Every year the Daily Racing Form publishes a survey of the thoroughbred industry's economic condition, and every year it puts the rosiest possible interpretation on the figures.

But in 1980 even the sport's biggest booster could not find anything positive or optimistic to report about the business. The Form wrote:

The fires of inflation engulfed the North American economy last year, turning thoroughbred racing's monetary gains into ashes along the way .

The sport showed a substantial 6.2 percent gain in mutuel handle in 1979 . . . but that was more illusory than real . . . as the overall betting increases failed to keep pace with inflation. The true barometer of the sport's health -- attendance -- fell for the second straight year, almost 2 percent off the 1978 figures.

Within the industry, there is universal recognition that it is facing critical economic problems. But there is nothing resembling a consensus on what the causes and possible solutions might be.

Ask racing officials what is wrong with the game and you will hear an incredible diversity of explanations: scandals and drug abuse have undermined public confidence in the sport. Premature retirement of top horses has deprived the sport of the great box-office attractions it needs. Racing has not made much of an effort (and surely has not succeeded) in attracting new, young fans. Greedy politicians are taxing the industry to death.

All of these theories may be valid, but all are peripheral. The woes of horse racing are traceable to the most elemental factor in economics: competition.

Thoroughbred racing is part of a booming industry: the gambling industry. But as the gambling business has grown and diversified so much in the last few years, racing has been left with a smaller slice of the total pie.

Race tracks that once thrived because they offered the only game in town are now being challenged by greyhound racing, harness racing, jai alai, casino gambling and lotteries.

The people behind these challenges usually display more political savvy and promotional flair than the complacent racing crowd. When owners of horse tracks have waged political fights against dog-racing interests (in such states as Florida and Massachusetts) they have looked like a bunch of ragtag Afghan peasants going up against the Soviet military machine.

The tracks usually cited as the great success stories in American racing (Santa Anita, Oaklawn Park, Louisiana Downs), the same ones usually praised for their enlightened management, are those that operate in little oases free of competition for the gambling dollar. But when another horse track opens across a nearby state border, or when a dog track opens down the street, they will face the same problems that everybody else does.

Once it was thought that the typical horseplayer was a special breed, a single-minded type of gambler who would not be tempted by other opportunities to lose his money. This thesis has proved untrue. When the first casino opened in Atlantic City, attendance at Atlantic City Race Track plunged by 18 percent. As jai alai frontons and dog tracks have started conducting matinees in South Florida, officials at Hialeah and Gulfstream can calculate that they are losing thousands of customers a day to the competition

At the same time the gambling industry has been growing, the thoroughbred business has been expanding, too. The great period of growth occurred between 1968, when 49,000 races were run in North America, and 1975, when the total was 68,000. In many cases, this growth was counterproductive and even destructive.

The classic case study of the effects of such expansion occurred in New England, where there was once a well-defined racing circuit. Horses moved, in turn, from Lincoln Downs (Rhode Island) to Suffolk Downs (Massachusetts) to Rockingham Park (New Hampshire) to Lincoln Downs.

There were enough horseplayers in the region to support one track at a time, and the industry prospered.

Eventually the tracks' seasons began overlapping a bit, and finally two or three tracks were engaged in head-on competition with each other. The population of horse-players wasn't enough to support them all. When the battle was over and the smoke had cleared, Suffolk's racing had deteriorated drastically. Lincoln was turned into a minor-league dog track; historic Narragansett was shut down.

The economic decline experienced by so many tracks has had its most severe impact on horsemen. Racing a thoroughbred has always been a chancy proposition at best. A spokesman for the Horsemen's Benevolent and Protective Association estimates that it costs $10,000 a year to keep the average thoroughbred in training. Last year the average thoroughbred earned $7,000.

Those figures are bad enough, but they are steadily getting worse. Purses -- determined by the amount of money bet at a track -- have been increasing about 10 percent a year, while horsemen's expenses have been skyrocketing at least at the general rate of inflation. Horsemen are caught in the middle.

When a track's purse money becomes grossly inadequate, it starts a vicious circle of problems. The low purses will drive away the better horses (who will race elsewhere); the lowered quality of competition will drive away potential fans, thus hurting business further. This is precisely what occurred at Charles Town in 1979.

To remedy their problems, track owners and horsemen across the country have been looking for help to state governments. This is an obvious place to look. In 1979 the nonprofit New York Racing Association generated $53 million in revenue for the state and kept $1.8 million itself. Charles Town lost $800,000 while paying $4.1 million to West Virginia. It seems eminently fair and logical that the states should surrender some of this tax money to promote the health of a vital industry.

Unfortunately, it is not in the nature of state legislatures to surrender money for the sake of long-term objectives. And when legislatures have granted tax relief to race tracks, they have often done so at the expense of horseplayers, frequently boosting the "take" on trifecta wagering to an exorbitant 25 percent. Bankrupting one's customers more quickly is hardly the solution for the long-term health of the racing industry.

"Tax relief has been the patchwork remedy that everybody has looked for in the last few years," said James Heffernan, president of the New York Racing Association. "It has to be looked on as a quick, temporary fix."

Instead of a quick fix, racing has to confront the fact that it is ailing because it is losing customers. The remedy for that problem will come from a fundamental reshaping of the industry, such as Heffernan has witnessed in New York: "If we can't get people to the track," he said, "then we'll have to bring the industry to them."

The NYRA and the Off-Track Betting Corporation have done just that. Last year New Yorkers bet $871 million at OTB shops, compared with $853 million at the track. The trends strongly suggest that business at these neighborhood betting parlors will dwarf on-track wagering within a few years.

New York, of course, had the first off-track betting operation in the nation, and its initial experience was so sour that other states became reluctant to start similar operations of their own. OTB was a thicket of political patronage. The NYRA viewed OTB as a mortal enemy and the two organizations spent much of their time warring with each other.

The NYRA was not getting a fair share of revenue from OTB, but it was losing large numbers of customers. As a result, OTB was widely perceived as a mortal threat to the racing industry.

Now that has changed. Last year OTB started contributing money to purses at the same rate that the NYRA does, and as a result the New York tracks were offering the most lucrative racing in America. The old hostility to OTB has been fading fast.

Clearly, OTB is the most effective way for racing to compete with rival gambling industries. Bettors will be able to walk down the street to the neighborhood OTB shop, check the odds, place their wager, watch the race on closed circuit TV and collect if they win. The virtues of such a system are so obvious that the proliferation of OTB operations is an inevitability.

Once OTB has become established as an integral part of the racing industry, the sport will probably undergo another metamorphosis.

Small tracks such as Charles Town are becoming anachronisms. They can't pay purses large enought to cover the overhead of the horsemen. This is one of the reasons that greyhound racing is booming -- the cost of putting on the show is so much less.

Eventually many of these small tracks will be displaced by OTB shops and teletracks, where bettors can wager on races from Aqueduct, Arlington, Santa Anita. In fact, the future is here now. Last year Connecticut opened the nation's first teletrack, permitting its citizens to watch and bet each day's New York racing card. The facility has everything but horses.

There is little doubt that revolution is coming to the racing industry; the question is how people in the industry will react to it. Racing officials have not often been foresighted; they have not often dealt intelligently with change; they have not often fought well in the political arena.

The sport's future prosperity probably depends on the ability of horsemen, track owners and other officials to adpat to the coming changes and ensure that they will get their fair share of money when OTB parlors and teletracks dominate the national gambling scene.