Op-Ed: Macro Trends and the Racing Industry

Image courtesy of King Star Farm

Often racing seems like its own self-contained world that operates in traditional ways with little relation to trends in the wider society. In many ways it is an old-fashioned industry, not quick to change. But the reality is that racing is part of a larger society and many of the trends happening across the country and the world have significant impacts on the industry.

In this article, I aim to identify some of these key macro trends and think of ways that they may impact the racing industry over the next decade or more, and the ways we may be able to respond to these challenges.

AI and Big Data

In most of the businesses I’m involved in, AI is the topic everyone wants to talk about and work out what the threats and opportunities are. On the face of it racing seems somewhat immune to these threats - being a hands-on business - when it comes to breeding and racing.

The three areas where I would expect it to have an impact would be in wagering, matings and yearling assessment.

The wagering side is already starting to use AI on both the bookmaking and punting sides. The bookmaking companies already have algorithms that sort the winning punters from those likely to lose and limit the winning punters drastically. And then use AI to analyse the behaviours of the losing punters to work out ways to encourage them to lose more. The punter will also have access to more sophisticated AI driven form but that won’t help the bigger punters much if they can’t get set with the bookies.

There are already some AI driven mating tools, such as Pedigrees360, but these tools will only get better as they ingest more data and fine tune their models. Yearling buyers will also make more use of these mating tools combined with AI and big data driven bio mechanic analysis when deciding which horses to buy. If these tools then really start giving buyers a definite edge, then it will be hard for any breeder to ignore them when deciding on their matings.

A longer-term impact of AI may reduce the need for us to work as much thereby providing more leisure time for sports such as racing.

The aging population and disparities in generational wealth

With a low birthrate Australia is aging so there is less young people and more older people. At the same time the tax and income policies in Australia significantly favour those who have assets such as real estate and shares, which mostly are owned by people over 50. The young struggle to get into the housing market and build up their asset base and often will become lifelong renters.

Therefore, the generation with the greatest discretionary spending are the over 50s, so anyone with a good product to sell into this market should do well. While making racing appealing to young people is important for the long term and adds vibrancy to racing in the short term the real spending power is with the over 50s.

The over 50s have enough things and instead want to have interesting and exciting experiences. Racing, in particular ownership, can provide these experiences although it can be a very mixed bag for the first time owner with lots of things that can go wrong and the wait for a result can be long.

Getting more owners into the game is the most important things racing must do. About 70% of the cost of racing a horse is provided by the owner with only about 30% coming from the punter indirectly in the form of prize-money. For this spend they want to have a good experience in all facets of ownership. Winning some decent prizemoney is good but the overall experience is more important.

Just like the vast majority of punters lose but still enjoy punting people can have a great ownership experience and think the money has been worth it. We have races where female owned horses get special bonuses, maybe we should have some bonuses directed at horses owned by first time owners and owners who have never had a winner.

Trainers and syndicators in Australia do a great job, compared to most other countries, in providing owners with regular information and social opportunities. I think race clubs could do more for the owners considering they are the ones paying for 70% of the show. In particular, do more for the over 50s to make the raceday experience one you really enjoy.

Political polarisation

Australia can seem immune to some of the more extreme swings in politics other countries are currently experiencing due to our compulsory voting systems that does provide some stability. But there are a number of significant fault lines opening up in Australia such as:

• The divide between large cities, mostly now represented by Labor and the Teals, and regional and country areas represented by the Coalition

• On average women are tending more left wing while men are going more right

• City based people under 40 are heading strongly left towards the Greens due to the housing crisis and tax policies that penalise them compared to their parents

• There has been a significant shift in Labor’s support base that used to be mainly working class and is now much more educated and has higher than average incomes compared to Coalition voters.

What is the relevance of all this to racing?

Well as we know state governments regulate racing and gambling more generally. The Greens would happily ban racing and heavily restrict gambling if they had the power to do so. Even Labor’s support for racing is not as solid as it used to be due to the changing nature of their supporter base. Therefore, the Coalition, particularly the Nationals, who understand agricultural industries, are the most likely to favour racing in the longer term.

The biggest risk is that if a Labor state needs to form a minority government with the Greens support, they could ask for further restrictions or selling racetracks for housing as the conditions for this support.

This is exactly what happened in Tasmania recently when greyhound racing was banned so that the Greens would support a minority Labor government.

Social licence and animal welfare

While everyone in racing and breeding agrees that animal welfare is important, there is a big gap between what animal welfare means to someone who lives and works with animals everyday versus what an inner city Green voter may consider to be good animal welfare practices in relation to horses and horse racing. The battle is for the people in the middle, who don’t have strong negative of positive feelings about racing.

This was the key issue that made the injuries in the Melbourne Cup a few years ago so bad for racing. This is one of the few times of the year when racing gets attention from the wider community and what they saw was seriously injured horses having to be euthanised. Bad publicity like this is extremely hard to fully recover from, even though Racing Victoria and the VRC have done all the right things since this spate of injuries.

I know from personal experience that there was a lot less office Melbourne Cup office parties after this bad period.

There are two main drivers behind maintaining racing and breeding’s social licence;

• The systems and procedures the industry adopts and continuously improves. This includes every part of the industry and it needs transparency, strong record keeping and effective communication of what the industry is doing that can be understood both by professionals and the wider public.

• The second main driver is the politics and government policies that can be influenced by industry but are more impacted over the longer term by the political trends that I outlined above.

There is also the social licence issue around the promotion of gambling. After a decade of more of open slather where there were very few restrictions on gambling advertising this brought forth a strong reaction from the public and politicians responded by introducing some restrictions.

The trend is not racing’s friend in this area with the likelihood of more restrictions to come particularly around advertising, source of customer funds and customer welfare (i.e. not encouraging problem gamblers).

The UK has already tightened up regulations more than Australia and this is having an impact on turnover. Tighter regulations and higher taxation will most likely lead to more gambling moving to less regulated and sometimes even illegal forms of gambling often facilitated by crypto currencies.

Wagering, gaming and technology

As well as the social licence issues outlined above there is the the issue of what people actually decide to bet on in a world where gambling options have been proliferating at a great rate. Because of the high level of fees and taxes attached to racing it already makes sense for bookies and the totes to promote sports betting ahead of racing.

A lot of the big punters who drive turnover, have moved much of their action to lower taxed betting options. Add to this the inability of many of these punters to get decent bets on with bookies means that markets become less liquid and turnover drops further, thus the taxes and fees that support racing also decline.

There was a time when the big off course bookmakers were undertaxed and not contributing enough to racing, now there is a case that due to high fees and taxes the return to racing is less than what it could be.

An extreme example of this effect is the very high taxes levied on cigarettes has got to the point where the government is now getting a lot less tax than it was a few years ago.

Beyond the sports bettor, there is the rise and rise of computer gaming and gambling. There are now huge online casinos, often using crypto currencies, and very lightly regulated if not sometimes illegally. Massive sums of money are gambled through these and the level of digital marketing, especially by the use of high profile influencers, makes the Australian bookies TV advertising blitz last decade look like it was from the horse and buggy era.

There is the marketing adage that where the eyes are the money follows. Many people in the younger age groups (under 40) spend a lot of time playing computer games which are a thousand times more sophisticated that games that I grew up playing like Pac-Man. People can spend very long periods playing these games and you can bet that ways to gamble within such games is going to be a big growth industry.

So, the trends are not looking friendly to racing in the gambling space. There are things racing can learn from the competition such as the effective use of influencers and building digital racing products that include many of the gaming elements that people are used to. But these things don’t come cheap and racing and Australian gambling is much more limited in what it can do by regulations.

Immigration and the labour force

The level of immigration is a contentious issue in much of the world. Australia has a high level of immigration compared to most advanced Western countries. Over 25% of Australia’s population was not born here.

From the point of view of racing, I think there are two keyways immigration is important:

• Many racing stables and breeding farms rely heavily on short and long term immigrants.

• The majority of immigrants now come from the subcontinent and Asia (especially China).

The COVID lockdown period was a stark reminder of how reliant racing and breeding is on short and long stay overseas workers. It was a real struggle for many to find enough staff with the right skills. In particular the Irish, English and French seasonal workers who fly between hemispheres to help with the peak breeding and sales seasons. And the many workers from India who are the mainstay of many stables' workforce.

As the politics of immigration becomes more heated there will be pressure on how many immigrants are allowed and what skills they should have to help Australia grow. Australia does not have enough trades people to build all the housing required and big infrastructure projects that we see all around us. Then there are one offs like the Brisbane 2032 Olympic Games that will need thousands of people to build.

Currently, Australia does not have enough immigrants coming in with recognised trade skills to help build both the houses they will need to live in and all these other projects. This skills shortage is only going to get worse and lead to increase wages for manual and trades workers. A lot of people working in racing and breeding will be looking at these salaries and the often-modest amounts they currently earn, and thinking does it make sense to keep doing what they are doing.

This in turn will make racing and breeding’s reliance on seasonal and temporary workers even bigger. And put ongoing cost pressure on having horses trained. Prizemoney increases are no longer keeping up with the increase in the costs of having your horses trained.

While better career paths, on and off the job training are importantly we also need to look for ways to make the industry more efficient. Purpose build training centre like we see in Victoria help as good layout and facilities can reduce the time taken to move each horse through their training regime. More mechanisation like treadmills can also help save time. Race clubs may also need to look at more staff accomodation to be built on course to offset high rents especially in city-based trading facilities.

As the ethic mix of the Australian population changes racing needs to look at ways to connect to these growing groups and help them understand and enjoy racing. This needs to happen both from attracting these groups into racing as spectators and owners but also making the industry more accessible from a careers point of view.

While a lot of Indians work in training stables, what are we doing to help them become trainers in their own right? It makes racing easier to promote to these groups if there are people from their own background to support.

The rise of China as a superpower

What China does and how it exerts its power has huge implications for the world and particularly for Australia. It is by far and away our biggest trading partner and we have benefitted greatly from their spectacular growth. While China has adopted some elements of capitalism to achieve this growth it is still run by the Chinese Communist Party (CCP) and under the leadership, for the last 11 years, of Xi Jinping it has changed course to focus more on command and control policies and less on free market capitalism.

One thing that the CCP has been clear about since they took power in 1949 is that they don’t like gambling as they perceive the Chinese people having a susceptibility to it due to their beliefs in luck and good fortune. Before Xi Jinping came to power there were hopes by some that China may open up and allow horse racing with some form of gambling. But this looks increasingly unlikely.

I have some doubts that even Hong Kong racing is safe in the long term. Hong Kong used to be the main access point for the rest of the world into China, but this is now long past. Even its role as a financial hub is lessening and China looks for ways to further decouple from the West including its reliance on the US dominated financial system. China took much more control of Hong Kong after it cracked down on the democracy protests. As we have seen in Singapore, a government that China has admired, racing was banned outright with no real warning, mostly because it doesn’t want to encourage gambling. Even the casinos in Singapore are aimed at foreigners, not locals.

Another way I think Xi Jinping turn towards more communist values has had an impact on Australian racing is that there has been a crackdown on conspicuous displays of wealth.

This has led to a crackdown on everything from high end wines to people taking money out of the country to gamble with. Look at the major impact this has had on Australian companies like Crown Casinos, Star Casinos and Penfolds wines. I think it has also had a significant impact on the number of Chinese investing large amounts into Australia racing and breeding.

While there are a couple of high-profile players, who are now well established, it has not turned into a flood of money from different people. Many Chinese-based business people worry about attracting attention from the government for lavish spending. Especially lavish spending outside of the country which often involves working around the tight capital controls that the government has implemented.

Conclusion

I hope this article has been helpful and shown some of the ways the worldwide macro trends impact the racing and breeding industry. There are plenty of serious challenges to face and a lot of innovative thinking will be needed to keep racing thriving. As we live in an increasingly online and tech heavy world, racing can sometimes seem a quaint - but it is also a way to be involved in something that is real and unpredictable and still has a connection to nature.

People love stories and racing can create lots of great stories, but we need new ways to tell these stories to new audiences.