653. Does Horse Racing Have a Future? | Freakonomics Radio

Thoroughbred auction prices keep setting records. But tracks are closing, gambling revenues are falling, and the sport is increasingly reliant on subsidies. Is that the kind of long shot anybody wants? (Part three of a series, “The Horse Is Us (https://freakonomics.com/the-horse-is-us/).”) You can find the transcript and show notes for this episode on our website here: https://freakonomics.com/podcast/does-horse-racing-have-a-future/ FOLLOW FREAKONOMICS RADIO: YouTube: https://freak.ws/3yIl6dl Apple Podcasts: https://freak.ws/3yAvQh0 Spotify: https://freak.ws/3TsdCmV ABOUT FREAKONOMICS RADIO: Discover the hidden side of everything with host Stephen J. Dubner, co-author of the Freakonomics books. Each week, Dubner speaks with Nobel laureates and provocateurs, intellectuals and entrepreneurs, and various other underachievers to uncover things you always thought you knew (but didn’t) and things you never thought you wanted to know (but do) — from the economics of sleep to the future of education, from markets for marriage to the surprising utility of wolves. ABOUT THE FREAKONOMICS RADIO NETWORK: Freakonomics began as a book, which led to a blog, a documentary film, more books, a pair of pants, and in 2010, a podcast called Freakonomics Radio. Hosted by Stephen J. Dubner, it’s one of the most popular podcasts in the world, with a reputation for storytelling that is both rigorous and entertaining. Its archive of more than 500 episodes is available, for free, on any podcast app, and the show airs weekly on NPR stations. Freakonomics Radio is now the flagship show of the Freakonomics Radio Network, which includes the podcasts No Stupid Questions, People I (Mostly) Admire, and The Economics of Everyday Things. FREAKONOMICS RADIO NETWORK PODCASTS: Freakonomics Radio: https://freakonomics.com/series/freakonomics-radio/ No Stupid Questions: https://freakonomics.com/series/nsq/ People I (Mostly) Admire: https://freakonomics.com/series/people-i-mostly-admire/ The Economics of Everyday Things: https://freakonomics.com/series/everyday-things/ Special series: https://freakonomics.com/topics/ CONNECT WITH US: [email protected] https://twitter.com/freakonomics https://www.instagram.com/freakonomics/ https://www.facebook.com/freakonomics/ https://www.tiktok.com/@freakonomicsradio https://www.linkedin.com/company/freakonomics-media Subscribe to our newsletter: http://eepurl.com/bKm0cf

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:04Stephen J. Dubner?

  Once we started making this series about horses, this is the third and final episode in the series, people kept telling us that if we really wanted to understand the market for thoroughbred racehorses, which is the glitziest of all the horse markets, that we needed to get to Keeneland. Keeneland is an auction complex in Lexington, Kentucky. They hold six major sales a year. The big one is the two-week September yearling sale. Unproven horses bursting with promise. A horse that someone comes to Keeneland to buy with the dream that their yearling will be the next Justify, or the next American Pharaoh, or, God willing, the next Secretariat. Horse hope springs eternal. The yearling sale is the biggest sale like it in the

• 0:49Stephen J. Dubner?

  world and the highest quality. A huge share of champions over the past few decades. Maybe 40% of the winners of the biggest US races were bought at Keeneland as yearlings. So this September, we decided to go see for ourselves. Keeneland is a massive complex with one racetrack and one training track, a sales pavilion, and 46 barns that each have 30 to 40 horse stalls. You travel around by golf cart. The grounds are extremely well manicured. From the first day of the sale to the last, you can smell fresh-cut grass. For this year's September sale, there are about 4,700 yearlings in the catalog.

• 1:31Stephen J. Dubner?

  It also takes a lot of people to make the thing work.

• 1:35Speaker 01

  Wade Cunningham, auctioneer, Keeneland.

• 1:37Speaker 02

  Rhoda Ferraro, and I'm director of Keeneland Library. We are the only library of our kind in the world, and we're by far the largest repository of information related to the thoroughbred breeding and racing industry.

• 1:49Speaker 03

  Sean Feld, bloodstock agent, working the Keeneland September sale, looking for yearlings to purchase. It's like panning for gold. You just keep sifting and sifting until something sticks.

• 2:01Speaker 04

  Robert Clark. I've been painting out here for the last 20-plus years. When I'm not painting horses, I will be dead.

• 2:08Speaker 05

  I'm Ann Archer Hinkle. I am the manager of Hinkle Farms in Paris, Kentucky.

• 2:14Stephen J. Dubner?

  We first ran into Ann Archer Hinkle near the barns on the Saturday before the sale started. It was already very busy with potential buyers assessing the horses. Grooms and handlers walked the horses and tried to keep them calm. These horses have a lot of energy. Now they're being asked to present a more docile version of their competitive selves. Our team with microphones and backpacks just tried to not startle anything that might kick. Hinkle Farms is run by brothers Tom and Henry Hinkle and now Tom's daughter, Ann.

• 2:46Speaker 05

  My great-grandfather bought the main part of the farm in 1926 and it didn't always have horses on it. He grew bluegrass seed and raised sheep and cattle. And then in about the 60s, he bought his first two mares. And now we're primarily a broodmare farm, but we do have like 200 head of cattle as well.

• 3:09Stephen J. Dubner?

  Unlike many of the consignors or sales agents at Keeneland, the Hinkels only sell horses that they themselves have bred.

• 3:17Speaker 05

  These horses have been on our farm since when they were in their mommy's bellies. So we fold them out on the farm, raise them and bring them up here as yearlings. That's kind of our niche in the industry.

• 3:30Stephen J. Dubner?

  And how is Hinkle Farms feeling about their prospects at this year's sale?

• 3:34Speaker 05

  You're hoping that all your horses sell for a few hundred thousand dollars at least. You're always hoping that you're going to have someone that breaks out that might hit seven figures. We budget really conservatively because we always hope to be pleasantly surprised, but it doesn't happen every year.

• 3:51Stephen J. Dubner?

  This year, Ann Archer Hinkle has high hopes for a certain dark bay.

• 3:56Speaker 05

  Yes, I really love our Not This Time filly out of Stave.

• 4:01Stephen J. Dubner?

  That means Stave is the mother or dam and Not This Time is the father or sire.

• 4:06Speaker 05

  She's really, really gorgeous and Not This Time is super hot at the moment. I mean, it's just like every day he has a new great horse out there.

• 4:16Stephen J. Dubner?

  We heard about Not This Time in last week's episode. He is a stallion that is currently standing for stud at TaylorMade Farm. They are the biggest consignor at the Keeneland Auction. They have so many barns that it's basically a tailor-made neighborhood. When we find Mark Taylor at the pre-sale, he's wearing a black baseball hat with white lettering that reads "Not This Time."

• 4:36Speaker 06

  Every time there's a horse race that's happening in the week preceding the sale, there's all these horses running and most of them have relatives that are in the sale. So with us, you know, Not This Time is our stallion. He's had this incredible run. The last three weeks have just been, it's like Fantasyland. I can't even keep up with all the horses that are running well. Those results, every day they're coming in, you know, a rising tide raises all ships, right? So it's not just the Not This Times we're selling, but other consignors have Not This Times. That's affecting the value.

• 5:10Stephen J. Dubner?

  When Not This Time started out as a breeding stallion, his stud fee was $15,000 per live foal produced. Now, it's $175,000. That's a one-time fee. The stallion's owners don't get a share of any future sales or horse racing purses. But like Mark Taylor said, if your stud's offspring start winning a lot of races, as Not This Time's offspring have, that drives your stud fee even higher. When we first spoke with Mark Taylor a couple of weeks before the yearling sale, he was feeling bullish. So how's he feeling now, the day before the auction starts?

• 5:46Speaker 06

  Well, it's been busy. We keep some metrics year to year. And as of the end of the day yesterday, the number of shows, that's the number of visits by buyers. That doesn't always translate to a good sale or a bad sale, depending on whether it's up or down. But the amount of traffic was up about 15% versus last year. I'd rather it be up than down, and we hope that the, you know, the money goes along with that.

• 6:09Stephen J. Dubner?

  Today on Freakonomics Radio, we will watch how the money goes along. We will talk to some of the people who are buying these racehorses. Once you get to that point, all you're thinking is drop the hammer. Drop the hammer. We learn about the importance of the horse export business.

• 6:25Speaker 07

  American thoroughbreds have been bought and sold all around the world and have formed the foundation of the stud books in many other countries.

• 6:32Stephen J. Dubner?

  We ask where the money comes from to buy all these horses.

• 6:36Speaker 08

  You can bet races all day in the US and then at night you can bet races simulcast from Australia and Hong Kong.

• 6:42Stephen J. Dubner?

  And we wonder whether horse racing, the sport of kings, has a future.

• 6:47Speaker 09

  Why not expand the casino operations and let horse racing go?

• 6:53Stephen J. Dubner?

  Part three of our series, The Horse Is Us, starts now.

• 7:09Speaker 10

  This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner.

• 7:25Speaker 07

  Thoroughbreds in particular, they're kind, they're trusting, they're just magnetic in every which way, and they give back more than you get from them.

• 7:33Stephen J. Dubner?

  That is Cormac Brannick. If you want to pull off a sale like Keeneland's yearling sale, you need someone like Brannick running the show.

• 7:41Speaker 07

  I'm the Senior Director of Sales Operations at Keeneland.

• 7:44Stephen J. Dubner?

  We spoke with Brannick a couple of weeks before the September sale. He grew up in Ireland, where he got an undergraduate degree in biotechnology, then he came to the States and got a PhD in veterinary science at the University of Kentucky. He did six years' worth of postdoctoral work studying horse immune systems and developing vaccines. Then he started his own bloodstock consulting firm, and he later worked for two big stud farms. In other words, Brannick's horse knowledge is vast.

• 8:13Speaker 07

  Horses are a huge part of the Irish landscape and the Irish culture. It's something that just about everybody on the street has a connection to, either they own a piece of a horse or their neighbor does. It really is built into the society and it's something that people take a lot of pride in. When I was growing up, my start was my father taking me to the races. Some of my first words were racehorse names at the time.

• 8:33Stephen J. Dubner?

  Do you remember any of those early horses?

• 8:36Speaker 07

  A horse called Gay Fandango, I'm not sure when he was born, but it was not far from when I was born.

• 8:40Stephen J. Dubner?

  There have been entire books written about racehorse naming. Names must obey a set of rules upheld by the Jockey Club, the official breed registry for thoroughbreds. A name cannot contain more than 18 characters. It cannot be vulgar or obscene. It cannot have any, quote, "clear and contemporary commercial, artistic or creative significance," nor can you repeat a name. Although if your horse has a famous dam or sire, you might include their name in yours.

• 9:09Speaker 07

  They say that about 35% of a horse's racing ability comes from its genetics. So 65% of it is environment. That would be everything from the ride the horse gets, how well the horse is trained. But at some point, there's that gray area, which is the horse's desire and its own will to win. And that really is what separates the good from the less good.

• 9:30Stephen J. Dubner?

  If we were to ask 10 buyers who are coming to your yearling auction at Keeneland this year, what they think is the most important factor that goes into assessing a horse that they're considering buying? Do you think we'd get 10 totally different answers?

• 9:46Speaker 07

  You'd probably get three or four for sure. I think the most common answer would be a horse with an athletic look. So a horse with good lines and angles, that's built to be strong enough, sound enough, and athletic and fast enough to be successful for what they wanted to do. Pedigree is obviously another massive component, but pedigree doesn't win races. That's on paper. And thirdly, the veterinary component. You know, how clean do the horses vet?

• 10:14Stephen J. Dubner?

  Now, how much of what you just said will be included in the catalog that you and your colleagues put together for the September sale?

• 10:21Speaker 07

  So the catalog, in its old sense, is a print book that is somewhat out of date by the time the sale even happens, because it's printed and distributed around the world weeks ahead. But the online digital catalog is something that's becoming a lot more dynamic. And for the last several years, and COVID had a hand in that, where there are walking videos, there are photographs of each horse, and then there's an updated pedigree version that shows what the other family members have been doing since the horse was entered in the sale back in May.

• 10:49Stephen J. Dubner?

  So you and your team, who are responsible for putting together this catalog and conducting these yearling sales, describe the effort that goes into that. How big is your crew? Where do they go? What kind of information do they gather?

• 11:02Speaker 07

  Probably the biggest part that we do as a sales team is the inspection process. The entry deadline is May 1st every year. Once we accumulate those entries, we split into two teams of three people a team and travel mostly locally, but also out of state on some occasions to see, in this year's case, thirty two hundred or more of the yearlings entered in the sale. We went to about four hundred and ten farms.

• 11:23Stephen J. Dubner?

  Wow.

• 11:24Speaker 07

  And why we do that is we want to put the best physical versions, the best athletes forward in the sale and not just go by what's on paper.

• 11:34Stephen J. Dubner?

  How are prices set?

• 11:36Speaker 07

  So sellers will set a reserve if they choose to. The old adage is you value your horse and you set the reserve at two thirds of that price. If you think the horse is worth a hundred and fifty, you set a reserve at ninety nine and let the market play it out from there. Some people push the envelope. Some people don't set any reserve. The reserves are not disclosed under any circumstances unless the seller chooses to.

• 11:55Stephen J. Dubner?

  When you and your team are going around to these four hundred and ten farms though, and you're actually seeing the horses, is there sometimes the case where the seller will say, this is a hundred and fifty thousand dollar horse, and then you and your team say, ah, no, we think it's a seventy five thousand dollar horse?

• 12:11Speaker 07

  That does happen. So when the sellers or the consignors, their agents, enter the horses, we'll invite them to send in what's known as a wish list, which is the placement that they would like each individual horse to be within the sale. And the sale of this size has twelve different days and they're paired. So book one is two days, book two is two days and so on. And the prices typically, the median price per book goes down by fifty percent.

• 12:35Stephen J. Dubner?

  What's day one?

• 12:36Speaker 07

  About four hundred and fifty thousand in a good year, median price for the yearling sold, and it drops to low two hundreds and then to a hundred to fifty and so on. So it helps the buyers know when they want to show up. If they have a budget of thirty thousand dollars, they're going to show up in book five. They're not going to work for twelve days to buy a horse in day eleven.

• 12:53Stephen J. Dubner?

  What share of buyers are American versus global?

• 12:57Speaker 07

  About two thirds are domestic.

• 13:00Stephen J. Dubner?

  Of the remaining one third, what would you say are the top three spending countries?

• 13:05Speaker 07

  Those would be Ireland, Japan, and possibly Saudi Arabia nowadays.

• 13:09Stephen J. Dubner?

  What is your function as the Director of Sales? Is it to act as an honest broker so that the market is as legitimate as can be? Are you perhaps instead representing the interests of Keeneland itself? Are you representing the interests of potential buyers?

• 13:28Speaker 07

  Well, our interests as Keeneland are the same as the sellers, which is we're partners. Keeneland will charge a house commission of 5% for sales for horses sold. And so we want what they want, which is the best, most successful sale across the board. Structuring the sale, what our role would be as a sales team would be to just ensure that we think the better horses are forward. We don't want weaker physicals to be at the front of the sale and create the wrong impression about the crop or the group of horses in general.

• 13:55Stephen J. Dubner?

  Can you just describe what the auction or the days of auction look like? Is it a live auction where every single horse is brought into the ring and people are looking at it and bidding, or is it more silent auction?

• 14:07Speaker 07

  It's a live auction. All the horses are here on the grounds. We use 1,600 stalls to move them in and out every day. It's a hive of activity. The horses are being shown sometimes 100 to 120 times per day, seen by prospective buyers, sometimes two or three times. We have a holding barn in the back behind the actual sales ring that will hold about 12 to 14 yearlings that are the next through the ring.

• 14:31Stephen J. Dubner?

  Talk to me about the upcoming September sale, how it will compare to previous sales in terms of size and excitement.

• 14:40Speaker 07

  The sale has evolved quite a lot. The September sale was a secondary sale back about 25 years ago, around the turn of the century. The July sales, that was the elite sale. And then September sale just kind of grew in vogue because it gives a little more time for yearlings to mature. They're that much older and percentage wise, quite significantly more mature. The largest September sale was in 2007 and we had 5,555 yearlings in the catalogue. But in recent times, especially since the 2008 economic crash, there's been some more selectivity among breeders. This year's catalogue is actually the largest it's been since 2010. And the quality, I think, from top to bottom is probably the strongest in my memory.

• 15:24Speaker 07

  I think excitement's very high, global participation is very strong. American thoroughbreds have been bought and sold all around the world and have formed the foundation of the stud books in many other countries. There are some emerging markets in the Middle East and elsewhere that love to buy American thoroughbreds because they're known for speed. In a lot of those countries, the racing will happen on dirt, which isn't the case in Europe. And so, American thoroughbreds are dirt speed horses.

• 15:51Stephen J. Dubner?

  So I'm looking at a number, I think this is from last year's yearling sale. Four hundred and eleven million dollars was the total take, is that right?

• 15:59Speaker 07

  It was actually four hundred and twenty-eight million dollars after you include the horses that sold post-sale. So four hundred and eleven million through the ring, but then a lot of deals get done the same day.

• 16:08Stephen J. Dubner?

  So congratulations, that's a pretty good number. I hope you get some cut beyond your salary.

• 16:15Speaker 07

  We don't. And honestly, just to what Keeneland is, people think it's a nonprofit. It's actually for profit, but we have a nonprofit mission. Everything Keeneland makes goes back into the industry, whether that's purses or for safety and integrity measures or for local philanthropic efforts. And that's a good mission to live by.

• 16:32Stephen J. Dubner?

  With about forty-seven hundred horses to choose from this year, and with some four hundred million dollars at stake, how do buyers assess which horses are worth the investment? This brings us back to Emily Plant, whom we met last week feeding a carrot to Triple Crown winner, American Pharaoh. Plant grew up in Kentucky as a horse crazy kid and a competitive rider. After college, she was working full-time as a banker and was enrolled in MBA program, but she didn't love the business world.

• 17:02Speaker 11

  And my academic advisor, he said, listen, you have to choose something to study that you will be okay obsessing over for the rest of your life. His name was Bob Dahlstrom. I'm so thankful for his great guidance. I said, listen, Bob, I really like horses. That's really the only thing I can see myself caring about forever. Bob was like, if you think you can write a dissertation on horses... Go for it. I was living in Lexington, Kentucky, home of the Keeneland Sale, and I had never actually been to a thoroughbred auction. So here I am, I'm living at the epicenter of thoroughbred racing,

• 17:44Speaker 11

  and I just wander into the sale on one of the opening nights of the auction. This would have been 2006.

• 17:52Stephen J. Dubner?

  Open to the public, yes?

• 17:53Speaker 11

  Open to the public. Anybody can come in and view what's going on. I immediately see a horse sell for $5 million or something. And me, as a lifelong horse person, the horses that I was dealing with are like $5, $10,000 horses. To see a baby racehorse that has never been asked to run, never been asked to carry a rider, its only potential at this point. To see somebody spend millions on a essentially worthless baby racehorse, something flipped in my brain and I was like, oh, I think this might be my destiny. I became instantly obsessed.

• 18:35Stephen J. Dubner?

  Today, Emily Plant is a marketing professor at the University of Montana, and she runs a thoroughbred consulting business alongside the racing analyst Bill Oppenheim.

• 18:45Speaker 11

  I publish the Stallion Spectator Rating. That is a several hundred page research volume with all kinds of detailed statistics about stallion performance and how they rate historically in terms of their quality. And then we publish the Thoroughbred Market Report, which is a monthly magazine tailored for investors in the thoroughbred business.

• 19:12Stephen J. Dubner?

  How do you think about the risk or the return on investment or the predictability, whatever you want to call it, when it comes to trying to buy any unproven horse at auction? You're supplying all these potential buyers with all kinds of information. And so people are gathering this data and they're looking at the horses in the flesh. But when it comes time to measure the correlation between the price that they pay and the success that a given horse will have on the track, how do you think about that?

• 19:41Speaker 11

  You're never going to like that answer. If you try to look at buying a horse as a straight rational return on investment,

• 19:51Speaker 11

  There's no explanation there. There's nobody that can claim that it's irrational. But here's the thing, there is a very small chance that you will hit a huge success. And if you do hit that huge success, your life can be changed. If you make the right decision, you can end up with essentially a living unlimited ATM machine. The other part of it is people like to go to the racetrack and see their colors on their jockey. They like to watch their horse run. It's a social thing. So there's also plenty of non pecuniary benefits in terms of the ownership.

• 20:32Stephen J. Dubner?

  Describe what hitting it big means. Walk us through the racing, the winning races, the stud fees, et cetera, and how the ATM thing happens.

• 20:40Speaker 11

  There's kind of two segments to what we call the thoroughbred horse racing industry. There's the racing side and then there's the breeding side. Obviously, they're completely tied together and horses kind of move through these segments as they age. Now, obviously, people stay involved at multiple levels of the game. Let's say I'm in the racing part of the ownership group and I want to quote unquote, "keep a leg" or retain some ownership. So I might stay in, but the money for a top racehorse at the end of their career, for the colts that are going on to stud deals, huge money.

• 21:22Stephen J. Dubner?

  How much?

• 21:23Speaker 11

  Huge, huge money. You hear stallion deals, you know, $100 million for a top prospect. You value them at what they'll be able to make at stud, basically in the first four years that they're a stallion. The other thing is that once a young colt wins like one high-profile race, The competition to buy him as a stallion prospect is already starting. Let's say you enter into a $60 million stud deal for a colt in August because you think he's going to go on and do great things and he turns out to be a complete dud. He's not even worthy of standing at stud in Kentucky and he ends up going to Louisiana and standing

• 22:08Speaker 11

  for 2,000 bucks. So even though it might be a little more straightforward on the stallion side, it is still really risky.

• 22:18Stephen J. Dubner?

  Emily Plant's research reports are meant to help mitigate that risk. Her clientele includes some of the biggest breeders in the country as well as some smaller farms.

• 22:28Speaker 11

  One of our longtime clients, a family business called Hinkle Farms. They are a subscriber. They get the information and then we'll be meeting with them to talk about the data as it relates to their own mares and help them think through their mating decisions for next year.

• 22:49Stephen J. Dubner?

  At the Keeneland September Sale, Emily Plant walks us over to the maze of barns behind the sales pavilion to chat with Ann Archer Hinkle.

• 22:58Speaker 05

  They are generous enough to sit down with us once a year and talk us through some of their data because you need someone to help you make sense of it. Finding the right fit for each mare is a little bit of a puzzle.

• 23:10Stephen J. Dubner?

  Remember, at this year's sale, the horse that Hinkle is excited about is a filly that was sired by Not This Time.

• 23:16Speaker 05

  Yes, I really love our Not This Time filly.

• 23:19Speaker 11

  So like what stud fee would you have bred to Not This Time? Do you remember what you paid for him?

• 23:25Speaker 05

  I think it was 150.

• 23:26Speaker 11

  Pretty high, but you know, Not This Time, a tailor-made stallion. We've talked about him before. Started for a very modest price, 15,000?

• 23:34Speaker 05

  Maybe he wasn't 150. I'm really bad about remembering what price you bred him to because it's like, we bred this mare three years ago. She's sort of our star.

• 23:45Stephen J. Dubner?

  That star filly doesn't have a name yet. It is usually the buyers who give the horse a name and then register the name with the jockey club before they run their first race. So this filly for now is called Hip 144. All the names here start with hip simply because that's the easiest place to put a big sticker with the horse's auction number. Here again is Cormac Brannick describing how the actual sale will happen.

• 24:10Speaker 07

  The horses come through, they go into a ring. There's seating for about 500 people in a fan-shaped pavilion. But people can bid from the back where the chutes are with two bid spotters. A horse is typically only in the ring for 60 seconds. It might be 40, it might be three minutes.

• 24:26Stephen J. Dubner?

  And here, on the first day of the September sale, was the auctioneer's pitch for Hip 144.

• 24:34Speaker 12

  Hip number 144, property of Hinkle Farms, Dark Bay or Brown filly. By Not This Time, out of State, by Ghost Sapper. By Not This Time, the number one sire of two-year-olds in North America in earnings, wins, winners, and black-type horses. This filly comes from quite a Hinkle-bred family. The filly's mother, a stakes performer at fairgrounds. The filly's half-brother, Spirit's Mischief, that son of Intim Mischief, a winner at both Keeneland and Saratoga. And under the stakes-winning second dam, you'll find Westwood, who as a maiden was third in the Grade One Santa Anita Derby. He's broke his maiden since the catalogue. Won down at Del Mar recently, earnings now over $134,000.

• 25:14Speaker 01

  Keep it, thanks Scott. Good filly, down 300, down 300, 100, 200, 1, 2, down 3. Hit 200, 300, 300, 400, down 3, 400. Hit 700, 700, 800, 900, 9 now million. Hit one maiden, maiden, maiden one, one maiden one. Hit two maiden one, done Jesse, two maiden one, down two maiden, 100,000. Down two maiden one, thank you. Hit a little sound, two maiden, 100,000, two maiden one. One, one, one, have, Roger, two million dollars, thank you.

• 25:49Speaker 12

  Hip number 145, consigned by Clayburn Farm. H, dark bay or brown.

• 25:52Stephen J. Dubner?

  And that was the sound of Hip 144, selling for $2 million. Coming up after the break, we celebrate with the Hinkles, and we track down the buyer. I'm Stephen Dubner, this is Freakonomics Radio. We'll be right back.

• 26:19Speaker 13

  Everybody got one? Ah, not bad, not bad. Alright.

• 26:25Speaker 05

  Cheers.

• 26:26Speaker 13

  Cheers.

• 26:26Speaker 05

  Cheers.

• 26:28Speaker 13

  Yeah, cheers. And a Kena.

• 26:30Speaker 05

  Cheers, guys.

• 26:32Stephen J. Dubner?

  After the hammer drops on hip 144, the Hinkle Farms family is celebrating outside their barn. Champagne for everyone, grooms and handlers included. Our producer Augusta Chapman catches up with Ann Archer Hinkle and asks how it feels to have just sold one of the highest-priced horses at this year's September sale.

• 26:51Speaker 05

  I feel like $2 million right now. It was beyond our expectations. Over the past few days, we definitely thought, based on the activity and the repeat interest in her, that there was a chance she could bring seven figures. And then, as we walked her up to and through the sales pavilion, just seeing all of those buyers in the back, when they actually are physically following your horse through the ring, it's a really good indication that they're still interested and they're going to bid on her. So, all the big players who had been interested and looked at her several times out here at the barn were up there watching her go through. And so, that's when we really started to feel good.

• 27:33Speaker 05

  Earlier in the sale, a colt by the same sire sold for 1.6 million. So I thought there was a chance that she could bring like a million and a half.

• 27:45Speaker 10

  What were you thinking as you were seeing it bid over 1.5?

• 27:47Speaker 05

  Well, I mean, it was going really fast, you know? And it jumped up. It got high really fast. So I thought, okay, there's probably a chance she could hit two at this point.

• 27:56Speaker 10

  What does $2 million mean for Hinkle Farms?

• 27:58Speaker 05

  $2 million is incredibly significant. I mean, without disclosing like too much about like the financials of the farm, it requires a tremendous amount of capital to maintain a farm. Stud fees alone are over a million dollars every year. Labor's a huge expense. Veterinary expenses are enormous, and just the required maintenance of keeping up a farm. Hopefully, this is a sign that we'll be profitable this year.

• 28:28Stephen J. Dubner?

  So that was the seller of hip 144. Who was the buyer?

• 28:32Speaker 14

  Scott Hyder.

• 28:34Speaker 10

  Hey, this is Augusta from Freakonomics.

• 28:36Speaker 14

  Hey Augusta, how are you?

• 28:37Stephen J. Dubner?

  Scott Hyder runs an investment firm in Omaha, Nebraska. He has also been investing in thoroughbreds for about 30 years. He tends to buy only female horses. As race horses, they tend to be slower than males, but he likes their residual value as brood mares. So how does Hyder decide which horse to buy?

• 28:56Speaker 14

  I would say to you, similar to the investing world, the thoroughbred business is truly the intersection of intellect and instinct. You've got to be clearly smart enough, but it can't just be purely intellectual. Instinct is a beautiful thing, and usually that only comes to somebody through trial and error. And learning from mistakes, usually you learn much more from mistakes than successes. When you're at the Keeneland sales, when you have thousands of buyers looking at the same horses, people are drawing different conclusions. Sometimes it's the physical attributes, sometimes it's the bloodlines. Other people actually are going into biomechanics.

• 29:35Stephen J. Dubner?

  The horse that Hyder settled on at Keeneland, the only horse he bought this year, was the Hinkle Farms filly hip 144. Hyder sat in the ring and handled the live bidding himself. And what's that feel like?

• 29:48Speaker 14

  The bidding was stronger than I thought it would be, for sure. I had kind of valued her at that million five number, which is plenty. And the bidding continued. 10 years ago, I would have maybe paused and not kept pushing a couple bids further, but I quickly said, well, this is the filly we really want. If we can make her successful at the track, this is the filly that will become a future mother with us, a broodmare. I'll push and I'll go a little higher. But immediately when that one five got surpassed, I had said in my mind, we will not go above two, period. So that was my final bid. Once you get to that point when it's the final bid in your head and you know

• 30:31Speaker 14

  you've just made it, all you're thinking is drop the hammer, drop the hammer. Stop. It's interesting in the auction world because there are some levels that are psychologically like a wall. A million dollars, when that goes up on the board, it can be a wall and it stops. Two million is the same thing. So I thought perhaps that would stop people and it did. They dropped the hammer. I had the whole team with me and I looked at everybody and I said, well, let's hope this filly is really fast, folks, because I just stretched.

• 31:07Stephen J. Dubner?

  Two million dollars is a lot to pay for a one-year-old filly, but Hip 144 wasn't even close to being the most expensive horse at the Keeneland Sale. A colt sired by Gun Runner went for $3.3 million. All told, more than 3,000 yearlings sold for a total of more than $530 million, setting a world record for a thoroughbred auction. Fifty-six horses sold for more than $1 million each, another record. These numbers would seem to suggest a healthy horse racing industry, but it's more complicated than that. Mark Taylor of TaylorMade Farm told us that record prices do not reflect any kind of racing boom. In fact, these high

• 31:49Stephen J. Dubner?

  prices are the result of shrinking supply. There are fewer good horses to buy.

• 31:54Speaker 06

  Right now, our thoroughbred full crop is smaller than it's been in a long time.

• 32:01Stephen J. Dubner?

  Why is the crop smaller?

• 32:02Speaker 06

  Well, there's a lot of reasons to that. If you look at the big 30,000-foot view, the proliferation of simulcasting and people watching racing on TV and gambling on racing on TV as opposed to being there in person has naturally reduced the number of racetracks that you need. So less tracks, you need less horses. On the other side of that, on the breeding end, if you go back, my grandfather was born in the 1890s. So he used horses every day. In fact, he had a business where he would haul supplies back and forth between Frankfurt, Kentucky and Louisville and then some to

• 32:46Speaker 06

  Lexington, his whole business and his whole life was tied to horses, mules, cattle, animals of all types. So obviously, it was very easy for him to get attracted to racing and be fascinated by that and love horses. You fast forward to my father, who was born in 1924, right before the depression, he grew up on that farm, raising horses, working the land, doing those kinds of things, went to World War II, came back and then got into the thoroughbred business. But after he returned, in my dad's class, everybody rode horses to school. I graduated from high school in 1987. Maybe 25% of the people in my class of 200

• 33:29Speaker 06

  would have some familiarity with horses. My son, who graduated four years ago from high school, I bet there was only 10% that have any familiarity with horses. So that's a long answer to why the foal crop is shrinking. I just think that that's faded because of cultural shifts.

• 33:47Stephen J. Dubner?

  One reason that horse racing popularity has fallen off certainly was concern about the animals themselves. Some people just don't like the idea of an animal being raced for our enjoyment. Most people I know who are horse people say that's a crazy concern because a good racehorse loves running, I gather. Please correct me if I'm wrong, but I gather that's a-

• 34:08Speaker 06

  Yes, you're 100% right.

• 34:10Stephen J. Dubner?

  But then there's also a pretty long history of horses being mistreated, or abused, or exploited by trainers, I guess primarily. Talk to me about that. What would you say to someone for whom that's the main objection?

• 34:24Speaker 06

  First of all, I understand and I validate what you're saying because we all love horses and we don't want them to be neglected or abused. I personally believe horses are born to run, not to use the cliche, but we see them when they're born and they come out of their mother and they stand up within 20 minutes and their instinct is to get moving because predators, fight or flight, they want to get going. Horses 24, 48 hours old are out running with their mother. You see the babies actually racing against each other unprompted by humans. It's their gift, right? We're not perfect.

• 35:04Speaker 06

  We still have strides to make, but I think the industry has really rallied behind horse care, horse protection. HISA is the new federal legislation that oversees the safety and medication and testing and those types of things. It's a very polarizing organization, and I don't think it's perfect yet, but I do believe that now we can say we're looking at these horses and making sure that they are sound and able to compete safely. We're limiting crop use in the race. We're certifying the tracks. We're making sure that these surfaces are as safe as they can possibly be.

• 35:45Speaker 06

  Will we ever have a sport that has zero horse fatalities? The answer is no, we won't. But if the horses had a vote and they said, "We can just stop producing horses," or, "We're going to keep producing horses and you're going to participate in this sport," the horses want to participate.

• 36:05Stephen J. Dubner?

  HISA stands for both the Horse Racing Integrity and Safety Act and the Horse Racing Integrity and Safety Authority, which is a private organization founded just five years ago. The fact is, horse racing is already in serious decline. The number of races run at US tracks has fallen by more than half since the late 1980s. I talked about this with Richard Migliore, who, after a long and successful career as a jockey, is now a TV analyst for horse racing.

• 36:33Speaker 15

  Racing is not as popular as it once was. There was a period of time when I was in the prime of my career where it was not uncommon to have 20,000 people at Aqueduct on a weekday. And we would race six days a week. We're down to five days a week during Saratoga, four days a week pretty much the rest of the year. So there's been a decline in number of racing days. A lot of racetracks have closed. I could go through a list of tracks that I rode at that are now defunct.

• 37:02Stephen J. Dubner?

  Name a few.

• 37:03Speaker 15

  Well, Hollywood Park in California, Suffolk Downs in New England, Garden State and Atlantic City in New Jersey. I am just touching the surface here. There's a lot. Now, obviously, technology, they don't have to be at the races to wager. The problem with that is there will be a day when the people that are wagering online, off-site, those people are going to die out, lose interest, move on to something else. And where is the next generation of people that are going to start wagering on racing? I don't think someone's going to magically wake up in the morning and go, hmm, you know, I think I'm going to start betting on horses today online if they've never experienced the event.

• 37:48Speaker 15

  It may not be a problem for 10 years, 20 years, 30 years, but it will be a problem.

• 37:52Stephen J. Dubner?

  But for now, there are some people who wake up every day, ready to bet on horses.

• 37:58Speaker 08

  I mean, horse racing even overall as a sport is like joining a cult.

• 38:03Stephen J. Dubner?

  And that is?

• 38:04Speaker 08

  Marshall Graham, I'm a professor of economics at Rhodes College in Memphis, Tennessee. I'm a horse player, horse owner, horse breeder.

• 38:11Stephen J. Dubner?

  Do you also teach about horse trading and/or racing at the college?

• 38:15Speaker 08

  I do. I teach the economics of racetrack wagering markets. And I've taught the course three times. The last time I taught it in the spring of 2022, I had 75 students, which I think was the biggest course on campus. Rhodes is a small college with about 2,000 students, and I'll teach it again in the spring of 2026.

• 38:34Stephen J. Dubner?

  Describe the median student who takes the course. What are they looking for? What are they hoping to get out of it? Obviously, it's going to jump out in any course catalog as demonstrably different and more interesting than a lot of college courses. But is it the kind of people who are wanting to get into the horse industry, whether on the racing side or some other side? Is it people who are just curious about horses generally? Is it people who want to be better gamblers?

• 38:59Speaker 08

  Well, first of all, there's a lot of interest in gambling, especially with the Supreme Court decision that legalized sports betting. In 2017, when I first taught the course, I was very careful to not focus on betting. I talked a lot about small sample size decision-making instead of betting, and now I feel less concerned about that. Playing horses is very different. I think that- A lot of the students are familiar with sports betting, but horse racing is different and unique enough. And so it allows them to enter a world that most of them know nothing about. Initially, when I taught the course, it's mostly guys. If you look at sports bettors, next weekend is the National Horse Players Championships, and most of them are guys.

• 39:44Stephen J. Dubner?

  Tell me a little bit about the National Horse Players Championship. Will you be there again this year?

• 39:49Speaker 08

  I will be there. I'll be there for the 11th time. It's a tournament that this year is going to have 800 participants. It's in a giant ballroom at the Horseshoe Casino.

• 39:59Stephen J. Dubner?

  In Vegas?

• 39:59Speaker 08

  In Vegas. There's basically every track running. You can play those races. It's a mythical contest, meaning you make mythical $2 win-place bets. A win bet is obviously if your horse wins, your bet wins. A place bet is your horse finishes first or second.

• 40:14Stephen J. Dubner?

  Mythical, meaning it's like a poker championship? You're not playing with real money. You're playing with chips.

• 40:19Speaker 08

  Exactly, exactly. And the payouts are determined by the payouts on the tote board. So you have to pick horses that win races, but you also have to bring in horses that have decent prices as well. You can't just pick all favorites and you can't just pick all long shots. You gotta hit a lot of races. And then the top 10% advance to the final day. I think last year, the winner won $800,000.

• 40:41Stephen J. Dubner?

  How hard is it to qualify? How good do you have to be? How good are you is what I'm really trying to find out.

• 40:47Speaker 08

  Well, I think that if you persist enough, you can qualify. It is, in some ways, a total crapshoot because there's 800 people participating. The whole contest, if you make it all the way through, is like 57 races. Playing 57 races is not exactly like playing 57 hands of poker and determining who's the best. It's not a huge sample. So it's a crapshoot, but you know, it is an opportunity to meet other horse players. And betting on horses is, can be a fairly independent experience.

• 41:16Stephen J. Dubner?

  A little lonely, you mean?

• 41:17Speaker 08

  Yeah, I mean, you're doing it often now from your home, right? Horse players, a lot of them now play online. I'm in Memphis, Tennessee. There's no racetrack. The nearest racetrack to me is three hours away. So I'm playing at home, watching the races on television. I will text my friends, but. All these friends I have met through the N H C. It's in a way a horse players convention. So it brings horse players together and you meet other people with your same obsessive interest. It's not a sport that a lot of people necessarily know about. Horse racing has a great history in the U. S. and it was certainly one of the most popular sports in America up to a certain point. But now not many people know it exists outside of the Triple Crown.

• 41:56Stephen J. Dubner?

  Tell me some things that you love about it. There is language, there is excitement, there is the animals themselves, et cetera, et cetera. But for people who don't know the ecosystem at all, what is it that makes you so enthusiastic? Makes you spend so much time on it, spend money on it, link it with your profession?

• 42:14Speaker 08

  Well, first of all, I think there's nothing more exciting than a race. The pageantry, the competitiveness in races themselves are exciting. As a horse player, I get to spend my, whether it's $2 or whatever I bet, I feel like at least for that a minute and 12 seconds or two minutes or however long it is, I feel like I own that horse. The race itself is exciting. And I remember as a kid watching the Kentucky Derby and, you know, realizing the sport existed. The race itself was so exciting and wanting to learn more. I was a newspaper kid and there were two pages on horse racing. It was numbers and charts. The guy who wrote about horse racing in the Washington Post was a guy named Andy Byer. Byer was the popularizer of speed figures, is a high schooler. I bought his books.

• 42:59Speaker 08

  I was at the age where a lot of boys get into baseball because of all the statistics. I love baseball, but I realized that horse racing was the same. You could bet on horses and be an active participant. I remember when I turned 18, I drove the Pimlico. I still remember the first horse I made a bet on, horse named Quail Rid Swap.

• 43:15Stephen J. Dubner?

  How'd you do?

• 43:16Speaker 08

  Oh, the horse won.

• 43:18Stephen J. Dubner?

  So take a step back again for a second. I'm just trying to put together the pieces of the Marshall Graham constellation because there's professor and there's horse player. And then there's horse buyer and seller as well. How do you describe the totality of the things you do?

• 43:32Speaker 08

  I'm horse player first. On a typical weekend, I'll watch the races and I'll bet the horses. Maybe I'll play in a handicapping tournament. That has led to everything else, right? That has. Opened up research avenues for me as an academic. I got my PhD. I realized at some point I was and written my dissertation on banking regulation, which is ultimately really boring. We have this search engine called Econ Lit, where you can look at all academic articles and realize there was this huge literature that's tangentially related to horse racing. And so with a colleague of mine, we gathered a data set and looked closer at betting markets. And that made my academic career. It's really all back to betting on horses.

• 44:14Speaker 08

  And then as a result of that, eventually got into the claiming game, got into the partnership game, breed racehorses, and that's ultimately sprung out from my interest first as a horse player.

• 44:24Stephen J. Dubner?

  Walk me through those different components from the ROI or financial impact. I know you're an economics professor and presumably that's just a straight up salary. There's no parlay. There's no daily double on your salary, correct? Straight up regular salary?

• 44:39Speaker 08

  Yeah, straight up regular salary.

• 44:40Stephen J. Dubner?

  Okay, then you're a horse player. Tell me if you're willing, you know, how much you might bet in a given year and what your long-term ROI has been.

• 44:49Speaker 08

  So it depends on how you measure things. I've had good years. There was a year in 2020 where I won the Breeders' Cup Betting Championships. That, along with the National Horse Players Championship are probably the two biggest events. In that event, I turned a $7,500 bankroll into $170,000 over the course of two days.

• 45:10Stephen J. Dubner?

  Nicely done.

• 45:11Speaker 08

  And then got an additional 350 grand in prize money for winning the contest. So that was a big score. I've had years that have been very good years as horse player. And I've had others that are struggles.

• 45:24Stephen J. Dubner?

  When you say struggle, you lose money in a given year, yeah?

• 45:27Speaker 08

  Yeah, lose money, right? So there are ups and downs. And I've been driven a little bit more by an outlying big score, right? A big score like that, a half million dollar score is going to make your year.

• 45:37Stephen J. Dubner?

  I assume you pay taxes on the winnings?

• 45:40Speaker 08

  Yes, I'm very diligent about taxes.

• 45:42Stephen J. Dubner?

  For people who don't know much about sports betting or only know about the modern version of legal online sports betting, describe why horse playing may give you an advantage. In who you're actually betting against and why you think that's an advantage.

• 45:58Speaker 08

  Well, when you bet sports, you're betting against the house, right? There's some elements where the house, the bookmaker is able to spread their bets across multiple teams and lower their risk. But ultimately, if you're successful, if you're winning sports player, the book is going to severely limit you or cut you off. As a horse player, the game is pair mutual, meaning that all the house does is collect the money. And then they redistribute the winnings to whoever holds the winning tickets. So everyone makes their bets, the house takes their little cut, call the takeout, and then they distribute the pool to whoever holds winning tickets. If more people hold winning tickets, then the price is lower. The favorite has the most winning tickets on it.

• 46:42Speaker 08

  And then if there are very few winning tickets, the price is higher. The whole system was developed by a Paris perfumer named Pierre Oler. It's a way to protect bookmakers because this is a system where the takeout is fixed. And so bookmakers can't lose, the house can't lose. All the house is concerned with is that there are people betting their product. So they want to do more to encourage people betting their product. The house doesn't care if you win or lose. And so in that environment, you're really facing other horse players, other casual players, people who just might be betting the jockey or the color of the horse, you're betting other professionals. Now more than ever, you're betting other computer teams. Horse racing has always been legal.

• 47:25Speaker 08

  There was this sort of national religious movement that led to prohibition that also led to eliminating a lot of racetracks in the early 1900s. Then with the Great Depression, horse racing made a comeback as a way to help governments fund themselves. Racing then arose as really legalized monopolies for gambling. The only place to go bet outside of Las Vegas was to go to the racetrack. Racing had its heydays between the 1930s and the 1970s. If you look at, for example, 1968, which I think is maybe the high point of racing. It's right before simulcasting. In 1968, you had the Bet On Track, Aqueduct, which is the racetrack in New York. It's in Queens and had 139 days of racing. In its average attendance was 30,000 people.

• 48:10Speaker 08

  It outdrew the Mets, the Rangers, the Yankees and Knicks that year.

• 48:14Stephen J. Dubner?

  So how far has it fallen from the peak?

• 48:17Speaker 08

  Well, it's been dramatic. I think the peak in terms of handle, how much is bet on horse racing was 2002, 2003, and that was about $15 billion a year. Now it's fallen to $11 billion a year. So it's down 57% inflation adjusted from its 2002 peak.

• 48:35Stephen J. Dubner?

  Coming up after the break, a surprising subsidy that is keeping some racetracks alive. I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back.

• 48:54Stephen J. Dubner?

  Here's something you might want to know about thoroughbred racehorses. Even though they are getting more and more expensive, they aren't getting any faster. There are also fewer races for them to run in. And while there's still a lot of money bet on horse racing, $11 billion a year in the U.S., that number has been falling significantly over the past couple of decades, as The Economist Marshall Graham was telling us before the break. The problem, Graham says, is that horse racing used to have something close to a monopoly on legal gambling.

• 49:24Speaker 08

  The erosion started to occur as more and more gambling became legal. Initially, there was the New Hampshire Lottery in 1964. New York started off-track betting, which initially helped the racetracks in 1971, but ultimately led to fewer and fewer people going. Atlantic City came in 1978. Then you had the proliferation of casino gambling in most states. The Wire Act in 1961 really clamped down on sports betting, but it was amended in 1978 to exempt interstate paramutual wagering. So that allowed for the advent of what's called full-card simulcasting, where a racetrack like Churchill Downs could take its race signal and broadcast it to anybody.

• 50:07Speaker 08

  So first they would broadcast to other tracks and then to OTBs and now online. And so by the 1990s, you could have an online account and bet horse racing. You couldn't bet sports online until the last five years.

• 50:20Stephen J. Dubner?

  Right. And now, as we all know, in many places, there is legal gambling on just about any sport, and there is a lot less money being bet on horses. On the other hand, because it's a paramutual system, you're not betting against the house, you're betting against other horse players. And if you're a sophisticated horse player, which you are, and especially if you're a computer-assisted horse better, then even though the overall money involved is much less, I would think that the better, more sophisticated players have even more leverage than they used to, and therefore it would be an even more profitable business for them than it used to be.

• 50:58Speaker 08

  I would say part of that is true. Because of access and technology, if you have an edge, it's easier to exploit. Whereas in the past, if I liked a raced horse, I had to drive to the racetrack. Now it's easy to bet online and you can wake up in the morning and bet races from South Africa and the UK. You can bet races all day in the US and then at night you can bet races simulcast from Australia and Hong Kong. The downside of it is the casual players disappearing from the market. They're drawn to sports betting. They're drawn to slot machines. So it's become shark against shark and it's become more and more monopolized by computer players. That's not only for racing, and if you're betting sports, you're certainly going up against people who are involved in computer modeling.

• 51:41Stephen J. Dubner?

  Or the stock market.

• 51:42Speaker 08

  The stock market, right. It's exactly right. Now, it's a little bit different in racing though, because the market is peer mutual. The effect that computer teams have on the wagering market is that they certainly change prices, but they can change prices that you think you're going to get based upon.

• 52:00Stephen J. Dubner?

  Because of last click betting, you mean?

• 52:02Speaker 08

  Because of last click betting, and I think that's the important thing. When the system was developed, it was developed when everyone was betting on track.

• 52:09Stephen J. Dubner?

  If you're at the back of the line, you know you're not going to get to the window.

• 52:12Speaker 08

  Yeah, you know you're not going to get shut out. And so it was impractical for someone to try to arbitrage prices. In its very simplest form, what they're doing is some form of arbitrage. They're in part using their models, but not only are they using their models, they're also using public information. The early computer modelers, a guy named Bill Benner, probably the most famous one, based upon his Hong Kong modeling, realized that the public was the most important piece of information. The public is very smart and collectively they do a very good job at establishing the price. The computer models not only use standard handicapping models based upon historical data, they will also input the odds themselves. And then from that, they'll make decisions

• 52:57Speaker 08

  or build probabilities based upon how they perceive a race is going to go and then bet those probabilities against the odds to basically arb away price differences. And that leads to dramatic price shifts at the end of betting. So you can see a horse go from, you know, eight to one to five to two in the last couple clicks. That's really what's changed the game, especially in the last five years.

• 53:20Stephen J. Dubner?

  And if I'm a horse player that's behind driving down those odds from the eight to one to five to two, what am I doing like 15 minutes before the last click? Am I trying to manipulate the price then to get more money flowing my way once I make those last click bets?

• 53:37Speaker 08

  I mean, there would be people who would argue that would be true, that the teams may faint, right? And that they may inflate the price of horses they'd like to bet and then come back the other way and willingly lose that money because they can't cancel their bets and then bet more heavily on the ones that they like at the last click in the last flash. But there's no hard evidence of that.

• 53:56Stephen J. Dubner?

  Okay, one last question and a big one. Considering all the ground we've covered, what do you see as the future of the horse racing industry, at least in the US?

• 54:06Speaker 08

  I think the future is discouraging. Racing has had decades where they have been the legal monopoly. I don't think they've adjusted well to the competition they've been facing. And so it's a game that is still priced probably inappropriately, right? The takeout that we've talked about is still for a retail player between 18 and 30%, whereas for a sports bet, it is a lot cheaper. Changing the prices are difficult for the racetracks. They have to go through regulatory boards. And unfortunately, the racetracks and the industry themselves spend as much time lobbying politicians as they do worrying about their fan base.

• 54:45Stephen J. Dubner?

  And what is the horse racing lobby trying to accomplish? Well, it's a pretty long list. More race days, a better revenue split, maybe some tax incentives to maintain their historic facilities. And there's one other big area where the racing lobby has had success. Getting states to give them a share of the proceeds from all the new online sports betting, all that DraftKings and FanDuel money. That's right. In some states, your NFL and NBA bets are helping to prop up the fading horse racing industry. And we came across one more potential bright spot for racing.

• 55:23Speaker 09

  You know, that's the business model now is the racino.

• 55:26Stephen J. Dubner?

  That is Thomas Lambert, an economist at the University of Louisville. And what is a racino?

• 55:32Speaker 09

  You've got track facilities next to a casino, or here in Kentucky, not a full blown casino, but just all the machines. That is a major source of revenue for those tracks in states which have HHR, historical horse racing machines.

• 55:48Stephen J. Dubner?

  And what's a historical horse racing machine?

• 55:51Speaker 09

  For all practical purposes, you can call them slot machines or electronic gaming devices, except that they're slightly different. The results are based upon historical records, data of win, play, show records of horse races going all the way back to 1990.

• 56:08Stephen J. Dubner?

  So rather than betting on a live horse, you place your bet in a video slot machine that reruns a race from the past, a real race, but you're not given enough details about the horse or jockey or track to look up the race and cheat.

• 56:22Speaker 09

  We have several tracks throughout the state which have racing going on when it's the season. And then the rest of the year, you have people using these HHR machines. That's where the money is right now. And the money from that is used by a lot of these tracks to supplement their purses for when the races are in session.

• 56:44Stephen J. Dubner?

  Historical horse racing machines in Kentucky take in much more money these days than live race betting. So how does Thomas Lambert think about the future of horse racing?

• 56:55Speaker 09

  Over the long term, I guess the key question is if they are making so much money from the casino side of the operations, then why not expand the casino operations and let horse racing go? Now, there are exceptions. You have the premier racetracks Churchill Downs, Belmont, Pimlico, and then of course you have these very important, large, well-known races in the Breeders' Cup, et cetera. I think those will continue. They're very popular. They attract large crowds, even though the general rule is that attendance is falling. So we'll have the premier races and the premier tracks continuing.

• 57:40Speaker 09

  What happens to the lower tier tracks is another question, at least in my mind.

• 57:47Stephen J. Dubner?

  My thanks to Thomas Lambert and to the many other people who helped us learn about the horse industry and horse history and just horses over these past few episodes. There is a lot to learn and I came in knowing very little. Also, if I'm being honest, with a tiny bit of anti-horse bias. Like I said earlier, even though I grew up in the countryside, I spent very little time with horses and I felt they were a little too big and scary. Then when I moved to New York City years ago, I had a girlfriend who grew up riding horses. So for her birthday, I arranged for her to ride a horse through Central Park on the Bridle Path. There used to be a stable on the Upper West Side. So we went to the stable, she got on the horse and we headed over towards the park

• 58:32Stephen J. Dubner?

  on a cross street, her on the horse, me on foot. Then we got to Central Park West, the horse bolted straight down Central Park West. Cars are slamming on their brakes, bicyclists and pedestrians are jumping out of the way. My girlfriend is hanging on with everything she had. I guess the horse just wanted to get back to the stable. To this day, I am amazed that no one was hurt. But yeah, that was enough horse adventure for me until now. I loved making the series. I loved learning about the economics of the horse industry and the science and the soul of it. There are so many people with so many different reasons for loving horses.

• 59:14Stephen J. Dubner?

  I will probably never become a horse person myself, but I see you horse people. I'd like to offer special thanks to Constance Hunter, one of the many horse-loving economists we spoke with for this series. If I had not had the good fortune to sit next to Constance at an economics conference, this series wouldn't have happened. Constance also told me about a horse charity she is involved in called Gallup NYC. It offers therapeutic riding to disabled New Yorkers. It's really nice to see that over a century since horses were displaced as a technology for transportation and manufacturing, that people are still finding new uses for them. I'd love to hear what you think about horses. Our email is

• 59:58Stephen J. Dubner?

  [email protected]. We will be back next week with a new episode. Until then, take care of yourself and if you can, someone else do. Freakonomics Radio is produced by Stitcher and Renbud Radio. You can find our entire archive on any podcast app, also at freakonomics.com, where we publish transcripts and show notes. This episode and this whole series was produced with great skill by Augusta Chapman and edited by Ellen Frankman. It was mixed by Eleanor Osborne with help from Jeremy Johnston. Special thanks to Nick Nevis for field recording in Kentucky, to Emily Plant for all her help at Keeneland. Also thanks to the Keeneland team itself and to everyone in Kentucky who gave us their time

• 1:00:41Stephen J. Dubner?

  and their insights. The Freakonomics Radio Network staff also includes Alina Coleman, Dalvin Abouaji, Elsa Hernandez, Gabriel Roth, Greg Rippon, Jasmine Klinger, Morgan Levy, Sarah Lilly, Teo Jacobs, and Zach Lipinski. Our theme song is "Mr. Fortune" by The Hitchhikers, and our composer is Luis Guerra. As always, thanks for listening.

• 1:01:02Speaker 11

  There are definitely people who claim to be horse psychics.

• 1:01:07Stephen J. Dubner?

  Would you apply the word empirical to them?

• 1:01:09Speaker 11

  Ah, wow. I feel like I'm gonna make a lot of my friends mad that use animal communicators.

• 1:01:15Stephen J. Dubner?

  If a friend like that gets mad, then they're not really a friend.

• 1:01:23Speaker 10

  The Freakonomics Radio Network. The Hidden Side of Everything.

• 1:01:30Speaker 11

  Stitcher.