A macro analysis of American horse racing

The state of American horse racing in early 2026 is at a critical juncture, marked by a retail “death spiral,” a legal assault on the industry’s power structures and a technological shift that threatens to leave the average gambler behind.

1. The handle crisis: inflation and the CAW shadow

The raw numbers tell a sobering story. The overall U.S. figure for 2025 has hovered around $11.03 billiona decline of 2.1% from 2024. While a figure of $11 billion sounds robust, it is a mirage when adjusted for inflation. Since the peak of $15.18 billion in 2003, the fair value of bets has increased by approximately 57%.

The main cause of this decline is the ‘cannibalization’ of swimming pools Computer Aided Betting (CAW).

• The whale versus the roach: CAWs are now responsible for an estimate 30–35% of all American handles. Because these groups receive huge discounts (often 10-15% or more), they can even make a profit if they “lose” on the job, essentially taxing the retail gambler who pays the full 20%+ takeout payment.
• Volatility of the odds: The ‘late odds drop’ – where a horse goes from 5-1 to 5-2 the moment the gates open – is the hallmark of CAW bots that dump thousands into the pool in the final milliseconds. This has decimated retail confidence.

2. The global equation: why the US is lagging behind

Unlike the US, which operates as a fragmented collection of private tracks and state-level commissions, the Hong Kong Jockey Club (HKJC) and the United Kingdom (BHA) operate under more centralized models that protect the ‘ecology’ of the gambling pool.

The Legal Front: A Changing Watch?

The lack of a central governing body (despite HISA’s safety and drug efforts) has left a power vacuum that is now being filled by high-stakes lawsuits.

The Ryan Dickey Lawsuit (RICO)

This class action lawsuit, filed in late 2025, focuses on the case Churchill Downs, NYRA and The Stronach Group. It alleges an “racketeering” conspiracy in which rail and totalizer companies provide CAWs with an unfair technological advantage. You can read about it here.

• The stakes: If the discovery phase forces tracks to reveal the specific discount structures and “proprietary” data feeds given to CAWs, it could disrupt the current business model of large ADWs.

The Mike Repole lawsuit (antitrust)

Billionaire owner Mike Repole has officially notified The Jockey Club, Breeders’ Cup and NTRA of his intention to file a lawsuit.

• The argument: Repole focuses on ‘overlapping leadership’, where a small ‘old boys club’ sits on the board of every large organization, creating a monopoly that stifles innovation. He sees this as an “antitrust” battle, similar to Michael Jordan’s recent victory over NASCAR’s charter system.

The ‘Less is More’ future: racing in 10 years

A ‘less is more’ situation is supported by the data. By 2036, the industry will likely be unrecognizable to the 20th century fan.

1. Foal crop and track closures

The foal harvest in 2026 is estimated at only 17,000a decline of 28% in the past ten years. With fewer horses, many “middle class” tracks will not be able to fill races. We are moving towards a ‘Boutique Circuit’ model:

• The elite survivors: Saratoga, KeenelandDel Mar and the Kentucky “Big Three” will thrive as high-end social events.
• The “dead zones”: Tracks without massive gaming subsidies (HHR/Slots) or elite status will likely be closed or “decoupled” from racing to focus entirely on casino gaming.

We are already seeing the extinction of the former typical benefit race progression of non-winners of one, two, three and even four. Today they must be carded as optional claim races for any hope of filling entries.

2. The AI ​​revolution in disability

The future of disability is a war between humans and machines.

• AI dominance: Predictive models will replace the “Daily Racing Form” for the winning 5% of players. AI can process variables (past performance and even stride length, heart rate, wind speed, pedigree efficiency) that the human eye cannot.
• The impact: As AI makes pools more “efficient,” the profit margins for human disabilities will shrink. This will likely lead to a ‘tote-less’ future or a move towards it fixed odds betting (similar to Great Britain) to protect the retail player from manipulation by late odds.

3. The ethical pivot: aftercare and well-being

The biggest threat to the future of horse racing is not economic; it’s existential. In an era where increasing attention is paid to animal welfare, the ‘social license to operate’ is no longer guaranteed. High-profile failures, such as those that marred the 2025 season at large gatherings, serve as visual fuel for abolitionist protests and criticism in mainstream media, such as the recent New York Times calls for an end to state subsidies. While the Horse Racing Integrity and Safety Authority (HISA) reported that race-related fatalities hovered around an all-time low 1.0 per 1,000 starts by the end of 2025, the public’s tolerance for “incidental” losses will have reached zero. This friction has transformed aftercare from a charitable afterthought to a defensive necessity. Despite a patchwork of private initiatives such as the Thoroughbred Aftercare Alliancethe sector still lacks a mandatory, national financing mechanism that follows every horse from the sales ring to the finish line. Without a centralized body mandating that a percentage of every dollar – including CAW volume – be spent on retirement and retraining, the sport remains vulnerable to the perception that athletes are disposable assets rather than protected partners.

The transition: fixed odds and the end of pari-mutuel dominance

1. The case for steady opportunities: locking the door on CAWs

The ‘pari-mutuel problem’ is fundamentally a lack of price certainty. In the current system, a gambler is at the mercy of the final betting cycle. Fixed odds solve this by allowing a player to lock in a price at the time of the bet.

• Retail Protection: By moving win/place/show markets to fixed odds, tracks can effectively “ring out” the average gambler. If you bet a knight at 5-1, you get 5-1 regardless of whether a CAW bot throws $50,000 into the pool three seconds after the gates open.
• The Sportsbook integration: From 2026 onwards, big players will love it Myra are aggressively lobbying for fixed-odds legislation in New York to put horse racing on the same “digital shelf” as the NFL and NBA. The goal is to capture the ‘casual crossover’: the gambler who finds the tote board confusing and the late odds predatory.

2. Precision and prediction markets: the new frontier

While fixed odds are the traditional alternative, ‘Precision Markets’ (modeled after event contract sites such as Kalshi or Polymarket) represent the next evolution.

• Peer-to-peer trading: Instead of betting on a house or a pool, precision markets allow bettors to trade “contracts” based on a horse’s performance. You can buy a ‘Yes’ contract on a horse to win for $0.20 (effectively 4-1) and sell it for $0.50 if the horse looks strong after the parade.
• Regulatory loophole: These markets are often regulated by the CFTC (Commodity Futures Trading Commission) instead of state game boards. This federal oversight could allow for a more uniform, national gambling experience, sidestepping the “no central governing body” issue plaguing the sport.
• Hedges and laying: Unlike pari-mutuel pools, these markets give you the opportunity to “lay” a horse (bet it to lose), a feature that is common in Britain (Betfair) and largely unavailable to American gamblers. Personally, I embrace this concept as discussed here.

Feasibility and implementation hurdles

Despite the clear benefits for the retail sector, the transition faces three huge obstacles:

The ‘liquidity trap’

Fixed odds betting requires the “house” (the track or sportsbook) to take on the risk. Currently, American numbers love the pari-mutuel system because they get their 20% take-out from the top without any risk. To offer fixed odds, tracks must hire sophisticated bookmakers or partner with global companies such as BetMakers to manage liability.

The legal patchwork

As of early 2026, fixed odds betting is only fully operational or legalized in a handful of states (New Jersey, Colorado and West Virginia).

• The Interstate Horseracing Act (IHA): Modernizing this 1978 federal law is necessary to allow fixed-odds signals to be legally “exported” across state lines with the same ease as pari-mutuel signals.
• Stem compacts: In states like California, tribal gaming interests often have exclusive rights to certain types of betting, making the introduction of fixed odds a legal minefield.

The ‘takeaway dilemma’

To make fixed odds competitive with sports betting, the “price” must improve.

• Standard sports vignette: ~5-10%
• Horse racing pickup: ~15-25% If tracks move to fixed odds, but keep the effective takeout at 20%, they still won’t attract the “Modelers” or younger sports betting demographic who are used to more favorable prices.

Conclusion: a sport of extremes

The American horse racing industry is staring into a mirror right now, and the reflection isn’t pretty. Although the sport has survived decades of “extinction” predictions, the convergence of legal warfare, predatory gambling technology and a shrinking biological base has created a “Less is More” reality that is no longer a theory – it is the new business model.

Over the next decade, the American horse racing industry will likely transition from a “mass market” gambling product to one luxury sports entertainment niche.

The Dickey and Repole lawsuits could be the “creative destruction” needed to force the sport into a centralized, transparent model similar to Hong Kong. If they fail, the sport will remain dependent on the ‘life support’ of casinos until the colts can no longer maintain a daily racing calendar.

By 2036 we will also likely see a system of split markets:

1. Pari-Mutuel for exotics: Lottery-style bets with high liquidity and high volatility (Pick 6s, Superfectas) will remain pari-mutuel as they are harder for bookmakers to price and offer the potential of a “life-changing score”.
2. Fixed opportunities for core markets: Win, Place and Show betting will migrate to fixed-odds platforms integrated into the major sportsbooks, finally providing the “price stability” that lawsuits Ryan Dickey and Mike Repole are indirectly fighting for.

All that said, we are an industry that can’t seem to stagger the Saturday stakes race post times.