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Horse betting will have to modernize, or else legal sports gambling will leave it behind

Horse betting has long been America’s only federally legal form of sports wagering. As legal sports gambling takes root, an outdated industry finally has to get with the times.

UBS Hong Kong Open - Previews Photo by Stuart Franklin/Getty Images

Five days before the 143rd Preakness Stakes, the United States Supreme Court handed sports betting a win, and American horse racing a warning.

Until the Supreme Court knocked down the 1992 Professional and Amateur Sports Protection Act as unconstitutional on May 14, opening the door for states to legalize sports betting, horse racing enjoyed a singular advantage. In much of the country, betting on horses was the only form of sports wagering condoned by federal law, online or otherwise.

That advantage may soon be over because of SCOTUS’ decision, which should upend how horse racing has done business for years. Starting as early as June — as states move ahead with already passed sports betting legislation, and bills that had been prepped in anticipation of the court’s decision — Americans will be able to wager on football, basketball, hockey, and other college and professional sports. The American Gaming Association estimates the sports betting market could run as high as $150 billion in annual handle. Lower end estimates put the market at $67 billion.

In comparison, U.S. Thoroughbred racing handle was almost $11 billion in 2017. And the newly legal wagering has two built-in advantages over racing bets: Sport betting will engage users with a product that will be designed for mobile from the start, and will cost gamblers less than the average racing bet.

When Kentucky Derby winner Justify goes to the gate for the Preakness on Saturday evening, you won’t have to be at Pimlico to place a bet on the likely favorite. In most states, all you need is an account with an online wagering platform such as TVG, TwinSpires, or Xpressbet. But racing doesn’t have the streaming video, data, and bet prices that sports betting will offer, all of which create an easier to navigate user experience for people looking to wager on, say, the NBA Finals.

For that reason, racing may now find itself leaning on sports betting operators and platforms to cross-sell bets on races to attract new players and keep wager volume up. Though sports leagues have long opposed opening up sports betting, they’re prepared to capitalize on this moment in ways that racing isn’t, having made investments in video and real-time data technology in partnership with companies such as Sportradar and STATS. The capabilities of motion-tracking systems and other real-time data systems, as well as high-quality digital streaming, means more in-game and in-app play for bettors, and potentially higher TV ratings and greater fan engagement.

Since 2008, there has also been an explosion in free and paid sports data and analytics, a boom that has fueled the growth of daily fantasy sports and an interest in sports betting.

Ted Leonsis, owner of several professional Washington D.C. sports teams, heartily endorsed the data connection to wagering after the court’s ruling. “Sports betting is built on a rock-solid foundation of data, plain and simple,” he wrote on Medium. “The more data a fan has about a player or a team, the better he or she can predict the outcome of a game, or a possession or a play. And as our data analytics have gotten better, sports betting has only gotten more popular.”

There’s been little corresponding innovation in horse racing streaming video or data accessibility. More races, but not all, are being streamed in HD, and racing data is collected by Equibase, a cooperative venture of the Thoroughbred Racing Association and Jockey Club that makes some data freely available online but mostly exists to dole out data to partners at high prices.

Racing hasn’t innovated because, unlike most sports, it has no national office that wields the power or resources that leagues do. Racing is regulated state-by-state, and racetrack operators fiercely compete for handle, a dynamic that leads to frequent infighting among racing companies. There also hasn’t been a market push to evolve because horse betting — as a skill game and a pari-mutuel market where bettors play against each other, not the house — has had little in the way of legal competition, especially online.

Which leads to what might be racing’s biggest challenge as sports betting grows: The price of a wager. If you bet Justify to win the Preakness, the takeout on your play is 18 percent. Racing wagers, depending on track and type, can cost from 15 to 26 percent. A standard sports bet, meanwhile, costs the bettor about 5 percent of the wager. Even if the price doubles, as some analysts predict it will with legalization, and includes an integrity fee (some leagues have floated the idea of a 1 percent integrity fee), a sports bet will likely cost less than the cheapest racing wager going now. That difference won’t go unnoticed by savvy bettors.

It’s important to note that the horse racing operations that have modernized are now positioned to profit. Monmouth Park partnered with British gambling giant William Hill in 2013 and invested more than $2 million to build a sports book in anticipation of the new business. The Oceanport, New Jersey, track is poised to start taking sports bets as soon as the state legislature gives it final approval. Sports book ticket writers are at the ready, and the line will be the same as what’s offered in Las Vegas.

Monmouth predicts millions in new revenue and promises that a portion will support racing, with money flowing into the purses paid to winning horse owners for each race.

Kip Levin, CEO of TVG — the horse racing cable network and online wagering platform that’s owned by the British-based Paddy Power Betfair, and operates in more than 30 states — called the ruling “a watershed moment for U.S. sports fans.” Paddy Power Betfair runs a horse racing fixed odds betting exchange in New Jersey, the state which led the charge against the sports betting ban.

TVG and Churchill Downs (the publicly traded casino and racing company that runs the Kentucky Derby and the online wagering platform TwinSpires) are probably best positioned to take advantage of a burgeoning sports betting market.

Already these companies are jostling for a seat at the table to craft sports betting legislation and secure their share of the market by hyping their existing facilities, expertise, and bet-taking technology. They’re also seeking deals to claim a piece of the sports betting handle: Churchill Downs announced two days after the ruling that it would partner with Golden Nugget to open a sports betting operation in New Jersey, and Paddy Power Betfair said it’s exploring an acquisition of the daily fantasy sports site FanDuel.

The good news for the rest of the racing industry is that there’s time to ramp up for the competition — time to build better streaming services and user-friendly apps, and time to make data more accessible, lower takeout, and create new wagering options, such as expanding the kind of fixed-odds play that’s available on Betfair’s New Jersey betting exchange. It will take most states months, or even years, to legalize sports betting.

But there’s no question about one thing — in the race for America’s gambling dollar, sports betting is the flashy new favorite, and it’s going to take a lot of money.