Purse Distribution: Who gets the money in horseracing?
by Allison Fox
When you place a bet on a horse race, do you ever wonder where your money goes? You may cash a winning ticket and throw away a losing ticket, but all your wagers make for a winning contribution to the horse industry.
Every wager placed at a racetrack, whether live or simulcast, trickles down from your pocketbook to the track and the horsemen involved.
Generally, a track’s purse structure comes directly from the projected amount of handle (the total amount bet by the public).
A percentage of each race’s total purse is awarded to the highest finishers. However, in order for the state, business and horsemen to profit, the winner cannot take all.
Over the last forty years, tracks have altered their purse structure to compensate more top finishers. Prior to the 1970s, money was only awarded to the top four finishers in a race. The common breakdown of the purse allotted 65% to the winner, 20% to the second place finisher, 10% to the third, and 5% to the fourth. Unfortunately, this arrangement had some major flaws. Owners would habitually scratch, or withdraw, their horse from a race in a collective effort to decrease the playing field. State racing associations responded to this trend by altering their purse distribution formats.
One common reform was to award the fifth place finisher with a portion of the purse. The structure then changed to award the top five horses 60%, 20%, 11%, 6%, and 3% for first, second, third, fourth and fifth place, respectively. This format is used by many tracks to this day. Some even go so far as to include the sixth place finisher in the purse, with 60% going to the winner, 20% to second, 10% to third, 5% to fourth, 3% to fifth, and 2% to sixth. These new standards allowed more owners to cover their jockey and pony fees.
In 1975, a revolutionary change in purse distribution occurred in the state of Florida. A new format was enacted to award 1% of the purse to all horses in a race finishing lower than fourth. This guaranteed that an owner would not lose money by entering their horse in a race.
Soon after, other states took Florida’s lead by adopting similar formats. In 1994, the New York Racing Association began awarding fifth place finishers with a portion of the purse. Nine years later, they expanded purse awards to all finishers, with 2% to be divided amongst the finishers beyond fifth place. Next, the state of California implemented a starter’s bonus for horses not finishing in a top position. This bonus is added to the stated value of the purse so that nothing is subtracted from the top finishers’ pay. Today, 11 of the 32 states that conduct thoroughbred racing pay purse money to all entries.
In 2005, the Kentucky Derby awarded money to its fifth place finisher for the first time in its history. For its regular race-day purse structure, Churchill Downs now uses the standard purse distribution rate of 62% for the first place finisher, 20% to the second, 10% to the third, 5% to the fourth, and 3% to the fifth. For stakes races that are added-money events, Churchill uses a purse breakdown formula to guarantee all runners at least 1% of the total gross. This has helped improve entries in many stakes as now all of the horses participating will get a check.
Pari-mutuel wagers made by you contribute to each race’s purse. While 82% of a race’s wagering revenues are returned to the winning bettors, 18% remains to be split between the track and the horsemen known as the takeout rate. Another 3.5% is subtracted for a state excise tax to leave the remaining 14.5% to be split between the two parties. So for every dollar you spend on a bet, 7.25 cents is kept by Churchill Downs and 7.25 cents goes into the purse account for horsemen. Under this structure, the industry reaps maximum rewards from pari-mutuel wagering.
When bets are placed off-track, the money is split much differently. Horsemen do not receive as much money from wagers as they would in a live-track setting. Racetracks split net revenues from off-track wagering such as simulcasting 50-50 with the horsemen involved. So if you place a bet at Churchill Downs for a race running at Saratoga, Churchill Downs will split its profit evenly with the horsemen. In this scenario, Churchill Downs and the horsemen each receive approximately 1.5% of each dollar wagered, much less than the 7.25% received from on-track betting.
Bets placed off-track through an ADW platform (Advanced Deposit Wagering) are also split differently. ADW is a form of pari-mutuel wagering in which an individual deposits money into an account. The account funds are then used to pay for pari-mutuel wagers made in person, by telephone or online. In this format, horsemen and tracks each receive 4% of every dollar wagered, less than the on-track rate but more than the off-track rate. Advanced Deposit Wagering providers include Twinspires.com, Brisbet.com, XpressBet.com, YouBet.com and a few others.
So how do the owners, trainers, jockeys, and agents share the winnings? Most commonly, a jockey receives a mount fee for agreeing to ride a horse in a race and then will get part of the purse money, usually 10% the winner’s share for winning the race. Jockeys will then pay their agents from their winnings and mount fees, usually up to 25%. Owners are responsible for paying their trainers the agreed-upon amount for their services, usually on a monthly basis. Trainers also receive a share of a winning race purse.
Live on-track and off-track simulcast betting contribute greatly to the purse, but with the advent of online and television-betting services, horsemen are losing their share of the gaming profits. Services like YouBet.com provide members the ability to watch and, in most states, the ability to wager on a wide selection of horse races. Some sites even broadcast racing, allowing members to watch live races from their home computers. Money wagered through online accounts is combined with existing racetrack pools, so the wagering provider pays full track odds on all wagers placed. Some Internet wagering providers charge membership fees, surcharges and require minimum bets, making it more expensive and complicated to place bets. What is gained in accessibility and convenience is lost financially, shrinking both bettors’ and horsemen’s pocketbooks.
“Wagering providers that don’t conduct live racing do not support a purse structure, giving them an unfair operating advantage over racetracks,” said Corey Johnsen, President of Kentucky Downs.
With racetracks rapidly losing money to at-home wagering providers, horsemen are suffering as well. Gaming expansion has helped to curb this discrepancy in many states. Slots and other types of casino gaming provide so much supplemental income to racetracks that they have been dubbed “racinos.” A percentage of the gaming profits are added to the racing purses, pumping money back into the horse industry. Casino games also attract new people to the track who may have never had an interest in horseracing before. Bringing in fresh blood is important to the industry, which has been declining in popularity for decades. Desperate racetracks are seeking desperate measures to make up for the losses in horse sales, track attendance and earnings.
“I see a lot of people reading racing programs while sitting at the slot machines,” said Sandra Fox, a horse owner who frequents Mountaineer Racetrack, a racino that receives 10% of its annual budget from slots.
When dollars are spent on the slots machines, the racetrack will profit. The track’s earnings, minus payouts to the state and the lottery system, are funneled back into racing in the form of bigger purses for each race. The difference between a racino-funded purse and one without slot money can be as much as $175,000. Bigger purses mean bigger payouts, attracting owners with better horses and creating more competitive races. This pulls in more bettors, many of whom bet off-track or online. Even though attendance is down, tracks, which get a portion of every bet, make more money on a larger scale. In turn, so do horsemen.
In some cases, the casino games in racetracks are limited to slot machines or video lottery terminals (VLTs) only. However, many locations are beginning to include table games such as blackjack, poker and roulette. Eleven U.S. states have already approved the operation of racinos. These gaming pioneers include Delaware, Florida, Iowa, Louisiana, Maine, New Mexico, New York, Oklahoma, Pennsylvania, Rhode Island and West Virginia, whose Mountaineer Racetrack and Gaming Resort in Chester led the racino movement. These states are enjoying the benefits of enhanced state tax revenues, a stronger horse and agriculture industry and the creation of new jobs. The idea of merging horseracing and casino gaming is growing in popularity. Other states looking to jump on the racino bandwagon include Indiana, Kansas, Kentucky, Maryland, New Hampshire and Texas.
The horse industry will find other ways to sustain itself in the face of economic crisis. With everyone trying to get a piece of the racing action, the greatest game must coexist with other forms of gaming in order to survive. New technology requires a new outlook on the sport itself, and change is necessary to keep horseracing and its purses viable in the 21st century.