Op/Ed: The Case For Incentives

[Wandering Eyes]

Incentives are the hidden foundations of global racing. Ownership incentives are the reason why one in every 244 Australians is a racehorse owner. Stallion tax incentives are the reason why the Irish stallion industry grew to be a world leader. Betting incentives are the reason why the Hong Kong Jockey Club is the largest taxpayer in Hong Kong, as well as, admirably, the largest community benefactor. Want to know what levers to pull to help our sport? Examining incentives is the answer.

We now are in an era where sports betting has been legalised in the U.S. and fixed odds betting terminals stakes have been reduced in the UK. With this potential decrease in racing revenues we must learn to do more with less as an imperative to the survival of our industry. Racing can’t just ensure it has incentives, we must incentivize the right people in the right areas with the right amount.

Our primary incentive has traditionally been prize money. Carefully managed, the current financial resources can generate more returns and more importantly, more impactful societal change. In Silicon Valley, support was not being given to female-led start-ups. This led innovator Anu Duggal to found the Female Founders Fund which supports a generation of talented women that are building businesses. These women-led businesses have flourished and provided excellent returns allowing for support for another cohort of female entrepreneurs. Racing doesn’t have to accept its current financial proposition of prize money for performance as the only medium in which we reward investment in our industry.

If we want prize money to incentivise future investment, we need to reflect on how we allocate prize money today. Horse owners are rewarded in two ways on the racecourse: prize money and capital appreciation. The current allocation system fails to acknowledge the latter. Does an increase in prize money of a Group 1 race have a corresponding impact on the talent it attracts? It’s doubtful that beyond the multi-million prize money races, that trainers are making decisions based on prize money when entering the uppermost echelon of our sport. They make these decisions hoping to enhance asset value.

Racing jurisdictions should focus on increasing the minimum values of each type of race. This will provide more effective support to the grassroots where the capital appreciation effect of a win isn’t as profound, but the horse still needs to pay its way.

This approach doesn’t need to be a celebration of mediocrity. Maidens deserve more support. A maiden is the very first pay out that a horse owner receives. The immediacy of that centres a buyer’s mind. If you buy a yearling and win a 40k maiden, the windfall could be a huge dent in outlay fostering further investment. We should develop our bonus initiatives but not lose sight of what we’re trying to create–a more exciting return for a wider proportion of talented racehorses that deserve that reward.

An industry-backed Racing Venture Fund could redefine the incentives to having a horse in training. According to the International Federation of Horseracing Authorities, prize money for racing globally is currently €3.6-billion. And yet, we’ve never seen a creative redirection of that massive resource outside further prize money initiatives. A Racing Venture Fund, just like the Female Founders Found, could set the parameters of issues it wants to support–more turf horses in the U.S., more National Hunt mares in UK and Ireland or more stayers in Australia. Buying groups could then apply for support contingent on them adhering to the criteria around purchase. The buyer could then be rewarded with a credit against sales price or perhaps staged payments against training fees (which would help trainers provide a better value offering without incurring further financial hardship). In return, the fund would receive a share of the horse which could generate further returns to tackle the issues. A Venture Fund doesn’t need to be limited to the racecourse. It could provide investment in a riding school trying to get off the ground that uses Thoroughbreds, widening the net of safe rehoming options. It could support tech starts-up looking to improve equine health but have costly initial research and developments cost. The capital costs of racing are massive, this venture fund can lessen the barriers to entry that some face and grow the pie for everyone.

Incentives can be gimmicky, and an important line needs to be followed that they meet our best interests. There is no point in starting a Venture Fund if that fund will be manipulated by participants before walking away. We also can’t redirect our prize money to such an extent that it would alienate our biggest investors. However, we must explore and nuance our offering to the modern age to get the best out of what we have in our wonderful sport.

So how can racing still pack a bigger punch while avoiding the gimmicks? Perhaps we need to forget about a punch and a simple nudge will do. Developed by Professor Richard Thaler (who won a Nobel Prize for his insights), nudge economic theory suggests consumer behaviour can be incentivised by small suggestions and positive reinforcements. Using nudge theory, the UK government recently circulated letters informing taxpayers that nine out of 10 people in their area pay their taxes on time, and as a result on-time tax payments increased by at least 15% in every area targeted. A taxpayer, in such a simple and clever way, feels incentivised to comply so as to adhere to social norms in their area. Racing should look to provide nudges of its own. A buyer at the sales could be told that upon buying their first horse at the sales they’ll receive discounted sales commissions for their next horse purchase as a thank you. A racegoer could be encouraged to bring their friends by sending them a discount code ahead of their birthday to come racing. A breeder could be influenced to breed to a staying stallion by reminding them that there are 50% more stakes races for horses over middle distances than sprint distances in their country. Small, inexpensive steps, but all that could lead to big results for our game.

Our sport is driven by an irrational dream, that the yearling we buy will win the Kentucky Derby. That the first-season stallion we picked out is the next Snitzel. That the filly we bred is going to win the Queen Mary. Our trust in that irrationality shouldn’t prevent us from providing a better return on investment for those dreamers. Incentives can act as signposts as to how we direct the wonderful journey on which a racehorse can you bring you. We know where our levers are, it’s time we figured out how to pull them.

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