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An Economic Analysis of the California Thoroughbred Racing Industry

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An Economic Analysis of the California Thoroughbred Racing Industry ij.~lii] . GIANNINI. FOUNDATION OF AGRICULTURAL f----l-----1--' '"'---!~ UNIVERSITY OF ECONOMICS _..___-'--_ CALIFORl\llA AnEconomic Analysis ofthe California Thoroughbred Racing Indushy Harold 0. Cartei;. Lawrence E. Shepard, and Marilyn Whitney DIVISION OF AGRICULTURE AND NATURAL RESOURCES CALIFORNIA AGRICULTURAL EXPERIMENT ST ATION AN ECONOMIC ANALYSIS OF THE CALIFORNIA THOROUGHBRED RACING INDUSTRY Principal Investigators: Harold 0. Carter Lawrence E. Shepard Marilyn D. Whitney Professor Professor Assistant Professor Project Coordinators: Contributor: Kathryn Blackman Perry Poe Rex K. Craft Research Assistant Research Assistants Department of Agricultural Economics University of California, Davis ACKNOWLEDGEMENTS This report on the California Thoroughbred horse racing industry represents the first phase of a comprehensive economic study of the California horse industry. We wish to acknowledge the encouragement, cooperation and generous financial support of the following organizations necessary for carrying out the study: California Horsemen's Benevolent and Protective Association California Thoroughbred Breeders Association Bay Meadows Racing Association Del Mar Thoroughbred Oub Hollywood Park Operating Company Los Angeles Turf Club Oak Tree Racing Association Pacific Racing Association We extend special thanks to the many horse breeders, trainers and owners for completing questionnaires and providing valuable background information important to the study. Personnel in the office of the California Horse Racing Board were helpful in providing data necessary for the analysis of the Racing Associations. Insightful and constructive comments on preliminary drafts of this report were provided by Professor James Ahem, California State University, San Luis Obispo; Will E. Cummings, Managing Director, Christiansen/ Cummings Associates, Inc., and two anonymous reviewers. Dr. Carole Nuckton provided editorial support and contributed inmany ways to the project. John Woolcott handled budgetary matters and staff coordination. Pauline Ljubi skillfully and patiently worked with multiple authors in preparation of the manuscript. Kim Yasuda prepared the final copy. TABLE OF CONTENTS Acknowledgements. ......................................................................................... ,............................................................... i · Executive Summary................................................................................................................................................ viii Chapter 1. Introduction ........................................................................................................................................... 1 Literature Review .......................................................................................................................... 1 Overview of Industry .................................................................................................................... 2 Chapter 2. The Horse Sector ................................................................................................................................... 4 Prior Research on the Horse Industry ........................................................................................ 4 Organization and Economic Structure ....................................................................................... 6 Economic Profile of the Horse Sector, 1989 ............................................................................. 15 Summary and Conclusions ................... ,............................................................................... :.... 35 Chapter 3. Racing Associations ............................................................................................................................ 37 Prior Research on Racing Associations .................................................................................... 37 Organization and Economic Structure ..................................................................................... 38 Economic Contribution of the Thoroughbred Associations ...; .............................................. 44 Summary and Conclusions ........................................................................................................ 54 Chapter 4. The Demand for Thoroughbred Racing in California ................................................................ 56 Prior Research on Economic Determinants of Racing Demand ........................................... 56 Graphical Overview of Factors Affecting Demand for California Thoroughbred Racing ....................................................................................... 59 Empirical Analysis of the Demand for Thoroughbred Racing in California ...................... 67 Regression Results and Statistical Analysis ............................................................................. 69 Summary and Policy Implications ............................................................................................ 76 Chapter 5. Total Economic Impact of the Thoroughbred Racing Industry on State and Local Economies Government Revenues ................................................................................................................ 79 Industry Revenues ....................................................................................................................... 80 Indirect Economic Impact ........................................................................................................... 80 Employment and Cash Aow ...................................................................................................... 81 Investment .................................................................................................................................... 83 Summary and Conclusions ........................................................................................................ 83 ii TABLE OF CONTENTS (cont.) Appendices: A-1 through A-3. Survey Forms .................................................................................................... 84 B-1. Appraisal (Executive Summary) ......................................................................................... 124 C-1 through C-3. Data Behind Figures (Chapters 2-5) ............................................................. 129 D-1. A Note on Elasticities ......................................................................................................... 139 iii FIGURES I' Figure 1-1. The ~alifornia Thoroughbred Racing Industry Flowchart ............................................................. 2 Figure 2-1. Organization of the Horse Sector ....................................................................................................... 5 Figure 2-2. The Race Horse Production Process ................................................................................................... 6 Figure 2-3. Designated Geographic Regions for the Thoroughbred Industry in California ......................... 7 Figure 2-4. Number of Racing Days for Major Thoroughbred Race Meetings (A) and Fair Race Meetings (B) in Northern and Southern California, 1953-1989 ............................................. 9 Figure 2-5. Number of Foals Registered with the Jockey Club in the Top Three States {A) and in the United States and Canada (B), 1965-1988 .................................................................... ,................... 11 Figure 2-6. Total Purse Money Paid for Major Race Meetings in Northern and Southern California in Nominal DoHars (A) and Real Dollars (B), 1953-1988 ................................................................... 12 Figure 2-7. Average Purse Per Race for Major Race Meetings in Northern and Southern California in Nominal Dollars (A) and Real Dollars (B), 1953-1988 ................................................................... 14 Figure 2-8. Total Incentive Awards Paid to California Horse People, in Nominal and Real Dollars, 1970-1989 ............................................................................................................................... 15 Figure 2-9. Value of Horses Sold Through Public Auctions and Claiming Races in California, 1983-1989 .......................................................................................................................... 16 Figure 2-10. Cash Flow in Horse Sector ................................................................................................................ 23 Figure 3-1. Structure of Three Major Thoroughbred Racing Organizations .................................................. 40 Figure 3-2. Location of Satellite Wagering Facilities in California, 1989 ........................................................ 43 Figure 3-3. Total Pari-Mutuel Revenue Retained by Major Thoroughbred Racing Associations, Nominal and Real Dollars, 1965-1989 .................................................................. :........................... 44 Figure 3-4. Total and On-Track Attendance, 1953-1989 .................................................................................... 45 Figure 3-5. Approximate Breakdown of Association Revenue, California, 1989 .......................................... 47 Figure 3-6. Pari-Mutuel Revenue Retained by Major Thoroughbred Racing Associations Per Day, Nominal and Real Dollars, 1965-1989 .............................................................................................. 47 Figure 3-7. Approximate
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