Churchill Downs SWOT Analysis: Racing Industry Challenges

Introduction: The Uncertain Future of Churchill Downs

"And they're off!" Although thoroughbred racing is a worldwide industry, perhaps no race is more famous than the Kentucky Derby. The Kentucky Derby is held at Churchill Downs, a name synonymous with American racing. "Churchill Downs racetrack remains the flagship operation of Churchill Downs Incorporated, and recently underwent the most significant series of ambitious and comprehensive renovations in the history of the track" (History of Churchill Downs, 2001, Churchill Downs). However, despite Churchill Downs' recent makeover, its future and solvency remain in doubt, as does the financial and cultural future of the American horse racing industry as a whole.

The gaming industry has been transformed by the Internet. Online wagering makes betting on a variety of sports venues easier than ever before. There are also options to play online poker, blackjack, slots, and other games of skill and chance. Unlike horse racing, maintaining such sites requires virtually no overhead or operational costs. Horses are very expensive to keep — there is a reason the sport is often called the "Sport of Kings." Feeding and training a horse is costly, as is employing a talented jockey. And even then, a racehorse's fragile health could break down instantaneously, ruining a potential investment. Of course, racing's entertainment value is a substantial draw for many spectators; unlike other forms of wagering, racing is also a live spectacle.

But the next generation of bettors has been turning away from the track. A lack of a Triple Crown winner, combined with the global recession, exacerbated the downturn in "an industry clearly in decline for the past decade," since the explosion of the Internet onto the racing scene (Grassi, 2010). Consumers are simply less willing to part with discretionary income to bet, and horse racing enthusiasts are aging — older individuals' pension funds were particularly hard-hit by the recession. In the United States, to keep a younger generation interested in racing, many states are subsidizing "their tracks and racing bonuses with slot machines, video lottery terminals or video poker machines at track racinos [race tracks with built-in casinos]" (Grassi, 2010).

Strengths: Brand Legacy and the Kentucky Derby

Horse racing has always been a major industry in Kentucky, even before the establishment of America as an independent nation. Churchill Downs is more than a hundred years old. While traveling in England and France in 1872–1873, 26-year-old Kentuckian Colonel M. Lewis Clark marveled at elite European racetracks and decided to create a similar venue in the United States for the finest members of Kentucky aristocracy and their horses. He "devised the idea of a Louisville Jockey Club for conducting race meets" (History of Churchill Downs, 2001, Churchill Downs). However, despite its elegance, financial problems dogged the track from the beginning. "At the turn of the century, financial problems plagued the racetrack…the track finally showed its first profit in 1903, 28 years after its founding" (History of Churchill Downs, 2001, Churchill Downs).

Over the course of the 20th century, the track began to show considerable profit, aided by the advent of luxury seating, computerized betting, and televised races. Movie stars flocked to the racetrack, and even people with little interest in horse racing followed — and bet on — the Derby (History of Churchill Downs, 2001, Churchill Downs). The Kentucky Derby is thus a brand name in horse racing, inexorably linked with Churchill Downs, and a coveted prize for owners and trainers alike. In a comparison of stud fees, all other aspects of a horse's record and pedigree being equal, the fee of a Kentucky Derby winner would exceed that of a non-winner by $8,843.31 (Stowe, 2010).

Weaknesses: Declining Audiences and Competitive Pressures

The Kentucky Horse Racing Commission recently "approved new proposed regulations that would allow wagering on historical horse races, called 'Instant Racing,' at licensed Kentucky horse racing tracks," which would allow bettors to wager on past races regardless of location at venues such as Churchill Downs and encourage more betting activity (Grassi, 2010). However, despite its attempt to expand and democratize its atmosphere, Churchill Downs has historically capitalized on its image of exclusivity — not simply its ability to generate revenue from bets.

Bettors are turning away to the Internet and to casinos as means of making a profit. It is unclear whether horse racing as a whole can survive the availability of 24-hour betting provided by the Internet, particularly at venues like Churchill Downs that promote the "experience" of racing as well as the opportunity for wagering. For individuals focused solely on betting, many more lucrative options exist beyond racing.

Allegations of illegal drug tampering with horses' performance have also soured many bettors on the racing industry. As one columnist for the New York Times wrote: "The horse racing industry is dying because people like me are its biggest fans…the problem for the racing industry is that I am now 65 and have become a $2 bettor. It can't make money on people like me, and it can't sell my demographic to advertisers…'If you bet on horse races, I would call you an idiot'…Which of us studying the Daily Racing Form is privy to the magic piece of unpublished betting information? That would be: which horse got the cobra venom/milkshake/thing-with-no-name this morning" (Meagher, 2010). While fixing sports events is hardly confined to racing, the difficulty of predicting a horse's performance due to unfair tampering has diverted wagers to more predictable gambling venues and hurt the profits of a sporting industry uniquely dependent upon betting.

Conclusion

Churchill Downs must honor the legacy of its treasured past and promote prominent ethical spokespersons for the sport, such as multiple Kentucky Derby–winning jockey Calvin Borel. More stringent standards must be imposed industry-wide regarding the treatment of both horses and jockeys, but until then, Churchill Downs must lead the way in ensuring that existing guidelines are rigorously enforced. In terms of profit-making, horse racing can never fully compete with Internet wagering, but as a compelling spectacle and entertainment experience it can continue to draw crowds — provided it honors the concerns of its true fans.