Video: Jockeying for roses, money and fame

By Melissa Francis Reporter
CNBC
updated 5/1/2009 4:36:46 PM ET 2009-05-01T20:36:46

It is America’s longest-running sporting event, the centerpiece of a multi-billion-dollar industry.

But as a crowd of 150,000 gathers Saturday at Churchill Downs in Louisville, Ky. for this year’s “Run for the Roses,” the sport of horseracing faces some of the biggest financial and economic challenges in the Kentucky Derby's 135-year history.

Often called the “most exciting two minutes in sports,” the event is also expected to draw some 14 million television viewers to cheer on 20 of the fastest three-year old thoroughbreds as they hit the racetrack.

Horseracing is one of America’s oldest and favorite past times. What started years ago as a small race in a small town, has become one of the most famous horse races in the country.

But a tough economy and increased competition from online gambling sites and casinos has forced changes on the industry. In March 2009, racing giant Magna Entertainment Corporation, filed for bankruptcy protection with plans to sell some of its tracks, including Pimlico, host of the Preakness Stakes. To attract more business, Churchill Downs is experimenting with night races for the first time.

The Derby is Churchill Downs’ biggest moneymaker by far. On most days, live business at the racetrack is at a steady decline. With the exception of days like Derby Day there just aren't that many people at the racetrack anymore.

"So we have these huge coliseums like Church Hill Downs or Hollywood Park or Belmont Park where there might on a weekday only be 2,000 or 3,000 people rattling around a place built for 50,000,” said Steve Crist, publisher and a columnist for Daily Racing Form.

Despite the decline in everyday traffic, the Derby and remains an American sports icon and a major draws for the gambling revenues that fuel the multi-billion dollar horseracing industry. More than $100 million worth of bets are placed each year on the Kentucky Derby alone.

Though racetrack attendance is down overall, tickets to the Kentucky Derby are still some of the toughest tickets to come by. Grandstand and bleacher tickets go for $40 to $200 and sell out within weeks of going on sale. There are also the coveted seats in what’s known as ‘Millionaires Row’, where prices start at $1,000 for a two-day package.

The derby is marketed not only as a famous horse race, but also as “an experience.” Mike Iavarone, co-owner of 2008 winner, Big Brown, says the feeling of winning the Derby “is unexplainable. It is like going to the Super Bowl, winning it and hoisting the trophy over your head.”

It’s also a winning experience for the local economy. In 1956, author John Steinbeck wrote that during Derby week, Louisville is the capital of the world, and for many that still rings true today.

The revenue generated during Derby weekend pumps more than $75 million into Louisville’s economy. That economic boost does not go unnoticed by Louisville-based Yum brands, the parent company of well-known restaurants like Pizza Hut, KFC, and Taco Bell. In 2006, Yum signed on to sponsor the Derby.

"I don’t think that the Yum Brands is going to sell one more piece of chicken because they’re involved with the Kentucky Derby,” said Michael Trager, a television sports consultant. “But what it does do is it – it establishes a relationship between the brand and a major event that’s also nationally televised.

For breeders, raising a Kentucky Derby winner is a bet with the longest odds in sport. Nearly 40,000 thoroughbreds are born in the United States each year. Of those approximately 23,000 will become racehorses, and of those only about 20 will make it to the Kentucky Derby. At their peak, these horses can run up to 40 mph.

"The thoroughbred business is all about dreams,” said Anne Peters at Three Chimneys Farm, a commercial breeding farm in central Kentucky. “Everybody's hoping to breed the next great race horse so every foal that hits the ground could be the one. This could be the one that wins the Kentucky Derby."

When the bet pays off, breeding a derby winner brings prestige - and lots of money.

“If you have a horse that wins the Kentucky Derby, the value of that racehorse exceeds your wildest imagination,” said Iavarone.

A horse that wins the Kentucky Derby can earn millions as its second career as a stallion, because horse owners are willing to pay hundreds of thousands of dollars for the chance to have their mares mate with a derby winner. These horses are expected to mate with up to 100 to 120 mares each year for the next twenty years following their win.

“For most American breeders, breeding a Kentucky Derby winner is the ultimate goal,” said Peters.

But the long-term pay-off – the increase of a Derby winner’s market value - comes with no guarantees plays a major. In 2004, with the economy strong, Kentucky Derby and Preakness Stakes winner Smarty Jones earned stud fees of $100,000. By 2008, Kentucky Derby and Preakness Stakes winner Big Brown's stud fee was assessed at just $65,000.

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