Paddy Power Betfair chief executive Peter Jackson reported that racing presented "some challenges" for the firm as he unveiled the firm's half-year results on Wednesday.
But he stressed that the sport remains "absolutely crucial" to the betting organisation and welcomed the government's decision to reduce maximum stakes on FOBTs.
Underlying earnings edged up one per cent at £217 million in the six months to June 30, while revenue rose seven per cent to £867m. There was also growth across other divisions with online revenue up 13 per cent, sports up 12 per cent and gaming being boosted by 14 per cent.
But asked specifically about racing, Jackson told the Racing Post: "Horseracing is suffering particularly for us. We are seeing good growth in our other sports and liquidity on the exchange – if you look at the amount that was matched in the first half of this year it was up 12 per cent year on year in aggregate across all sports – but in horseracing we have got some challenges.
"You'll have the seen the value that someone like bet365 is offering with their best starting price guarantees and such, and that puts real pressure on the exchange. That's a thing we're wrestling with at the moment.
"But racing is a very important product for us. Racing is absolutely crucial for us as a business."
Jackson, who took over as chief executive in January and hailed the recent football World Cup as "a showcase event for Paddy Power, with a series of successfully executed marketing campaigns", sees the US as a growth market for racing.
"We opened what is now the busiest store we have in the world at the Meadowlands racetrack," he said. "We took a huge amount of business in the first 14 days after it opened in July, some $15 million.
"We are very excited about the opportunities in the US and we have a very well-established horseracing business in that market in TVG, to leverage the customers in that business but also to sell racing into a new generation of punters in the US who come on and use our online services for betting on other sports."
In May, ministers reduced FOBT stakes to £2 from £100, a move that disappointed bookmakers at the time.
However, Paddy Power Betfair claimed the attitude to the machines had impacted on the rest of the industry.
In a statement accompanying the results, it said: "Government policy has a key role to play and we welcomed the UK government's decision to reduce the stake on fixed-odds betting terminals as we believed the negative sentiment towards these machines had undermined the sector as a provider of entertainment, employment and tax revenue in addition to being a supporter of sports such as horseracing." Paddy Power also backed reducing "the volume of pre-watershed TV advertising to protect young children".
"With this in mind, we hope that a timeline for the stake cut can be announced as soon as possible to give our sector the certainty it needs to move on from this decision."
Shares in Paddy Power Betfair were down slightly at £79.55 on Wednesday morning, a loss of around two per cent.