'Entire Ecosystem in Jeopardy': CA Industry Hit Hard by Pandemic

The financial toll from COVID-19 on the racing industry in California, spurred by the suspension of live Thoroughbred racing, has been sharp and swift. Backstretch healthcare and mental illness services have been pared back, those in charge of other programs reliant on betting revenue are wondering how to bolster coffers if the broader economy nose-dives, while the financial thumb-screws have been further twisted on stretched-thin trainers.

What's more, all this is playing out against an economic backdrop that was already shaky.

The California Horse Racing Board's (CHRB) latest annual report showed declines in all handle sources from the prior fiscal year, for example. Back in February, the TDN reported on the impacts one year on from the welfare crisis that engulfed the sport in the state, and found certain sectors within the industry–especially the smaller cash-strapped operators–struggling to adapt to shifting tides.

“I hope we don't get into a situation where it's an animal welfare issue,” said CHRB chairman Greg Ferraro. “If the marginal owners stop paying the marginal trainers who are in arrears with the feed man, suddenly we might have horses abandoned that we might have to look after,” he said. “That would be a major CHRB concern.”

“Funding for these has now stopped”

Greg Avioli, president and CEO of the Thoroughbred Owners of California (TOC), broke into seven the main areas of the industry primarily funded through betting revenue: The CHRB's operations, stabling and vanning, backstretch healthcare, drug testing, workers' compensation, breeders' awards and purses.

Combined, these programs and services currently require somewhere in the region of $165 million annually to remain operational, Avioli explained, with the bulk of the money–some $116 million–going to purses.

“Funding for these has now essentially stopped,” said Avioli, adding that Advanced Deposit Wagering (ADW) continues to generate a small slice of revenue for the state, “but it's a trickle–not much.”

When the state legislature returns from spring recess, and when the fallout from the COVID-19 pandemic subsides, the industry will have the opportunity to request economic relief from the state for some of its more critical services, like backstretch health care, which falls under the umbrella of the California Thoroughbred Horsemen's Foundation (CTHF), said Avioli. “We're going to figure out a way to fund that,” he said. “We have to.”

When it comes to the CHRB's operations, like veterinary oversight and investigations, there may be some relief, said Avioli, in the “complex” way the state financially underpins its agencies. “It could be that that gets funded, we just get a long-term bill we have to pay off,” he said.

But some of the other programs self-supported by the industry–like stabling and vanning–may have to undergo some “long-term restructuring” in order to remain financially solvent, said Avioli, which could involve the consolidation of training facilities at certain times and possibly the industry taking on longer-term debt to fund them.

“We will find a way to make all this work in the near-term,” he added.

Further complicating the issue is this hypothetical: When normal service resumes post pandemic, will the betting ecosystem have evolved?

“Would you project that if California opens, and everything resumes July 1, you'd have the same level of activity at [off-track betting parlors] that you had in March? Probably not. People's behavior is going to change–the number of people who have an ADW account who didn't,” said Avioli. “There's going to be a thousand questions in the old model that you're going to have to address in the new model.”

When asked whether the welfare issues that have dogged the sport these past 14 months could sour the state legislature's response to industry efforts for financial support, Avioli emphasized how racing is an “important agribusiness” in the state.

“I believe we have a strong case to be made,” he said. “We are the only form of gaming in the state that has union labor, and we also have a strong and increasingly vocal group of backstretch workers that are very important to the California legislature.”

In the meantime, the state's “stay at home” directive, compounded by the suspension of live Thoroughbred racing, has noticeably impacted some of the services geared towards these same backstretch workers.

“It's just sad that we can't help more people”

On a typical month, wagering generates more than $100,000 that's funneled towards the CTHF, explained Cliff Goodrich, the CTHF executive director. But with Thoroughbred racing suspended completely, “we went from $100,000-plus to near zero,” he said.

As such, the CTHF has had to lay off seven of the organization's 19-strong roster of staff and cut back some of the services to the backstretch workers, like dental and ophthalmology care. The CTHF has also had to suspend some of its preventative health strategies, like free mammograms for women and programs to help identify and manage diabetes, a major problem in the backstretch community.

Because of limited health care access during this time, any sustained suspension of live racing could have similarly long-term impacts on the health of many backstretch workers, Goodrich warned, adding that most have no personal health insurance, and could in the interim “revert back to behavior” that worsens underlying health problems.

“We do not want that to happen,” he added. But a likely “pent-up” demand come the resumption of normal service will add another layer of complexity to the problem. “It's just sad that we can't help more people during this time, or at least maintain our revenue stream so that, coming out of it, we've got a chance to meet the pent-up demand,” said Goodrich.

Darin Sharer is executive director of the Winners Foundation, a program that provides free support and referral services to CHRB licensees suffering from substance abuse, mental illness, compulsive gambling, anger management and other mental health-related issues.

As a result of the state's “stay at home” directive, the Winners Foundation has suspended its group meetings in favor of over-the-phone and virtual conversations, along with the routine travel its three-person team makes to backstretch communities across California.

The foundation's operating costs vary, depending on how many individuals are in treatment. “We're okay for right now,” Sharer said, adding that he has a “rainy-day” fund to help mitigate revenue losses. But Sharer speculated that, if the foundation has to make drastic cuts in the future, it would be at the expense of outside referrals.

“You're probably going to see this on the back end, later on in the year and next year, when you don't have the money to cover the same operating costs,” Sharer said. “We have a lot of folks who need help, so, it's a very difficult time for us.”

Lost betting revenue coupled with a high volume of claims has led California's self-insured workers' compensation program–Post Time Self Insurance Group–to invoice trainers $1,233 per horse retroactively for the first quarter of 2020.

The group, which is funded primarily from pari-mutuel wagering and per-start fees, recently told trainers that workers' compensation premiums may be considered part of payroll costs included in the federal government's Paycheck Protection Program (PPP). This loan program was unrolled to mitigate the pandemic's economic toll. Nevertheless, it's not clear if the PPP loans will indeed cover workers' compensation payments, said Santa Anita-based trainer Dan Blacker.

“Some people say it does. Some people say it doesn't,” he said, adding that the sheer volume of applicants for the federal loans available to small business owners is slowing the process down markedly. “We're a long way from having the money in the bank.”

Blacker explained that his horse inventory has thus far remained intact. “I'm very lucky–I've got generous, understanding owners,” he said, adding that he hasn't yet had to reduce his “day-rate,” as other trainers have, in order to alleviate the financial burden on owners.

“My margins are so small as it is–no one's giving me a discount,” Blacker said. “I wish I could lower my day-rate but it's just not an option.”

Other trainers are standing on less solid footing.

“It's dire for some people,” said Richard Baltas, a leading trainer at Santa Anita and California Thoroughbred Trainers board member. “But I'm trying to remain optimistic,” he added. “I'm hoping that if the worst came to the worst, some of the bigger owners would step up a bit, and the tracks themselves.”

“Industry within an industry”

California Retirement Management Account (CARMA) is the state's flagship re-homing organization for retired racehorses. According to executive director Lucinda Lovitt, all non-profits are “concerned” about revenue streams potentially drying up.

“For CARMA specifically it's of concern because the majority of our funding is through contributions from owners, trainers and jockeys through purse revenue, which comes directly from handle,” she said. “So, if there's no live racing, owners aren't earning purses, and they aren't making contributions to CARMA from those purses.”

The organization's annual operating budget sits around $800,000, as much as 40% of which is distributed to individual aftercare facilities through grants. The rest of the money is divided between CARMA's own placement program and events they put on to raise both funds and awareness.

CARMA has faced revenue shortfalls before, most recently last year, when the welfare crisis brought about by a spike in equine fatalities at Santa Anita triggered a temporary suspension of live racing.

According to Lovitt, CARMA managed to plug those financial gaps through additional fundraising efforts. But that was achieved when the economy was altogether healthier–if the current situation leads to a sustained economic downturn, fundraising efforts will be squeezed. “For sure, 2020 is going to look very different to 2019,” said Lovitt, who isn't alone in worrying.

Helen Meredith is the founder and president of the United Pegasus Foundation, a Southern California-based OTTB organization currently providing for nearly 150 horses. “I've been really stressed out,” said Meredith, about the possible ramifications on her business from COVID-19.

Grants from CARMA and the Thoroughbred Aftercare Alliance (TAA) comprise about 30% of the foundation's annual operating budget, which is roughly $450,000, said Meredith. And regular donations, she said, are already dropping off.

“It's always been a struggle no matter what,” Meredith said, adding that additional grants ordinarily open to her have put their 2020 applications on hold, their stock market portfolios having tanked.

“It will hurt,” warned Madeline Auerbach, former CHRB commissioner and founder and former chairperson of CARMA. “If there's no money coming in, when people come to us at the end of the year for their grants, there's going to be a very reduced amount of money available.”

“It's tragic”

Nevertheless, Lovitt remains optimistic the vast improvements the industry has made broadly in building a racehorse retirement infrastructure over the past decade or so will prove resilient in the event CARMA and other OTTB organizations suffer a significant financial hit.

“We have an industry within an industry,” she said. “And I don't think that that industry is going to buckle. I really don't. I think we've got very hard-working individuals, and we have donors that are very supportive of these organizations.”

And what are the chances of live racing resuming in California?

According to Avioli, discussions between the industry and government officials have recently revolved around the issue of adequate testing. “Basically, moving forward with system-wide plans so that you could have requisite testing in place at the tracks such that the argument becomes more powerful,” he said.

“We have made the case dozens of times it is irrational to allow for training in the morning with 1000-plus people and to not allow racing in the afternoon with less than 100 people. It's inconsistent intellectually, and we have made a very strong case that by doing this, we are putting the entire ecosystem in jeopardy,” he said.

Ferraro agrees that the suspension of live racing should be lifted and emphasized how a suspension of live racing for an extended length of time could jeopardize some of the advances recently made in equine welfare.

“We've come a long way. Breakdowns are way down. We've instituted a lot of procedures–I thought we were making a lot of progress, and then something like this comes along,” he said. “The impact on lives, it's tragic.”