Deregulating The Races

October 31, 2002

Regulation of horse racing is motivated partly by society's ambivalence about gambling, observers say. Leaving that aside, however, there is much to be said about the purely economic aspects of regulation, particularly in view of the sweeping changes in the legal gambling market in the last few decades.

However, critics argue there is a powerful case for eliminating many of the rules for how horse racing is organized - strictures that simply don't make sense in light of any modern rationale for economic regulation.

They make the following recommendations:

  • To enhance free markets, states should, at most, set reasonable licensing conditions for off track betting and account wagering and let the market determine the distribution.
  • States should stop regulating takeout rates -- the percentage of the betting the track takes for its profit -- since designing pricing strategies to appeal to different sorts of bettors is the essence of competition in free markets.
  • States should routinely permit new wager types -- with full disclosure to bettors.
  • Thoroughbred racetracks should be free to buy and to sell simulcast signals based on market considerations.

In Maryland, for example, thoroughbred and harness interests have been aligned by a system of sharing all simulcasting revenues, regardless of origin, on an 80-20 basis -- a process dubbed "parity." Proponents of deregulation argue states should have more latitude in setting new rules.

  • Each state should determine the level of costs and of corresponding benefits in evaluating the appropriateness of aggregate tax burdens of racing.
  • Taxes pegged to the net (track takeout) rather than the gross are more consistent with efficiency.
  • Among the 12 key racing states, only Delaware currently uses this approach.

Source: Louis A. Guth and Michael D. Shagan, "Revisiting Regulation: Why the reins should be loosened on thoroughbred horse racing," Milken Institute Review, Third Quarter, 2001.

 

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