Woodbine’s Quest to Run a Financially Viable Race Track

“Woodbine Entertainment wants to make a conscious effort to improve communication with the horsepeople” was the opening comment from the Ontario Horse Racing Industry Panel Discussion hosted at Woodbine in August. The meeting was a first of many that is part of the track’s concerted effort to be more transparent about the challenges they face and their plans to be financially viable in the future.

In a candid interview after the meeting, Canadian Thoroughbred met with the senior executives of Woodbine who all confirmed Woodbine’s renewed commitment to creating a dialogue and stressed their continued commitment to racing.

The Economics of Horse Racing

“There is no business model to run a racetrack in [Ontario],” was CEO Jim Lawson’s blunt statement on the challenge facing the racetrack. “Every time we run an overnight horse race here we lose $20,000 which amounts to $23 million a year.”

Surprisingly, despite the higher wagering, Lawson indicated that the figures are worse when you include stakes races which increase the losses to $28,000 per race and $35 million for the year just on thoroughbred racing. Standardbred racing doesn’t fare any better losing $33 million a year.

Even the record-breaking $18 million handle on the 2019 Queen’s Plate wasn’t enough to cover all the expenses. Lawson was proud to report to the Woodbine board that for the first time the track earned enough to cover all the overhead expenses related to the track’s signature event, but it still wasn’t enough to cover the $2 million purses. The significant cut of the handle taken by outside parties depletes the total revenue.“This is what we are dealing with. It’s the pari-mutuel margins,” explained Lawson about the fees deducted from each wager. Woodbine earns the most revenue from “home market” bets, those bets placed anywhere in Ontario on races held in Ontario, but is required to pay a substantial fee to foreign tracks for customers that bet on races outside of Ontario.

This dire picture reveals that wagering on racing alone does not cover all the costs and highlights the current need for the long-term funding. Woodbine pays out about $61 million in Thoroughbred purses every year of which $30 million comes from the OLG as part of the long-term funding. The balance of the purse money is paid by Woodbine and comes 70 per cent from wagering, with the rest from food and beverage and property leases. “Without our relationship with OLG we don’t have a business,” stated Lawson.

While the long-term funding is crucial right now, Woodbine’s plan is to be self-sufficient in four to five years.

“We want to build an industry that is self-directed,” Lawson commented. “No one wants to operate a business that is dependent on government funding. We want to control our own destiny.”

As the industry learned after the end of Slots-At- Racetracks-Program (SARP), government policy can change quickly and without warning so Woodbine’s plan is to earn income from the track’s expanded casino and other property developments.

Woodbine’s Development and Structure

In 2012, when the SARP ended, Woodbine started to receive income from the lease of the casino to OLG. Lawson pointed out that Canada’s tax act stipulates that any revenue a company receives from the use of property is subject to income tax with no option to deduct losses from other aspects of the business. Despite that change, Lawson stressed that Woodbine’s status as a Not-For-Profit entity remains. “Woodbine does not have any shareholders and has a Non- Profit mandate which is solely to support horse racing and horsemen.”

This new tax structure is important to the future of Woodbine as they continue to develop the property and earn increasingly more revenue from development.

In the short-term, the casino is expected to be completed in the next four-to-five years. In addition, Woodbine has submitted development plans to the city for the 13 acres outside the front doors to be completed by about 2022. The entire area, called Woodbine Districts, will be a major commercial and employment hub that will include mixed-use residential, commercial space, sports and recreations facilities, parks and public space, a new casino, hotel, restaurants and live entertainment venue.

Woodbine is currently finalizing development plans and hope to confirm the timing of the initiative soon. The master plan is a 30-40 year vision for the development of the land to generate significant new revenue streams to help sustain horse racing for decades to come.

Wagering & OLG at Woodbine Race Track

When they ended the SARP, the government promised to integrate horse racing with the province’s overall gaming strategy with OLG. Despite years of promises from both the provincial government and OLG, no such integration has been realized. While OLG has provided marketing support, they have completely failed to develop any gambling products to help bolster the industry that is the grandfather of gaming in the province and employs more than 30,000 people in Ontario.

Though they have failed to fulfill their promises so far, they could with Horse Player Interactive according to Chris Lush, Woodbine’s Senior Vice President of Information Technology, Wagering and Broadcasting. “HPI is the only legalized online platform for single event sports wagering,” he said of Woodbine’s online betting platform.

Currently, Canada’s criminal code prevents betting on a single sport event and forces gamblers to place a bet on a minimum of three games. This spring, however, Ontario’s Minister of Finance requested that the Federal Minister of Finance amend the code to make room for this type of betting. Should those changes be made, Woodbine could leverage it’s wagering platforms and infrastructure to assist the OLG with betting on other sports. The revenue from which would all go back to supporting horse racing.

In addition, Lush was instrumental in developing a new wagering product called Dark Horse that will be launched this fall. Available as an app to Apple and Android smartphones, the game leverages Artificial Intelligence, specifically neural networks, to parse through historical past performance data sets to determine probable outcomes for specific races. This essentially mimics algorithms that computer assisted wagering companies leverage to hedge the market and assist customers with another decision point for the horse selection process of the bet.

Horse Supply Problem at Woodbine

Aside from wagering concerns, Woodbine faces a critical lack of horses.

“We have to have an adequate horse supply,” noted Ontario Racing’s chair John Hayes. “There is nothing more boring to our customers than a four- or five-horse field to wager on. We have to have competitive racing for our customers to roll out into the future.”

Lawson points to the 200+ Ontario-bred horses that are sold in the U.S. every year as one part of the problem. “We are doing everything we can do get owners to bring those horses back up here.” To that end, Woodbine has been promoting the track, purses, quality facilities, safety record, and expanded turf racing to owners and trainers in an effort to convince more of them to head north. They send letters to the new owners of Ontario-breds purchased in the states and try to recruit trainers from Arlington, Churchill, Saratoga and others.

Ontario breeders point to the lack of Ontario-sired restricted races as the main reason for the horse shortage. Woodbine stopped running those races in 2017 to appease trainers with horses that didn’t meet those restrictions. As a compromise, Woodbine now offers $40,000 optional claiming races which forfeits the 20 per cent Ontario-sired bonus if a horse isn’t claimed, but allows breeders to still be eligible for the 20 per cent breeder award.

“Ontario breeders think they can’t compete with the open horses, but they do,” noted Jonathan Zammit, Woodbine’s Vice President of Thoroughbred Racing Operations. He points out that Ontario-sired horses earned $24,632,791 of the $55 million of the Woodbine portion of Thoroughbred purses in 2018. For their part, the breeders point to the $16 million reduction in restricted purses as a big part of the collapse of the market for Ontario-sired yearlings.

“We want to incentivize people to come back and breed but we only have one pie,” noted Lawson. “In order to give to someone it has to come from somebody else. If we have too many restricted races we won’t be able to attract trainers that don’t have Ontario-sired horses.”

“We are trying to feed everyone,” Lawson concluded. “We are looking out for the owners, breeders, trainers, and we walk a thin line to try and balance it all.”