And they're off...Going Flat Out for a Sustainable Future.
Alan Switzer
Monday, 19th November 2007
Horseracing is big business. It spans three quite diverse sectors – sport, betting, and the rural economy – attracts millions of spectators, and can bring a country to a virtual standstill as the Melbourne Cup does each year.

More than US$100 billion is gambled on horseracing every year, a sizeable percentage of the global gaming industry and more than double the amount bet on all other sports put together. Importantly, one of the sport's strengths is that it engages people from many different strands of society, from the wealthy owner of thoroughbreds to the average punter.

But this diversity can also bring challenges, as the conflicting objectives of the various stakeholders must be carefully balanced and managed.

This article looks at the hurdles the sport has to overcome in order to remain successful.

A global attraction

More than 100 million racing fans attend events across the world, with the eight major racing nations providing the biggest pull. In Europe, the main magnets are Ireland, the UK and France and across the rest of the world the USA, Australia, Japan, Hong Kong and UAE are out in front.

While international horseracing may not have an extended global showcase event to equal a Grand Slam tennis tournament such as Wimbledon, or football's World Cup, there is an annual cycle of international fixtures to attract the best talent and, increasingly, horses – like world-class tennis players – travel thousands of miles to compete.

The prize money on offer can dwarf other sports. For instance, the annual Breeders Cup meeting in the US and the Dubai Duty Free Festival may only represent two day's racing, but they offered a combined treasure chest of over US$40 million last year.

In Australia, the Melbourne Cup forms part of a series of meetings known as the Carnival, which boosts the local economy by an estimated US$440 million. Across the country, most people put their lives on hold to watch the Cup, with 92% of the available television audience watching the event and betting turnover of around US$125 million, in addition to over 100,000 spectators at the racecourse itself.

While some may get rich on their winnings, it's rarely the racehorse owners. The prize money doesn't usually cover the high costs of owning a horse, so owners tend to invest in the sport for many more reasons than purely financial returns.

Place your bets

The local culture, traditions and economy all influence the style of racing. For instance Ireland and the UK are the two dominant nations for jump racing, and compete for the best horses for racing. Until the 1990s, Ireland's comparatively weak economy meant the best horses were often sold to the UK, but this trend has been halted, and even reversed, due to Ireland's much stronger economy and an advantageous tax regime for racing.

There is also a huge variation in the business model that different countries adopt, and this is driven by their dependence – or otherwise – on revenue from betting. Where betting is legal, it can account for 90% of racing revenues, and is therefore critical to the sector's sustainability.

The US$100 billion bet on horseracing is estimated to generate US$25 billion in gross win – the money the customer leaves behind. Around 90% of bets take place within the major racing nations. So far, so good; but while the gaming market in general is booming, betting on horseracing is slowing down. Indeed some countries have experienced a marked decline due to the increased competition from other gambling options such as betting on other sports, lotteries and casinos.

Innovative products are therefore needed to halt this decline, with one initiative, the development of new ‘exotic' global racing bets, which was launched in June 2007. These are low probability, high return products, aimed at generating large winnings and are designed to attract newcomers as well as the traditional horseracing fan.

While there's no certainty that revenues from core betting activities will continue to fall, diversification is essential if industry players want to be better placed to cope with the highs and lows. In this respect the UK leads the way.

The UK – out in front

Across the major racing nations, the UK has created the most diverse business model and is second only to football in terms of sporting industry revenues and attendances. Horseracing supports over 22,000 full-time and part-time jobs and contributed US$5.8 billion to the economy in 2005.1

Today, around 30-40% of racecourse funding comes from betting-related revenues, while most of the remainder is generated through the six million people a year who attend fixtures at the UK's 59 racecourses and spend their money on ticket sales, food and drink and other items. Meanwhile, more than US$650 million has been invested during the past four years on improving facilities, including flagship developments at Ascot, Aintree, and Cheltenham. Racecourse operators are increasingly mixing pure racing with other entertainments to appeal to newcomers to the races, as well as to the next generation.

During each summer, for instance, more than 250,000 people are attracted by a combined programme of racing and pop music concerts, while businesses are being encouraged to stage corporate events at racecourses – which often have picturesque settings – thereby using the facilities on nonracing days, which far outnumber race days.

There are plenty of other revenue-generating opportunities to explore, including sponsorship. Levels remain relatively low and tend to come from companies within the racing or betting industry, suggesting that there are many business sectors that remain untapped. The volatile relationship between the betting industry and horseracing sometimes leads to spats between the two which damage the sport's reputation and marketability so both sides need to work a bit harder – and together – to avoid threatening their future mutual profitability.

Turning the corner

Unlike football or other team sports which have a massive, loyal fan base to support them, racing has to work hard to bring in every individual, corporate guest or sponsor. The sport does not generally attract the lucrative broadcasting deals that others enjoy, and although racing is beginning to capitalise on its media rights, it will never generate billions.

It therefore has to tackle a few issues head on. First, it needs to be more creative in its marketing strategies and be more targeted in its approach to different segments, tailoring products to suit differing cultures, national markets and new business areas. Racecourse attendances at some of the major racing nations including Hong Kong and Japan have fallen but others, including the UK and Ireland, have bucked this trend – a decline need not therefore be inevitable.

Second, it needs to forge strong partnerships with other leisure industry players, to offer uniquely innovative race packages and exhilarating raceday experiences that will appeal to new customers, including mixing racing and entertainment.

Third, increased professionalism across the business is essential. As many key figures in racing have extensive business interests and networks, these should be used to leverage more commercial opportunities. It would also be helpful if the sport simplified its sometimes confusing terminology, thereby widening its appeal to newcomers.

Undoubtedly, a prerequisite for success is to increase racing's appeal among the younger generation, which remains a challenge while the sport has no truly global icons. Names that are recognised the world over not only bring in new fans, they can attract commercial partners – as can be seen in golf, tennis, football and other major sports.

The value of global stars is illustrated by the impetus Valentino Rossi has given to motorcycling via his outstanding successes in MotoGP. Perhaps Frankie Dettori's recent Derby success can help, while younger, more media friendly jockeys can be groomed for stardom.

If the industry can clear some of these hurdles in the coming years, horseracing should continue to flourish but it should not underestimate the challenges ahead.

Alan Switzer
Director, Deloitte UK
Tel: +44 161 455 6866
Email: aswitzer@deloitte.co.uk

1. Economic Impact of British Racing, produced by Deloitte, 2006 – available to download from www.britishhorseracing.com
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