The Modern Racing Landscape and the Racetrack Wagering Market : Components of Demand, Subsidies and Efficiency

Horse racing is an important industry throughout much of the world, and gambling has been increasingly relied on to provide financial support for beleaguered state governments. Technology has changed the way track patrons bet, with the vast and increasing majority of total bets being made away from live racing. The menu of wagering options continues to grow with a wide variety of exotic bets, futures wagering markets, program betting, and on-line betting venues becoming more prevalent. We know a fair amount about the determinants of wagering volume, but our knowledge of the demand for wagering on these different types of bets within and across venues remains in its infancy. In particular, different types of informed traders will take advantage of these new venues to hedge their bets as the new betting exchanges offer different bet types, for example limit price betting. As in the financial markets these market microstructure issues will create changes in the wagering market and this represents fertile ground for future research. We also know that subsidies to purses in the form of sire stakes to the standard bred racing industry do not increase wagering nearly enough to justify their use solely on the growth in handle. Policy makers must make the case that they help taxpayers in other areas. For example, they might argue that higher future tax revenues are generated by increased wagering in the future, by attracting gamblers to other forms of taxable gaming such as video lottery terminals, or that racetracks provide a public good. Perhaps, too, the subsidy provides a politically viable way to offset tax rates on gambling that are too high. Future research is needed to value these positive externalities and to measure whether these same conclusions apply equally to the thoroughbred and quarter horse racing industries, and in more recent times with simulcasting.New studies are needed to determine the efficiency of wagering in racing markets in the U.S. in light of recent types of wagering options coming into the marketplace. With exchange betting venues entering the U.S. in 2011 for the first time and the relatively recent onset of program betting it will be interesting to reexamine the survivability of the favorite - longshot bias. Additionally, increasing numbers of informed bettors with more venues and bet options is likely to alter the information content and manipulative ability of the on-track pari-mutuel market odds in interesting ways