A MArket based approach to Drug positives
The problem of preventing banned performance-enhancing drugs is one of incentives.
The benefits of doping swamp the expected costs of sanctions. Benefits include millions of dollars in purses, prestige, and stud breeding fees. These benefits also accrue to a complicit culture of enablers who profit when their doped horses win the world's most elite contests. The expected costs of horse doping are relatively small given the expertise of enablers who will only develop PEDs that evade detection. There is a better way.
While racehorses are routinely tested for drugs, just tweaking one or two molecules in the drug can generate a "clean" test result. Rather than tougher testing regimes, we propose that the industry change the calculus.
Horse owners and their trainers should post "clean horse bonds" that would be confiscated if the horse tests positive for banned substances. To secure a "clean horse bond," owners and trainers would pay a fixed fee (5% or higher of the face amount of the bond) and pledge significant collateral—commensurate with meeting the current and future transparency and vetting requirements of the bond's underwriters. Owners and trainers would sign a contract before each racing season that they will forfeit their collateral if their horse tests positive for PEDs. If the bonding company fails to recover the full amount of the collateral, they can seize future earnings and assets of the individuals who signed the contract. The face amount of the bond depends on the size of the purses the horse could win over a racing season.
Companies that specialize in underwriting clean horse bonds would have strong incentives to use highly reputable labs that develop and administer tests that would be difficult to defeat. They would set the fixed fee of the bonds to reflect the expected likelihood of doping. The fixed fee of anti-doping bonds would consider the risk of doping based on the reputations of owners and trainers, the quality of the state's anti-doping programs, and previous violations. The poorer the state's anti-doping record and the greater the history of doping by an owner or trainer, the larger their bond's fixed fee.
If a positive test is detected, the bonding company pays the face amount of the bond to the other horse owners who raced against the doped horse. This forces cheaters to compensate non-cheaters. The bonding firm then gets reimbursed for the monies paid out to the non-cheating owners by seizing the collateral of those buying the bond.
Our free-market model changes owners' and trainers' behaviors who will have clear incentives not to dope horses for fear of losing collateral and having to post higher-priced bonds in the future. Regulators will also have incentive to establish robust testing regimes to convince the bonding companies their races are clean, thereby reducing the fixed fees of the bonds.
Free markets may just save the "Sport of Kings."
Daniel P. Forrester and Jerold L. Zimmerman
Forrester is an author, entrepreneur, and adviser to CEOs and boards. Zimmerman is professor emeritus of the Simon School of Business at the University of Rochester.
