Different Country, Different Millennium, Different Technology: Same Subsidy, Same Result?
32 Pages Posted: 22 Jun 2007
Date Written: February 9, 2007
The total volume of wagering at a racetrack worldwide is important because it affects both racetrack and state (or provincial) revenues. State and provincial governments worldwide have subsidized racing in different ways, chiefly by means of the sire stakes, in which the government supports the industry by contributing to prize money for horses bred or foaled within the state's jurisdiction. Previous research has shown that this subsidy has little or no influence on the volume of wagering and that it amounts to a direct transfer from taxpayers to the breeding industry. Since the time of that research, though, the industry has undergone wrenching changes. Technology has permitted wagering online and offshore, racetracks transmit their races to other locations for betting purposes, and government restrictions on other forms of gambling have been relaxed, thereby increasing competition for the gamblers' business.
Does the subsidy increase the volume of wagering more effectively today, or do the underlying economic principals continue to hold?
The answer is that despite changes through time, location and technology, the economic result is the same. Using a proprietary database from a racetrack located outside the United States, I find that the state's subsidy to prizes has, if anything, a small negative effect on the total amount wagered, at least on the day the subsidized race occurs. I rule out that this traces to adverse information problems inherent in races for younger horses, which are the only type of race that is subsidized. I suggest some alternative ways that the state might justify the subsidy.
Keywords: subsidy racing gambling
JEL Classification: D21, D89, G28, H20, H71, L83
Suggested Citation: Suggested Citation