Author Archives: nickcolangelo94

The Economic Impact of the Kentucky Derby

This past weekend was the 143rd running of the Kentucky Derby at Churchill Downs Racetrack in Louisville, Kentucky.  Known as the “Greatest Two Minutes in Sports,” I thought it would be interesting to see the economic impact that the Kentucky Derby has beyond those two electrifying minutes.

According to my research, there are essentially two ways that the Derby provides an economic stimulus to the region: first, from the race itself (by way of tourism, ticket sales, etc.) and, secondly, from wagers placed on the races—both those legally recorded and those that were not placed through an official Las Vegas book.

The Kentucky Derby Museum, the non-profit organization that collects information on the race and preserves its history, released financial figures about the race.  The Museum deems the Derby as an “economic event,” with the most recent study finding that the Derby has a $217 million immediate impact on the region.  According to the same study, the equestrian industry has an economic impact of just over $3 billion in the state of Kentucky alone.  The industry generates an employment opportunity to over 55,000 people in Kentucky as well.  Clearly, the equine industry is a massive part of Kentucky’s economy, and the main-event, the Kentucky Derby, is the most important part of the industry.

Determining the exact economic impact that gambling on the races at the Kentucky Derby is significantly more tricky.  This is due to the fact that so many wagers are placed illegally, or through any means other than an officially-licensed Las Vegas casino.  According to the Washington Post, near $4 billion is wagered legally in Las Vegas every year.  However, anywhere from $80 to $380 billion is wagered illegally—the wide range in estimates goes to show just how much money is not adequately being regulated.  The official numbers for the 143rd Kentucky Derby have yet to be officially released yet, but the numbers from 2015 and 2016 paint a consistent picture of what economists can expect.  In 2015, a record-breaking $194.3 million was wagered legally, while estimates for illegal wagers are many times more than that.  In 2016, $192.6 million was wagered legally, a slight decrease from 2015.  Expectations for 2017’s Derby are in the same range.

Clearly the Kentucky Derby plays a significant economic role in the state of Kentucky and in the United States in general.  Most of the economic stimulus to Kentucky is through that of the equine industry, while the larger economic impact is through the black-market of sports gambling.

https://www.derbymuseum.org/education/why-study-the-derby.html

https://www.washingtonpost.com/sports/sports-gambling-in-us-too-prevalent-to-remain-illegal/2015/02/27/f1088e4c-b7d3-11e4-9423-f3d0a1ec335c_story.html?utm_term=.ce53fb59a1de

http://www.betfirm.com/how-much-is-bet-on-the-kentucky-derby/

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The Economic Impact of the Kentucky Derby

This past weekend was the 143rd running of the Kentucky Derby at Churchill Downs Racetrack in Louisville, Kentucky.  Known as the “Greatest Two Minutes in Sports,” I thought it would be interesting to see the economic impact that the Kentucky Derby has beyond those two electrifying minutes.

According to my research, there are essentially two ways that the Derby provides an economic stimulus to the region: first, from the race itself (by way of tourism, ticket sales, etc.) and, secondly, from wagers placed on the races—both those legally recorded and those that were not placed through an official Las Vegas book.

The Kentucky Derby Museum, the non-profit organization that collects information on the race and preserves its history, released financial figures about the race.  The Museum deems the Derby as an “economic event,” with the most recent study finding that the Derby has a $217 million immediate impact on the region.  According to the same study, the equestrian industry has an economic impact of just over $3 billion in the state of Kentucky alone.  The industry generates an employment opportunity to over 55,000 people in Kentucky as well.  Clearly, the equine industry is a massive part of Kentucky’s economy, and the main-event, the Kentucky Derby, is the most important part of the industry.

Determining the exact economic impact that gambling on the races at the Kentucky Derby is significantly more tricky.  This is due to the fact that so many wagers are placed illegally, or through any means other than an officially-licensed Las Vegas casino.  According to the Washington Post, near $4 billion is wagered legally in Las Vegas every year.  However, anywhere from $80 to $380 billion is wagered illegally—the wide range in estimates goes to show just how much money is not adequately being regulated.  The official numbers for the 143rd Kentucky Derby have yet to be officially released yet, but the numbers from 2015 and 2016 paint a consistent picture of what economists can expect.  In 2015, a record-breaking $194.3 million was wagered legally, while estimates for illegal wagers are many times more than that.  In 2016, $192.6 million was wagered legally, a slight decrease from 2015.  Expectations for 2017’s Derby are in the same range.

Clearly the Kentucky Derby plays a significant economic role in the state of Kentucky and in the United States in general.  Most of the economic stimulus to Kentucky is through that of the equine industry, while the larger economic impact is through the black-market of sports gambling.

https://www.derbymuseum.org/education/why-study-the-derby.html

https://www.washingtonpost.com/sports/sports-gambling-in-us-too-prevalent-to-remain-illegal/2015/02/27/f1088e4c-b7d3-11e4-9423-f3d0a1ec335c_story.html?utm_term=.ce53fb59a1de

http://www.betfirm.com/how-much-is-bet-on-the-kentucky-derby/

The U.S. Commercial Aviation Industry and United Airlines

By now nearly everyone has seen the viral video of Dr. David Dao being physically dragged off an overbooked United Airlines flight.  The videos that have surfaced the past few days are certainly shocking, make most viewers uncomfortable, and have caused what feels like a national outrage against United.  Yet, despite millions of “key-board warriors” rallying together against United, I cannot help but think that no meaningful change will come to fruition.

Airline companies (and not just U.S.-based ones, like United) overbook flights as a way to generate more revenue, since customers miss their flights or choose not to go all the time; so, United’s business practice of overselling their planes is by no means unique.  Despite all the outraged responses by potential future United customers over a somewhat morally-questionable business practice, the oligopoly that is the U.S. airline industry will continue to flourish, and United Airlines will get through this public relations nightmare.  At least that is what history tells us should happen.

Following years of M&A activity in the space, the airline industry in the United States is controlled by the “Big Four”—American Airlines, Delta, Southwest, and United Airlines.  Not only do these firms each individually have over four times the fleet of their closest competitor, Air Canada, they offer more flights to more “desirable” cities than their competition.  Moreover, the airline industry as a whole does not, and should not, feel any pressure from the bad publicity that is consuming the current news cycle.  Consumers will always want to travel to new, exciting places or destinations they’ve traveled to countless times.  Ultimately, consumer preferences will not change; airlines offer consumers the most efficient, cost-effective, and time-effective method of transportation.  That will not change anytime soon.  While oligopoly-driven markets are not always efficient, the commercial airline industry’s contribution to GDP in the U.S. is estimated to be just under $1.5 trillion, and roughly $3 trillion worldwide.  In the U.S., the industry provides jobs to over 10 million Americans.  The economic functions that the commercial airline industry provides to the U.S. economy are important and quite noticeable.

United is not the first major firm to make mistakes and feel the outrage of their consumers.  Think of the relatively recent Volkswagen controversy.  The company wrongly installed software that would read out the diesel-pollution numbers that consumers and rating agencies wanted to see.  When this became public knowledge, lots of people urged a boycott of the car manufacturer.  Yet, now, no one speaks about it anymore.  It’s news cycle has run its course, and it is only a matter of time until United gets to the same point.

At the end of the day, the incident involving Dr. David Dao will not be the end of United Airlines.  United has a strong footing in the commercial airline industry to begin with, and the emotions that people feel when they see those viral videos are momentary and forgotten by the time the next news cycle rolls around.

https://www.washingtonpost.com/business/economy/crisis-experts-to-united-this-too-shall-pass/2017/04/11/3550be86-1ec9-11e7-a0a7-8b2a45e3dc84_story.html?utm_term=.bdc2bd020243

http://airlines.org/industry/#economic

http://aviationbenefits.org/economic-growth/value-to-the-economy/

https://seekingalpha.com/article/4056732-ultra-low-cost-carriers-overview-airline-industry-disruptors

http://fusion.net/airlines-can-treat-you-like-garbage-because-they-are-an-1794192270