How many tracks and how many races does the U.S. Thoroughbred industry really need to satisfy shrinking demand for Thoroughbred racing? That's a question racing's decision makers ask behind closed doors, but choose not to ask in public.Consider the state of Thoroughbred racing in metro New York before the closure of Aqueduct and the shrinking of Belmont Park: two aging, underutilized facilities from another era with excess capacity, facing high fixed costs to operate and maintain obsolete facilities that serve the same shrinking market.Aqueduct's closure enables Belmont's rebirth, just as in Maryland, where the closure of Laurel Park will enable the rebirth of Pimlico. Economist Joseph Schumpeter called that creative destruction. Painful but necessary.Racing is still adjusting to the structural shift that began in 1978 with passage of the Interstate Horseracing Act. Simulcasting and interstate off-track wagering allowed tracks to reach a much larger potential pool of customers. Allowing bettors access to more options meant tracks had to compete with one another for their attention.Last year, wagering by live attendees at U.S. tracks generated only six cents of every dollar in handle that tracks took in. Off-track wagering sources provided 94%. When struggling tracks compete for a shrinking audience, the outcome is weak betting pools, weak purses, weak fields, and little investment to improve or market the race-day experience for tomorrow's customers. The product and profitability suffer.In 2003, when all-sources handle at U.S. tracks reached its peak, tracks collectively had $15 dollars in handle coming in for every dollar in purses going out. Last year, that ratio was 8.6 to 1. The handle-to-purse ratio, a key metric of a track's viability, has been cut in half.To get track operators' handle-to-purse ratio back to the healthier level where it was, wagering on U.S. Thoroughbred tracks would have to grow from $11 billion last year to more than $19 billion. Or, conversely, if total wagering at Thoroughbred tracks in the U.S. remained flat at $11 billion, then total purses in the U.S. would have to drop from $1.3 billion last year by 43% to get back to a handle-to-purse ratio of 15:1. The first scenario is unrealistic. The second scenario is undesirable. So, without intervention to correct the imbalance, racing continues to contract.Racing fans are frustrated by an industry that has done little collectively to grow the fan base for the sport. Instead, racing's board members speak in measured tones about how the industry is undergoing “contraction”–as if contraction is the ideal solution for what ails the business.It's not hard to understand why. Increasing customer demand for racing's excess capacity is much harder to pull off. It takes vision. It takes imagination and creativity. Most of all, it requires money and serious investment in marketing. All with no guarantee that any of it will pay off.To rationalize race dates and avoid cannibalizing each other's fields and handle, Maryland coordinates its summer schedule with Virginia. How many tracks are willing to give up something to a competitor to get something in return? How many legislatures and racing commissions would keep casino licenses and racing licenses intact at tracks if they were to reduce their race dates while keeping purse funding intact? Purses per race would go up. How many horsemen's groups would go along with fewer race dates for larger purses?Letting weak tracks disappear through attrition is the path of least resistance, requiring no effort or money at all. So, racing's entities with the most resources have little financial incentive to solve the problem of excess capacity as they wait patiently to be among the last standing when the dust clears, expecting that another place's loss will be their gain in the long run.The two exceptions are in South Florida and Southern California, jurisdictions which the industry considers too important to lose.In the 1950's, Canada's legendary horseman E. P. Taylor looked at racing in Ontario and it looked a lot like Ontario's brewing industry in the 1930s: too many breweries chasing the same finite market of customers. Taylor did for racing there what he did for brewing a generation before, he consolidated 14 underperforming boutique meets across the province into two tracks: Woodbine, in Toronto, and Fort Erie, near Buffalo. He reimagined racing for Ontario and reshaped it by the force of will. Seventy years later, Ontario is one of the most vital half dozen jurisdictions for racing in North America.Which tracks or jurisdictions must die for others to survive is not a conversation industry leaders want to initiate. The answer points to a future where a niche sport becomes even more boutique and exclusive. Horsemen for whom money is no object will survive the reckoning, as will low-end players where the costs to stay in the game are small. But the midmarket–racing's bread and butter–would be diminished.In Boston, where I live, players at struggling Suffolk Downs shed no tears when live racing ended across the New Hampshire border at Rockingham Park in 2009. Competitors in Massachusetts naively cheered Rockingham's demise, unaware that losing it weakened racing's ecosystem in New England. Suffolk Downs became an island outpost and went underwater a decade later after the track failed to win a state casino license that would have kept it afloat.New England's loss meant its wagering dollars flowed to tracks in other locales. Fans who wanted to see live racing drove 3.5 hours to Saratoga Springs or Long Island. The benefits of that contraction for the industry are short-lived, however, because Boston–a sports-mad town if there ever was one–has no live racing to introduce new fans to the sport.The Stronach Group's closure of Golden Gate Fields in the Bay Area of Northern California two years ago may have consolidated more starters and handle at The Stronach Group's Santa Anita Park. But contraction of California's ecosystem has made the state more of an island, and Santa Anita struggles to fill fields for stakes races.Related to all of this is the fact that the American Graded Stakes Committee of the Thoroughbred Owners and Breeders Association has yet to rationalize the number of graded stakes races in the U.S. for the contraction in the number of starters over time.Wagering at U.S. tracks has decreased by 42% since 2003 on an inflation-adjusted basis. Over the same period, the number of races held in a year has decreased by 45%. Even after that much contraction in races held, tracks in the U.S. generated roughly 25% less handle per race last year ($375,000) than in 2003 ($496,000, adjusted for inflation).Contraction of racing's customer base is a vicious cycle that hurts track operators and horsemen nationwide. Without a collective effort to grow demand for the sport's product or rationalize excess capacity to optimize results, these trends point to a future of shrinking fields, smaller betting pools, and stagnant purses, where rewards for midmarket horsemen at midmarket tracks are too low to sustain the game economically. Carter Wilkie, a lifelong fan of Thoroughbred racing who witnessed Secretariat win the Preakness at Pimlico at age five, is a second-generation racehorse ownership group partner who travels frequently to tracks in the U.S. and Canada. A former White House speechwriter and author, he has been a communications advisor to CEOs of Fortune 500 companies for more than 25 years.The post Racing’s Excess Capacity Problem: Too Many Races, Too Many Tracks appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.