before expenses. According to the Thoroughbred Daily News there is no indication what percentage of that hypothetical $16 million goes to purses, although it appears some will.

For argument’s sake, let’s assume 20 per cent ($3.2 million) goes into purses. Over their current 52 dates, this would mean an extra $60,000 per race day, or (with 10 races per day) about $6,000 per race. It appears, even if the above numbers are half correct, Monmouth is looking at more of a purse boost, rather than a huge influx of capital (like the sport has seen with slot machines).

Moving back to the Meadowlands, we’re not privy to the deal that was made between Paddy Power-Betfair and the Big M, and track owner Jeff Gural has made it clear that there is nothing earmarked for purses at the present time. But, let’s assume the Meadowlands sportsbook will outhandle Monmouth, and let’s also assume (after the track owner is “made whole” on his investment) the revenue share is similar. With those estimates in tow, the purse boost over 80 race days at the Meadowlands could be somewhere in the neighborhood of $5,000-$6,000 per race. This amount might seem meagre, but it’s almost doubling the purse of their cheapest class, the $6,500 condition.

Over the past several months we’ve heard a lot from horse racing when it comes to the new legality of sports betting. From some quarters we’ve heard wild assertions about massive revenue as billions are wagered at tracks near you. From others we hear this new competition will act exactly like competition usually does and hurt the sport.

The jury is still out, but the early results seem to illustrate that both extremes might be too extreme. Perhaps sports betting will simply provide a modest purse boost for some partner tracks and leave the rest of the business unaffected. For a sport in need of both keeping revenue and adding it, I am sure many racetracks would be happy if that indeed is the long-term reality. As with most things, time will tell.