It’s Kentucky Derby weekend. Apparently, it’s the longest continuously held sporting event in America, running since 1875. It’s still a marquee event, but what about the rest of the horse racing industry? We look at how it’s faring, along with a Q&A with the University of Kentucky’s athletic director Mitch Barnhart about the big changes to their sports program. There aren’t any betting tips here (get them here), but there is a horse called Journalism running, and obviously it’s one of the favorites. 

Alex Rodriguez and Jason Kelly chat to Boston Legacy FC’s owner Jennifer Epstein about what it’s like to build a team from scratch on the latest episode of The Deal. And no newsletter would be complete without rumors of the latest Premier League sale.

As always, send us any feedback, tips or ideas here. If you aren’t yet signed up to receive this newsletter, you can do so here.

Kentucky Blues

Hi, it’s David Papadopoulos. Tune into NBC late Saturday afternoon and all will seem right in the world of horse racing. Cameras will pan across a sea of well-heeled dandies sipping mint juleps, puffing on Montecristos and clutching a fistful of gambling tickets.

In all, some 150,000 people will squeeze into Churchill Downs to take in the Kentucky Derby. Millions more will watch on TV. Collectively, they’ll wager hundreds of millions of dollars. Churchill Downs Inc., the parent company, made record net revenue of $2.7 billion last year, along with record betting levels. The race itself attracted about 16.7 million viewers on NBC and Peacock, the most since 1989.

And so too it goes at horse racing’s other fashionable venues — in Hot Springs, Arkansas, in the winter and Saratoga Springs, New York, in the summer and Lexington, Kentucky, in the fall, the game is thriving.

This is a facade, though.

The industry, as a whole, is withering away, and at a pace that suddenly seems to be quickening.

Combined gambling volume at the country’s racetracks has sunk three years in a row, deepening a decline that began two decades ago, according to data compiled by the Jockey Club. It fell 0.9% in 2022, 3.7% in 2023 and 3.3% last year, leaving total annual volume at $11.3 billion, down from more than $15 billion in the early 2000s.

This is at a time when betting in almost any other sport is booming. For all its high-stakes drama, horse racing is simply too slow and ritualistic for today’s 20-something-year-old gamblers. They far prefer the instantaneous dopamine hit they can get from online gambling sites spitting out a never-ending series of sports bets: Will the next pitch to Juan Soto be a ball or a strike? Will Jaylen Brown score the game’s first points? Will the 49ers win the pregame coin toss?

Less gambling revenue for racetracks means less prize money for them to hand out to thoroughbred owners. Some tracks have inked revenue-sharing deals with local casinos to offset this problem, but the trend nationally is still grim. In inflation-adjusted terms, prize money has dropped more than 25% over the past 20 years.

Without a stable purse structure, it’s hard to get owners to buy horses or breeders to breed them. Last year, they bred 18,000 thoroughbreds on all farms in the US, Canada and Puerto Rico, according to the Jockey Club. Back in the mid-1980s, that number would regularly surpass 50,000.

The 150th running of the Kentucky Derby at Churchill Downs in Louisville, Kentucky, on May 4. Photographer: Rob Carr/Getty Images

Many tracks today are grappling with a horse shortage. There simply aren’t enough of them stabled on the grounds to fill up all the scheduled races.

It’s a big reason why many run-down, small-town tracks have shuttered in recent years. It’s even a problem at some bigger venues like Santa Anita Park, an iconic spot nestled against the snow-capped mountains that ring Los Angeles.

It was there in 2019 that the racing world sank into one of its deepest crises ever when horses started mysteriously dropping dead in large numbers. Animal-rights protests erupted, similar to the ones seen in the UK over the carnage in the Grand National each year, and calls to shut racing down in California grew louder.

Track officials eventually managed to bring the fatality rate back down but the hit to Santa Anita’s image lingered — as has the struggle to fill its starting gates.

So management gutted the schedule, limiting racing to just three days a week and capping the number of races at eight on most days. Still, a typical race there will lure a pitiful little band of contestants. Six is common. Seven or eight if they’re lucky.

This is where the whole thing starts to feel like a vicious cycle. Gamblers don’t bet much money on races with small fields — they’re looking for the juicier payouts generated by races with lots of horses to pick from — and so track revenue sinks further, which in turn erodes prize money, which in turn stunts the breeding industry and on and on. 

Heck, even the marquee race of the year in Southern California, the Santa Anita Derby, only drew a field of five horses in early April. The winner that day was a strapping brown colt named Journalism. He’s stabled now in Louisville, where he figures to be the heavy favorite by the time the field of 19 horses weaves its way through the throngs of people and onto the track for the 151st running of the Kentucky Derby. 

Read More:

• Churchill Downs Tumbles as Tariff Angst Halts Derby Projects
• Billionaires Behind Kentucky Derby Track Revamp Family Office

ICYMI

• Stockholm-based asset manager EQT is exploring a potential tie-up with Arctos Partners, an investment firm best known for providing liquidity to sports teams and other alternative asset managers.

• Brazil’s iconic yellow soccer jersey has become such a potent conservative political symbol that many leftists refuse to wear it. Now, rumors the team might don a different color with deep associations to the left at the 2026 World Cup are inflaming the right.

• Major League Baseball’s Athletics have held talks with food-services provider Aramark about investments in the team and its new Las Vegas stadium.

• Former New York Giants quarterback Eli Manning is putting together an investment group to bid for a piece of the National Football League team.

• Premier League football club Aston Villa is considering the sale of a minority stake in its women’s team, according to people familiar with the situation.

Hi, it’s Ira. Speaking of the Bluegrass State, the University of Kentucky announced last week that it is transferring its athletic department to a for-profit corporation called Champions Blue, LLC.

The move, modelled after the structure that the university has used for a pair of its hospitals, is in anticipation of the overhaul of the business of college sports under a class action settlement expected to be finalized later this month (assuming the NCAA and its major conferences can meet the judge’s demands to phase in the agreed changes to rosters limits). 

Otega Oweh of the Kentucky Wildcats. Photographer: Stacy Revere/Getty Images

The House settlement sets up a budget crunch for schools, who will be on the hook both for part of $2.8 billion in damages to former athletes to be paid out over the next ten years and for compensating current players, with pay capped at 22% of the average athletic department’s revenue (about $21 million for next season). I spoke with Kentucky athletic director Mitch Barnhart about the logic behind the new setup and how it will help the school adapt to a new era in college sports. 

This conversation has been edited for clarity and length.

First of all, who owns Champions Blue?

The university.

And are you able to sell equity in it? Is that a possibility going forward?

Well, that hasn't been pondered. That's not where we're headed right now. We’re not looking to begin in an equity position. It’s more operational than equity at this point.

But you're not closing the door? This would also allow you to raise money and go into partnerships with private equity?

I don't think we would ever sell part of the university. That's probably not possible. But are there things we could look at down the road? Absolutely. We'll always keep our eyes open to different opportunities. The goal is to open our quiver a little bit and maybe have a few more arrows to be able to put in it. Athletics has been pretty static over decades. We always tend to fall back to the same four or five buckets of tickets and fundraising and conference revenue-sharing and t-shirts and food. We've just got to be a little bit more nimble and more thoughtful as we go forward.

What are the types of projects that this move makes it easier to do? 

I would say monetizing and maximizing our facilities and the land that we have around them, looking into business districts and things like that. We're certainly interested in that and in different ways that we can do more than just athletic events.

So you're talking about things like mixed-use real estate developments around arenas and concerts inside them?

Yes, all of that.  And then I think we've got to think differently in terms of how we engage our fans. We've got a huge fan base and we've got to do a better job at a bigger level in a different way than we've ever done it before to bring people into our fold.

So that's things like hospitality experiences that you might get at a professional game? 

Yes, and things away from the game. People want experiences more than just games. They want to connect with the people that are in our program. And so we've got to do a better job of that and we think this gives us a better way to do it.

Just looking at next year, what is the budget impact of the House settlement for you?

We're sort of working our way through that, but we think it could be anywhere between $20 to $30 million immediately and have some ripple effects that could be more than that. We've been giving to different aspects of the university for a couple decades now. We have helped build science buildings and we've used some of our resources to be able to do scholarships for students across the Commonwealth of Kentucky. So I'm super thankful that at this point in time the university is willing to invest back in us.

How does that relationship work going forward? If you generate profits, could they go back to the university for the kinds of things you were just talking about?

I'm hopeful we get to that spot where we have those conversations. Obviously we've got capital infrastructure that we're going to continue to have to make sure that we're maintaining, but those are great conversations and I'm hoping we're in those. And if we get the opportunity to share again, we'd certainly want to be a part of that. 

How much of this is future proofing? There's a lot of tumult. The House settlement may not be the end of the story with the relationship you have with student athletes in terms of how the money is shared. Does this make it easier to be more flexible if, for instance, you get into a situation where there's collective bargaining or somebody wants to reshape the conferences?  

I think so. Whatever changes occur in college athletics, we would be able to shape them into the University of Kentucky's campus a little bit easier. We're still under the auspice of the trustees of the University of Kentucky. We're still answering to the state of Kentucky, but within that new LLC framework, it does give us more flexibility to be able to respond to changes in the market.

Jennifer Epstein Photographer: Erin Clark/Getty Images

In the latest episode of The Deal, Alex Rodriguez and Jason Kelly talk about the new Washington Commanders stadium deal and the upcoming Miami Grand Prix. Then, they speak with Jennifer Epstein about what it’s like to build a team from scratch with the NWSL’s latest expansion team: Boston Legacy FC. Epstein tells the hosts what she learned from her family’s ownership of the Boston Celtics, how she’s inspired by the passion of Boston sports fans, and why it’s too early to take a victory lap celebrating her investment in the NWSL.

Listen here.

Hi, it’s David. Wolverhampton Wanderers, the Premier League team owned by Fosun Group, is one of China's last footballing outposts in Europe. But for how long?

About 10 years ago, Chinese investors owned stakes in or controlled some of Europe's big clubs, including AC Milan and Inter in Italy. They held stakes in Atletico Madrid and Manchester City, and they controlled Aston Villa, West Bromwich Albion and Reading. But after a change in government policy the presence of Chinese investors has dwindled. And the retreat looks like it’s continuing. Dai Yongge, the Chinese businessman who has controlled Reading for eight years, has until next week to sell the team after being disqualified as a director.

Jørgen Strand Larsen of Wolverhampton Wanderers  Photographer: Nathan Stirk/Getty Images Europe

So far, Fosun remains an exception, hanging on to its ownership of a football team in the highly competitive Premier League, despite the group selling off assets in recent years. The club regularly loses money on an operating basis (last season it was £74 million), as it struggles to keep up with higher-spending rivals that play in larger stadiums (and therefore have higher revenues that enables them to spend more on players).

Although the team has enjoyed a spirited second half of the season (thanks in large part to the appointment of Vitor Pereira as coach in December), there were moments in the early parts of the season where it was regularly in the bottom three positions in the Premier League, prompting fears of relegation.

The threat of relegation, and the prospect of a massive decline in revenue, can haunt an ownership group.

This threat was a reason for not supporting its women's team in February when it was required to submit an application in support of possible promotion to the Championship, according to a person close to the club. Those fears are also said to have encouraged some within Fosun Group to be open to finding a buyer for Wolves, according to people familiar with the situation. Relegation tends to have a pretty deadly impact on valuations.

For the time being, though, there will be no formal attempt to sell the team, which will next year take to the field in the Premier League for the eighth consecutive season.

“Fosun Sports has not signaled any intention to entertain unsolicited offers for majority control of Wolverhampton Wanderers,” said a company spokesperson, “nor have we communicated a specific valuation for the club to potential buyers.”

Fans will be hoping that the owners decide to hang on to a few of the team's stars, such as Matheus Cunha, ahead of the new season, but will also be aware that selling players has become a necessity and part of the owners' playbook. Last year sales of players, including Ruben Neves and Conor Coady, produced a £64.6 million to nearly wipe out the loss. But it's not easy to keep the team afloat if the best players are leaving.

For more on the intersection of money and sports, subscribe to the Bloomberg Business of Sports podcast. Find it on Apple, Spotify or anywhere you listen.

• Game On for a playthrough of the video game business
• Odd Lots for Joe Weisenthal and Tracy Alloway’s newsletter on the newest market crazes

Explore all newsletters at Bloomberg.com.