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.  

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.

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. 

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.