Steve Koch was the featured speaker at the May 2016 meeting of the Kentucky Thoroughbred Farm Managers' Club ( www.ktfmc.org). His presentation discussed the NTRA Safety & Integrity Alliance and the economics of horse supply shortages in horseracing.

1. Kentucky Thoroughbred Farm Managers’ Club
May 25, 2016

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Mt.Carmel Farm

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NTRA Today
Advocacy – Integrity - Leadership

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Fritz Widaman
www.NTRA.com

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Safety & Integrity Alliance – Why?

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• “The health and safety of our human and equine athletes and the
integrity of our sport are horseracing’s top priorities”
• Establish and implement uniform safety and
integrity standards
• Industry self-regulation through bi-annual Accreditation
• Not unlike Joint Commissioner’s International
for health care industry
Safety & Integrity Alliance – How?

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Code of Standards:
· injury reporting and prevention · uniform medication and testing
· safer racing and training environment · jockey health and welfare
· retired racehorse aftercare · wagering security
www.NTRAalliance.com

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Accreditation – Why?
• Build trust, show commitment
• Communication
• Continuous improvement
• Third-party verification
• Defense
• Conspicuous by absence

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• Advocacy
• Hold your racetrack accountable
• Achieve the Code of Standards
• Spread the message
www.NTRAalliance.com
The Alliance Needs Your Help…

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December 22, 2015

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Equi-nomics

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www.slideshare.net/StephenKoch2

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Wagering Maximization
vs
Revenue Maximization
*Commissions calculated after purses contribution
Share of Total* Commissions
(Revenue)Share of Total Wagering
HMA
HMAExport
Export

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Average Wagering per Field Size
Woodbine 2014
4 5 6 7 8 9 10 11 12 13 14
Handle
Field Size

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Average and Median Win Odds per Field Size
Woodbine 2014
3.7
7.1
8.9
14.3 15.0
16.4
20.9
21.8
23.8
26.9
29.2
0.0
5.0
10.0
15.0
20.0
25.0
30.0
4 5 6 7 8 9 10 11 12 13 14
WinOdds"to1"
Field Size
Avg W Odds Med W Odds

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Econometrics
Mathematical model controlling for intertwined variable relationships.
Model results are all else held constant.
“Ceteris Paribus”
Data complications include serial correlation and “stacked” correlation effects
Per-Race
Wagering
f(Field Size, Quality of Field, Event Status, Surface, Race
Conditions, Raceorder, Foreign Exchange, Weather, Market
Timing, Market Distribution)
=

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Average Wagering per Field Size
w/ Linear Trendline
Woodbine 2014
4 5 6 7 8 9 10 11 12 13 14
Handle
Field Size

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Wagering Increases at a Diminishing Rate
as Field Size Increases, c.p.
4 5 6 7 8 9 10 11 12 13 14
IncreasingHandle
Field Size

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Return On Entry (ROE)
Add a 9th horse to a field of 8 yields 8.9% wagering win.
Add a 9th and 10th horse to a field of 8 yields ( 8.9% + 7.7% ) 16.6% gain.
14.9%
13.7%
12.5%
11.3%
10.1%
8.9%
7.7%
6.5%
5.3%
4.1%
2.9%
4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th
IncreasingHandle
Next Betting Interest

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Distribution of Races w/r/t Field Size
Woodbine 2014
0%
5%
10%
15%
20%
4 5 6 7 8 9 10 11 12 13 14
%ofAllRaces
Field Size
Average Field = 8.4

24. 0%
5%
10%
15%
20%
4 5 6 7 8 9 10 11 12 13 14
%ofAllRaces
Field Size
24
Distribution of Races w/r/t Field Size
Woodbine 2014
X
Below Average Fields
= Handle Forfeit

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Distribution of Races w/r/t Field Size
Woodbine 2014
0%
5%
10%
15%
20%
4 5 6 7 8 9 10 11 12 13 14
%ofAllRaces
Field Size
X Above Average Fields
= Handle Gain

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Distribution of Races w/r/t Field Size
Woodbine 2014
0%
5%
10%
15%
20%
4 5 6 7 8 9 10 11 12 13 14
%ofAllRaces
Field Size
X
= Handle Forfeit
= Handle Gain
Diminishing Marginal Benefits indicates a value-add opportunity.
If we smooth horse supply across all races so that every race is at
the racemeet average (8.4) then theoretical handle gains for same
number of starters (ROE maximization).

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But Field Size Isn’t Everything…
The customers reward us for Quality racing
• Purse levels can proxy for Woodbine Overnight race
conditions
• Each $10k move up the purse scale brings 2.6% handle
growth, c.p.
• Combine 2.6% wagering elasticity of race quality with the
Diminishing Returns to Field Size…

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Quality vs Quantity Tradeoff

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Additional Insights
• Off-the-Turf costs 10% in handle after scratches
• Restricted races (Ontario sired) 5.3%, c.p.
• The market rewards coordinated (punishes overlapping) posttimes with
major simulcast competitors (in this chart: Woodbine vs NYRA)
-35%
-25%
-15%
-5%
%HandleLoss,c.p.

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Reduce the cost of losing
• Overnight purse distributions
– Can the median horse competing 6 times/year break even on training bill?
– But don’t confuse with purchase payback
• Race condition variety, aka “Fishing”
• 32 Surface/Distance X 3 Age X 2 Sex X 60 Conditions = 11,520 combinations
• Bonus restricted horses into open races
– Restricted races = Ontario Sired, New York bred/sired, Louisiana
bred, Indiana bred/sired…

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Restricted Race Conditions
• Restricted races reduce wagering 5% c.p. at Woodbine
Gain 5% ROE per restricted entry converted into
competitive OPEN race entry
*Neibergs, J.S. and R. Thalheimer. “An Economic Analysis of the Effectiveness
of Thoroughbred Breeder/Owner Incentive Policies.” Journal of Agricultural
and Applied Economics. 31,3(December 1999):581-592.

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Elephants at the Watering Hole

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www.NTRAalliance.com
www.slideshare.net/StephenKoch2