Friday, November 21, 2014

Breeders Crown Friday Longs and Fades

Tonight is the first night of the dual evening Breeders' Crown. I'll be playing live on the twitter so if you want some picks that will probably scope sick afterwards you can follow me there. As for the Crown races themselves tonight, here are a few thoughts.

Race 7 - Aged Mare Trot

Last year's Horse of the Year Bee a Magician has been a shadow of herself this year, despite being in contention, or favorite almost all year. She reminds me a lot of four year old Rachel Alexandra; she's raced okay, but she is not herself. She was particularly flat last week and adds lasix. I suspect you might get odds if you like her, but she's been a fade for me all season and I can't change now.

I am not overly thrilled with anyone here, because they all look a little flat. Classic Martine is an obvious use and if somehow Charmed Life can race like she did a month ago, I think she airs, because at her best, she is probably the best horse in this division. I will have a look at her in the post parade. If her head is straight and focused, not on one line, that will be my cue to bet.

Race 8 - Two Year Old Filly Trot

For those of you who like handicapping, you hate Mission Brief. For those of you who like math, you might as well use it to handicap her. She has broke 3 of her last 7 races and when she breaks it's over. The other four were cakewalk wins. I don't think there's ever been a horse like this in harness racing history. If she's 2-5 she is mathematically a poor bet. End of story. She did drift out last week and should find it a bit tougher this time. 2,3 and 9 are uses for me in the sweep.

Race 9 - Three Year Old Filly Trot

Shake it Cerry stands out and should win this race at a short price, keying a low paying pick 4, if so. I have been very impressed of late, however, with 30-1 Morning line filly Riveting Rosie. I will use her in the two and three slots underneath, and in the pick 4.

Race 10 - Three Year Old Filly Pace

This is probably the most interesting race to bet of the evening. The star of the division is 6-5 chalk Colors a Virgin, but I will be looking elsewhere this evening, because I feel she will be too short a price and I expect some fireworks here off the gate.  I won't be betting the farm, but I will be looking at post ten starter Precocious Beauty, and last week's winner Gallie By the Beach.

We'll be back tomorrow with a look at the Saturday card.

In the meantime, for more Breeders' Crown thoughts there is a 10 page pullout in this month's Horseplayer Monthly magazine, for free, here. (includes a free pp link)

Good luck and Happy Friday!

Thursday, November 20, 2014

Margins & Profit: The Difference to Betting Growth Depends on Where You Take the Money

I've been doing some reading based on NBA head Adam Silver's recent comments about betting, and his partnership with Fantasy sports stalwart Fan Duel. It's of interest for a number of reasons; primarily because from a revenue perspective it provides league's with a number of options.

By partnering with a fantasy site, part of the 800,000 or so users can be promoted to watch games. Since many NBA, or NHL games do not even get 800,000 viewers for one telecast, the potential is obvious. However, what is interesting is the revenue end. Fantasy sports revenue has been estimated at several billion dollars, and they are using teams and players to generate that money. There's some potential meat on the bone for the league's themselves.

Coincidentally, yesterday we saw another CHRB meeting, where we witnessed what we usually end up witnessing at them. A fight over who is betting what, where. According to a few items I read on the twitter, the board was asking ADW's to somehow have location based IP blocking, so when customers are at the track they would not be allowed to bet with the ADW. Of course, the track and purses in California gets about 20% of the action in revenue, for a guy betting on Xpressbet at the track they get about 10%.

Although those two examples highlight the same thing - going after at least a portion of revenue that a league or track think they rightfully "own", there could not be more stark differences.

In the NBA's case (and other sports' leagues as legal gambling or fantasy move along) they would ask for a slice of this revenue (call it monetizing) in a number of ways:

1) A share of gross profits. This is a form of licensing fee.

2) Because states would be taxing legal sports betting or fantasy, the leagues would get their share, or kickback, from stadium deals, rent, and tax breaks.

3) Advertising partnerships, like Silver is doing with Fan Duel - Fan Duel has a lot of eyeballs, and eyeballs are worth money.

When a racetrack or horsemen group wants money or the ubiquitous "fair share", it's done quite differently.

1) They ask to stifle competition, so they get more. This is the CHRB example above. They're asking players to pay 5% more to bet at the track; if for example, the ADW player is getting 5 points back.

2) They ask for an increase in margins. This is a boost in takeout, not an increase of a share of end profit. California did this in 2010, Churchill this year, and hundreds of tracks and commissions have, since the original takeout rate (again, margin) was increased from 5% in 1907 to about 21.5% today.

In case I, the sports leagues would get paid their fair share, as they see it, and as the reseller sees it. It's not based on anything but a profit motive. i.e. when the sports' league takes a share of net profit, they are a partner in Fan Duel growing their net profit numbers, and their revenue numbers. As Fan Duel goes, as the popularity grows, so do revenues.

Fan Duel's average margin (takeout) is about 8%, which is where they need to be to maximize their growth and profit. The NBA would not ask for 4% of margin, because that margin increase would be met with i) decreased top line revenue ii) fewer eyeballs and iii) less long term profit for both the NBA and Fan Duel. This is not hocus pocus, it's just business. Wal-Mart would love 5% margins I am sure, but it would put them out of business, so they can't. Just like any other business, it's in the NBA's best interest not to touch margins, because increasing margins does not mean more money.

Not only that, the state itself won't want that to happen. You don't see the state of Nevada taxing 4 cents of a $1 token on a slot machine, or asking Steve Wynn to add zeros to a roulette wheel. They'd make less tax money. They leave that to the resellers and tax as revenue and profit grow. 

Contrary, in horse racing, this is all that's touched: Margins.

As margins are fought for, at Churchill or with the CHRB, or otherwise, top line revenue falls, racing gets less popular, and in the end, it's detrimental, and everyone makes fewer dollars.

Horse racing was not built to grow, because revenue has never been taken off at the gross profit level, but at the margin level. It's been a fight for a slice, where when the slices get bigger, the pie gets smaller. It's fundamental, entrenched, and racing simply knows no other way.

Wednesday, November 19, 2014

No Easy Answer to Breeders' Crown Conundrum, Notes

Crown elimination winners Voelez Hanover and Traceur Hanover are set to go this weekend, despite their trainer getting popped with a positive this week. Trainer Corey Johnson, according to harnesslink, had a blood gas positive (he also had one in May of 2013), and all of his horses have been scratched in Canada, and he is under a full suspension.

This is clearly not ideal for the Crown, and rings similar to the Doug O'Neill situation in the Cup, but I doubt there is too much that can, or should, be done. I suspect that it being a full suspension, the NJ commission could honor that, or Jeff Gural or the Crown could, and ask that the horses be entered with another trainer (I believe his father is under a two year probation as well, so someone outside the stable), but time is clearly of the essence, and I don't know how fair that is either way.

Racing is never boring.

As for the Crown, Friday and Saturday night are the races, and there should be some better than average races to watch. Most of the stars are there, and despite the end of the year when some of these horses are a little chewed, many are not. JK She'salady, Always B Miki, the aged pacers, and Commander Crowe trying to win the Crown for Europe all provide good storylines. Harness Racing Update will have several big issues this weekend, highlighting the Crown.

The Crown will also be featured in Horseplayer Monthly with a special section, coming out tomorrow. Also looked at will be the DQ situation at Santa Anita from the BC Classic.

I saw on twitter today purses will be rising at Hawthorne because betting is up. That's doing things the old fashioned way.

November will be a down month for horse racing, but by how much? That's the question. There are some tracks  - Aqueduct, Churchill - doing poorly.

Thanks to Joe F for the link, the city of Halifax has a special bond with the people of Boston, and they've sent the usual November tree. When the massive explosion happened during WWI, killing 1,600 from the city, the city of Boston came to their Canadian friends aid and people in this part of the World never forgot. It's a big reason why there are so many Bruins and Patriots fans out this way as well. Generational.

Analytics on NFL telecasts do not happen. This was looked at today on MMQB. Long held narratives continue, while they simply should not. You get a real sense of this with in running betting. When a coach makes a mathematically poor, but politically right decision, the odds on the team will drop. Meanwhile on TV, the commentator says, it was the right call.

Courtesy Emma Vare EL Titan readies for his Crown try in the three year old trot, in the snowstorm that hit the northeast yesterday. Have a great day everyone.

Monday, November 17, 2014

Changes in Sports Culture Is Felt in Horse Racing

Yesterday there was some big news in drug land. The DEA in the US conducted some surprise visits of NFL teams, sweeping for illegal prescription drugs, poorly or unethical record keeping and otherwise. A long held belief is that the practice (among others) has been going on in the NFL with the athletes:
  • “They know there’s a problem. I’m sitting here with stage 3 kidney failure because of concealment of my medical records. And the lack of responsibility on the medical professionals’ parts,” former 49ers player Jeremy Newberry told KPIX 5.  “I would be very surprised if they didn’t find exactly what they wanted to find in those locker rooms.”
The NFL has had a reputation for doing anything at all costs to field a team. I remember reading "You're Okay It's Just a Bruise" about the Raiders team doctor in the 1980's and believing every word of it; even if some of it was embellished, it just fit. I heard the story from a friend (my stable partner and long time university betting pal) whose father played pro in the CFL; where one particular player who was getting hurt "too much" continued to play in a game with a compound leg fracture because "coach is going to cut me if I don't".

It's a part of the league's culture.

Nowadays things have changed. Looking the other way is replaced with DEA raids. Bounties get you in trouble. In the 1970's, clotheslines, gauging out a man's eyes in a scrum, dirty play, leading with a helmet, putting a QB in the hospital is becoming not the norm, but something that the public, the league and the players association is handling much differently. Old time players and some fans (in some cases rightfully) gripe about the new rules and the new way of doing things ("it's not even football anymore!") but it's the way it is.

That change of culture is starting to make things better for a league that needs every inch of good PR it can find, to both keep the money coming in, and to keep mother's and father's sending their kids to football camps when they're eleven. It's not 1970 anymore.

Horse racing is going through many of the same challenges. We see stories about Cobalt, or Indiana vets, or Class II penalites or overages, or googling for milkshakes. We see talk about raceday drugs, Dbarns, shock wave therapy machines, hyperbaric chambers, jugs and "compounds". On one side we have some folks who say "no matter what we do, PETA will not be happy" or "it's only an overage, and a bookeeping mistake", or "they're out to get me like OJ". On the other we have zero tolerance, where anything remotely outside the law is worth booting someone out for, for a hundred years, with due process at all.

Like the NFL, the answer for horse racing probably lies somewhere in the middle. And changing the culture gets any sport to track a proper path - where things like honest debate and trial and error replace demagoguery - and I think that's happening.

When an NFL coach says "I can't send him in because he is hurt and we may do irreparable damage long term" the culture needle is moving. When a player who gets his bell rung tells his team doc he needs to be looked at, the culture needle is moving. When a 235 pound safety pulls up before creaming an exposed receiver on a cross route with the ball five yards over his head, the culture needle is moving.

Similarly, when a vet who does not keep proper records gets sanctioned and most say "that's good" rather than "he's a nice guy, let him off", the horse racing culture needle is moving. When a guy gets his tenth overage and the sport doesn't say "it's just for banamine" but "we have to ensure our stable managers are cognizant of the rules so he needs to be set down until he can do this correctly", the culture needle is moving.

When whipping rules or kicking rules are enacted and there is barely a peep about them anymore from participants, that's the culture needle moving. When track vets scratch a lame horse at the gate, when a guy who uses a shock wave machine on race day gets called out, when a Quarterhorse track owner cancels a race, when a dude like Gural hires his own investigators, when thinking twice about jamming a lame horse into a claimer who can't walk, and a hundred other things we've seen happen of late happen, the culture needle is moving.

Horse racing is not the first sport to be under fire for "this is the way we've always done it, so leave me alone." It was like that in baseball, cycling, track and now football. Those sports had to act in very public ways. But perhaps - probably because horse racing is so fractured - it might be the last to truly act through some sort of federal reform. However, in my view, the sport has a better chance to get meaningful reform done than ever before because in 2014, the horse racing culture needle has been moving for some time. The sport is beginning to do it all on its own.

Enjoy your Monday everyone.

Friday, November 14, 2014

Fan Duel Demo's & Growth & Racing's Big Sleep

The cash game fantasy sports avenue that has been growing recently - Fan Duel, as well as Draft Kings and others - has been making a lot of noise. Interestingly, the NBA is certainly on their side, as witnessed by the comments of commissioner Adam Silver in the New York Times.

These sites are not new, and Fantasy sports has been played for money for ages (not to mention office pools and other forms of betting) but they've since gone mainstream. People who love sports are playing them, and those with a particular affinity for stats, advanced analytics, like Chase Stuart, are devoting time to it. 

This is clearly the aggregation of a phenomenon.

What is most interesting, is that the game appears to have value. Takeout rates are not penal - in fact Fan Duel have some of the worst (if you can call these bad) - and winning is an option. Piggybacking on the popularity of sports in general, is not difficult.

The demographic also reads like a who's who, for Madison Avenue or any gambling game. Approximately 4 in 10 players are women, and the demo skews young and relevant when it comes to technology, with approximately 7 in ten playing on a tablet or mobile device.

 In other words: A fun medium, low takeout rates, ability to win if you are smart, a growing demo with a high marginal propensity to consume, skewed younger, who use modern technology to survive.  What's exactly not to like?

Other than the obvious political risk (what gambling game does not have that), the sky appears to be the limit. Fantasy sports, like Horse Racing, has a carve out in the UIGEA of 2006.

Racing's carve out in that same act has not seen the same trajectory. There are "source market fees", regulations led by horsemen, infighting, penal takeout rates that only go higher. While Fan Duel and others have maximized their carve out be being entrepreneurial and forward thinking, racing has, unsurprisingly, gone the other way.

The usual response to such issues is that horse racing relies on betting revenue. That is barely partially true. Slots make up close to 40% of the purses, and Fan Duel is not a charity. They set their rates and work their business on a marginal cost and revenue basis like any other to maximize profit. Horse racing should be run similarly.

Although it really is an untrue statement in the first place, responses like "horse racing is expensive you know" only show how little racing understands the modern gambling consumer. It's not a customers job to care about the health of any business, it's a business's job to care about a customer. If Steve Wynn is having union issues and wants to charge more for the use of his gym, consumers just go next door to use another casino gym. If players - and I believe this is, has and will happen - move to skill based Fantasy Sports, it's not their fault horse racing can't get it together to attract them.

Disruptive technologies have changed businesses throughout history. In the late 1800's people were upset that loud steam "cars" were scaring the horses and tried to ban them. Sotheby's was no great fan of Ebay, newspapers not supporters of the free information flow of the net, companies selling $20 CD's with one hit and eight bad songs really, really dislike iTunes. Fantasy sports were long a back room pursuit by gamblers, statistics junkies and sports fans; but with entrepreneurship, the embrace of risk, and the hope to generate rates of return, this has been brought out into the open. Racing has done almost the exact opposite with their carve-out, and it is emblematic of the industry at its very core.  It's no way to run any business in the 21st century, and in no way can this industry be successful in terms of end-use gambling demand if they continue with such strategies.

Thursday, November 13, 2014

Here's the Unvarnished 2014 Horse Racing Handle Story

As we all know, handle will be down this year - by what amount we are not yet sure - and there have been plenty of reasons given. Some tracks like to pull out every excuse in the book when their handle goes down (it's not our fault), or up (it was our brilliant management) and some tell the truth, but usually it's an array of scattered reasons which are difficult to decipher.

Let's take a quick trip around the racing globe for a summary.

Kentucky: Churchill Downs has been terrible; we all followed that story. Keeneland also had a down year (nowhere near as bad as Churchill on a day by day basis, but down). Ellis Park, well, they were up. The star of the show in Kentucky has been Kentucky Downs, with another big year.

So Cal: This year is one of big transition in So Cal. Instead of going to lower handle places like the Cal Fairs and Hollywood, stalwarts like Santa Anita and Del Mar (and the higher handle Los Al) have been given more racedates. So, it will be a little like comparing apples to grapefruits. Handle in the Golden State, although nowhere near good, should be fine because of the new track mix.

New York: New York had about the best thing they could've hoped for: A Triple Crown try. That generated millions in handle on Belmont Day, because people always follow a TC horse. Lately, bad weather and poor fields have really hurt. Yesterday, for example, according to @LDMcpherson on the twitter, about $1,000,000 was bet into the pick 6, versus $90k last year on this day, and handle was up only $260,000 for the day.  Despite the weather, New York looks like it may be having issues beyond that and should be watched closely.

Florida:  Like So Cal, there has been a sea change in the state, with more racedates going to the branded signal at Gulfstream. As well, instead of Calder we're seeing "Gulfstream Park West" with lower rakes and a better signal. Apples to grapefruits, but I expect they will have a good year.

Canada: Woodbine had a terrible April, but stormed back nicely and they should have a decent year. Canadian harness racing - as an aside - has been doing better. Despite a large decrease in racedays post slots, handle is up overall and has increased nicely (over 15%) on a per race basis.

Breeders' Cup: BC handle was up slightly in 2014 versus last year, with a good set of races when compared to 2013. 

As for other tracks, it's the usual mixed bag. Indiana Downs had a decent year, tracks like Mountaineer are struggling for horses. Suffolk Downs is no more, there is no racing in Virginia as well. In Ohio, with glorious slots, something positive will likely occur, but really, the state is not on the player's radar yet in any meaningful way. I never know what to make of Louisiana, but Delta Downs sure tries hard, and we'll see if CDI improves Fair Grounds. Who knows. 

Regarding 2014 handle, everyone likes a bumper sticker reason; maybe that is societal I don't know. But to do that is folly. Handle did not go up at Keeneland because of "dirt" - an argument can be made that field size went down because of dirt, in fact. Handle did not go down at Churchill because of  "small foal crops" that have an effect on all tracks, not just them. The "economy" or "offshore gambling" or a hundred other reasons held up as poster boys over the years really never held water, and don't hold water now.

I'll take a shot at what's happened thus far.

1) The number of races have fallen - Although this does not work one to one, percentage by percentage (e.g. a 5% drop in races does not mean a 5% drop in handle), this is clearly a factor. If McDonald's cuts stores, same store sales - barring any other changes - will fall by some amount, more than likely. It does not have to be this way - with some direction - but in the current state of racing it does.

2) The game has gotten more expensive - Sure the handle tanked at Churchill after the rake hike, but that tanking does not generally have to do with the price (price hikes are a slow burn on handles), more to do with people fed up with price hikes and not being respected as a customer. Regardless, the game has gotten more expensive to play and takeout matters. It's just math. When the price of a bet goes up, bankrolls gets degraded quicker, en masse - the walk of shame to the ATM can only happen so many times before you keep right on walking through the exit. Less money to bet, fewer happy customers and less churn. Things like high rake jackpot bets only adds to this. For a parallel think of the decade golf has had. $500 clubs, an hour drive for a six hour round, gas prices up, working harder for your money, more taxes to pay: Fewer golfers.

3) Crappy races - I had a chat with an every day player on Tuesday. He said he ran a filter to find races to bet (he runs this each day) and out of all the cards on Tuesday, his filter told him to bet a grand total of zero races. I've heard this from more than one player. Short fields at higher takeout is no way to attract bettors.

4) Signal fees and protecting signals - I used to bet Finger Lakes, now I can't even find it to bet. I don't know how many ADW's are being shut out from signals - some tracks have asked larger entities to distribute their signal for them "to get a better price" - and that usually means a signal is stifled. In addition, some tracks are pricing themselves too high, and this is causing players to look elsewhere.  "Source Market Fees" (you will hear more about this in the coming year because more horsemen groups want to do them) are an absolute scourge for the betting customer, and additions of those in 2014 to NY and PA certainly have not helped handles. There's only one pie and cutting it up so the non-betting side of it has more results in fewer dollars bet.

5) Whales and big players - There are rumors that a few larger players have passed on, that some computer groups have left the game, and so on. The latter, if true, probably has more to do with #4 above.

Racing has done some things good: Like allocating more dates to tracks where there's handle, like So Cal and Florida have done. If everything was equal and static, that in itself should've caused handle to rise in 2014. However, it was pulled down by good old fashioned elastic betting factors like rises in the price of a bet, fewer number of races, more fees, and a lower number of bettable races. 

That in a nutshell, is my view on handle, so far, in 2014. It's a slow burn and it probably will continue for the forseeable future.