• After decades of declining interest, horse racing could be poised for resurgence.
• A boom in gambling makes for bigger purses and attracts higher quality horses.
• Investments in facilities and innovations in races could entice new generations of fans.

America's oldest horse racetrack is closing after running its last race on the final weekend of 2024. 

Freehold Raceway in New Jersey, co-owned by Penn Entertainment, tried for decades to land a casino but failed. Like many tracks around the nation, it grappled with declining attendance and revenue. It had been operating for more than 170 years.

"Unfortunately, the operations of the racetrack cannot continue under existing conditions, and we do not see a plausible way forward," said Howard Bruno, the racetrack's general manager, in a news release announcing the closure.

But industry insiders, investors and other enthusiasts believe horse racing in the United States could be poised for a resurgence — fueled by new investor interest, innovations in the sport and a boom in legalized online sports gambling. 

In 2023, the sport added more than $36 billion to the U.S. economy, supporting nearly half a million jobs, according to the American Horse Council. 

Horse-racing revenue comes from a variety of sources: tickets, hospitality, merchandise purchases at the track, licensing for TV or simulcast, sponsorships and gambling.  

Reliable estimates of global horse-racing revenues are hard to come by, experts say, in part because of the private nature of ownership and in part because of the wide variety of metrics used. Revenue estimates range from $44 billion to nearly 10 times that.

Multiple sources agree the sport could see compound annual growth of roughly 9% in the years ahead.

Growth in gambling

No catalyst for the sport's growth is more crucial at the moment than the revenue that comes from gambling. 

The handle, or the amount of money wagered on horse races, funds the purses, or the prize money, awarded to winning horses. So does the casino-style gambling at facilities associated with race tracks.

For example, Resorts World New York City, which operates video lottery terminals, is contractually obligated to turn over 12% of its net win to the New York Racing Authority, or NYRA. Patrick McKenna, NYRA's vice president for communications, said that currently amounts to about $120 million annually. Of that total, $60 million goes toward purses, $40 million goes to capital improvements, and $20 million funds operations.

When the size of the purse grows it attracts higher quality horses, and higher quality horses attract more interest in the sport.   

In 2022, $12 billion was wagered on horse races, marking a new record, according to an analysis by the New York Thoroughbred Horsemen's Association, or NYTHA. The total purse money awarded that year also set a new record, at $1.25 billion.  

Growth in sportsbooks as well as the increased access Americans now have to legalized, online sports wagering is fueling optimism for horse racing's resurgence. New ways to bet on horse racing means a new generation of sports enthusiasts is getting exposure to the sport. 

FanDuel, the nation's leading sportsbook by market share, partnered with the Kentucky Derby for a second year in 2024. The company told CNBC that the volume of bets on Derby day hit the same level as Super Bowl gambling in the same year.

Crown jewel

The Kentucky Derby is the crown jewel of Churchill Downs — the most significant pure-play, publicly traded company focused on horse racing. 

The company announced a significant increase in adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — during Derby Week in 2024, with critical sponsorships from companies that wanted to align themselves with the prestige event.

The company says record wagering numbers suggest the betting audience is not only growing but becoming increasingly engaged as they learn the sport, especially on the mobile platforms favored by a younger demographic.

"Our operational strategies present a model for other racing events to follow. Overall, the Kentucky Derby is not just a standalone event but a blueprint for the future of horse racing," said CEO Bill Carstanjen.

Hall of Fame horse trainer Bob Baffert said the Kentucky Derby is special because it's a bucket-list race: "It's an Instagram moment for everybody. Everybody goes. They're taking their selfies: 'I'm here. I'm here at the biggest party.'"

But the high-profile Triple Crown races and the Breeders Cup may be outliers — a kind of World Series in the horse-racing schedule that otherwise is filled with everyday competitions that draw only a smattering of fans. 

Interest in more ordinary races has been waning for decades.

The amount of money wagered on pari-mutuel racing — where bettors gamble against other bettors and the odds constantly change ahead of the race — has declined by about 55% since 2000, when adjusted for inflation, according to the Paulick Report, a website about the horse-racing industry. 

Also, over the past two decades the number of owners, horses and trainers in the U.S. has plummeted, according to the NYTHA researchers. They concluded that in 2022 horse racing had "on most days been reduced to a niche market, albeit with a highly interested core audience." 

Baffert told CNBC he believes horse racing needs more high-profile events with big purses to drum up buzz. And, like baseball, it needs superstars to draw in weekday audiences. 

Baffert, who is only the second trainer ever to have two Triple Crown winners, may be horse racing's best-known character. But controversy in recent years has overshadowed his success.

Baffert was suspended for three years from competing at Churchill Downs after a horse he'd trained, Medina Spirit, won the Kentucky Derby in 2021 but tested positive for an anti-inflammatory drug that's not allowed on race days — and was disqualified.

This summer, Churchill Downs lifted its suspension of Baffert after he publicly took responsibility for the failed drug test.  

Baffert returned to the storied racetrack the day before Thanksgiving, with a 2-year-old horse named Barnes that had never raced before but had fetched an impressive $3.2 million at an auction in Saratoga, New York, from now-owner Zedan Racing Stables.

The median price to purchase a race horse is about $30,000, according to BloodHorse, a publication for owners and breeders that tracks sales and the state of the market.

Barnes won by a nose in his debut.  

Wall Street funds

Some well-known Wall Street names have earned a reputation for spotting — or creating — opportunities in horse racing.

Danny Moses, a trader made famous in "The Big Short," is a sport enthusiast, avid gambler and investor in race horses. And though he's known for his short calls, he said he's long on horses.

"I think the value of horses are going to go up," Moses said, pointing to the bigger payouts and purses brought in by the boom in legalized online sports gambling.

Moses is one of 14 in an elite group of investors in Starlight Racing, which currently owns 26 race horses. It's headed by former hedge funder Jack Wolf, and it produced 2018 Triple Crown winner Justify and 2020 Derby and Breeders Cup winner Authentic, both trained by Baffert.

Over a little more than two decades, Starlight-owned horses have finished in the money more than 50% of the time, raking in more than $64 million in total purse money. 

Wolf said his experience in hedge funds helped him to establish an innovative model to invest in horses, where all partners share in the potential upside for a group of horses. He said investors need to factor in the experience and the enjoyment of the sport into their expectations for return on investment.

"We've been around the world with our partnership. That's what they're investing in," Wolf said. As far as concrete financial returns go, he said, "We've been successful some years, and some years we haven't been. It's a very tough business, a very tough way to make a return on your money, but it can be done."

Wolf is now looking at the races themselves. In 2017 he was CEO of the Pegasus World Cup at Gulfstream Park in Florida. The race set a new model: Owners paid $1 million each for a spot in the race, which they could use, sell or lease.

The race's $12 million purse was the richest in the world. 

Though the Pegasus has reverted to a traditional race model since then, Australia has embraced the "gate race" or "slot race" structure, with some of the highest purses globally.   

And Moses is lobbying for more U.S. races to follow the unusual model, pitching racetracks such as Monmouth, Santa Anita and others.

Ramping up regulation

There remains a thorny problem for the U.S. horse-racing industry: It's long been seen as the Wild West as far as regulations and oversight of horse welfare are concerned, according to Lisa Lazarus, CEO of the Horseracing Integrity and Safety Authority, or HISA. The organization was established by the Federal Trade Commission to oversee the integrity of horse racing across state lines and in different racing facilities. 

Investors don't want their money attached to potential rules or ethics issues, Lazarus told CNBC.  

"By prioritizing consistent and transparent practices, HISA aims to reassure fans and the public that horse racing operates with integrity and safety at its core," Lazarus told CNBC. "This commitment not only fosters trust but also creates an environment where innovation can thrive, attracting new owners, participants, and fans."

But powerhouse operators Churchill Downs and the New York Racing Association, or NYRA, are suing HISA over fees.  

In a statement to CNBC, NYRA insisted it's broadly supportive of HISA's mission but is protesting "unlawful, excessive and disproportionate financial assessments."

Lazarus said that in the end, HISA's oversight and regulation will fuel more investment — similar to that of sports gambling or cryptocurrency — because the rules and legality are clearer. 

In 2020, racing horse deaths in the U.S. amounted to 1.41 per 1,000 race starts, according to HISA, which launched a track safety program in July 2022. After the agency standardized doping regulations and enforcement, horse deaths fell to an estimated 0.9 per 1,000 race starts in 2024.

It was the first time the U.S. has achieved anything below 1 in the metric and puts it on par with death rates in the United Kingdom, Japan and Australia, according to Lazarus.

Owners and trainers hope that will assuage concerns by lawmakers and regulators and discourage the kind of backlash that would hinder growth of the sport. 

New age of racing

Even if the sport can overcome the widespread perception of its treatment of horses, racetrack facilities are in desperate need of an overhaul. Outdated facilities discourage fans from attending. 

"They don't want to go to a racing facility that's been there since the 1960s with old infrastructure, with old bathrooms," said Donna Brothers, NBC Sports racing analyst and commentator.

Churchill Downs is spending $300 million on improvements to its paddock and grandstand. Belmont Park is undergoing a $500 million renovation, funded by a loan from New York state. And Maryland's legislature in April approved $400 million to overhaul Pimlico, home of the Preakness Stakes.  

Brothers said the industry is going to have to embrace new technology, such as mobile apps, to go along with the physical improvements. 

Dennis Drazin, CEO and chairman of Monmouth Park Racetrack and Sports Book, said the sport's true potential can only be realized through multiple revenue streams. 

"Racetracks will have to include gaming, entertainment, fan experience and innovation in their formula for success," Drazin said.

NYRA, for one, is seeing a major boost from expanded national television coverage of its races. Fox Sports, a minority equity owner in NYRA Bets, airs 1,000 hours of horse racing throughout the year. NYRA said that boosted total wagers on its online platform 127%, from $306 million in 2016 to $696 million in 2023.

FanDuel bought racing broadcaster TVG and has become a leading operator in horse racing alongside NYRA and Churchill Downs' TwinSpires, which licenses its gambling operations to other sportsbooks including FanDuel and DraftKings. 

DraftKings became a naming sponsor for the 2024 Travers Stakes in Saratoga. 

Despite the Freehold Raceway closure, Penn Entertainment said in a statement it's looking to expand gaming tied to horse racing.

"In those states where commercial gaming is not yet approved at the racetracks, such as Texas, we continue to educate lawmakers on the success we've seen," said Eric Schippers, senior vice president of public affairs for Penn. "Gaming has helped to revitalize racing, driving higher purses, enhanced breeding programs and the preservation of family farms and open space."