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Sometimes I Wonder If Anyone Bets

When a 'new' idea comes about in horse racing, it always seems to be an old idea that's repackaged. Today on the Paulick Report, Fred Pope talked about NYRA raising their signal fees to get more from the people who show their races. So, in effect, Woodbine or Beulah would have to pay more to show the NYRA races, as would Twinspires, Keeneland and others.

Racing usually ends up talking about splits, like somehow giving team A more cash from team B will make team A and B richer. I never quite understood it, but each month, or quarter there it is. It pops up about as frequently as a Kardashian on a cover of a magazine in a grocery store check-out line.

Reading comments, or hearing racing's bigwigs talk back and forth, it usually makes me wonder: Does anyone who makes these decisions even bet?

It started with the dismantling of offshore internet wagering (and before then at Woodbine, where getting "rid of offshore pirates" was the big policy of the day). Racing was after them (rightfully so I might add) but had this strange idea that eliminating them would get all these customers back to the track, and we'd be tripping over $100 bills on the way to the shedrow. Players said it was not going to happen like that, but that was the prevailing thought.

You knew why you were playing offshore. You were there because after twenty years of not being able to come close to beating or enjoying the game with super-high takeouts, you found somewhere that helped you. You played more, you bet more and you at least had a shot. Going back to high takeout and getting your head kicked in was never even a remote option. Some of you tried, but it got old quickly, and you left.

I think the UIGEA was passed in 2008, when handle was $15 billion dollars. It'll be about $10.5 billion this year.

Customers are not crazy, or out there, or greedy. They are perfectly rational. But racing never has never been able to understand them.

I guess that's why split changes make so much sense; somehow the customer is "not involved", they say. Shuffling the money can work, they tell you. How? No one knows, because they don't understand you, the customer.

Increasing a signal fee by 5% from NYRA to Woodbine sounds like a great idea I guess. But when the signal fee goes up, Woodbine's revenue starts going down. The horsemen split the home NYRA handle 50/50, so their share for purses goes down as well.  Rebates are the first thing to be eliminated, followed indubitably by cuts to the innovation of the HPI betting platform and other customer growth and centric mechanisms. Then, horsemen groups feel that cutting off a high priced signal is better to 'force customers to bet into the high margin live pools' so that gets discussed. Some tracks may even drop the signal; California today only allows a certain number of out of state races, so don't think it can't happen.

That of course sends customers away in a slow burn. It gets them to bet offshore if they can, where they can bet a signal they like at a decent price. Or they try and bet the home signal, don't like it and stop coming to the track as much.

What's worse, then the obvious happens: If it's good for NYRA, it's good for Keeneland and Gulfstream and Santa Anita. It snowballs and there is a tit for tat signal squeeze, and that will benefit no one.

Taking a bigger (or different) slice of a shrinking market is bandied about constantly in horse racing. I recently was reading an article by a Harvard Business professor titled "Five Self Defeating Behaviors to Ruin Your Business" and number one, with a bullet is "Demanding a Bigger Share of a Shrinking Pie".  Tweaking something to shift money from one hand to another has been tried in a lot of businesses. Usually the customer is the one holding the bag and it never works.

Shuffling the deck chairs cannot save a ship from sinking. Horse racing has a customer problem. More customers will mean more money. There's no way around that.


Comments

Sal Carcia said…
Let's look at this from the other side. The offshore rebate advocates claimed years ago that rebates were the way to grow the handle for the game. The end result was quite the opposite. An NTRA study around 2004 predicted this would be the end result of allowing overseas rebates. I believe the study predicted that the inbalance in the distribution agreements would ultimately hurt the product. And it has.

Anonymous said…
Without rebates and some lower takeout, handle would be below 8 billion.

Horse Racing has too few customers. That is not even debatable any longer.
Cangamble said…
Sal, the fact that handle has dropped cannot be blamed on giving players more rebates thus allowing them to last longer. What we do know is that most people gamble for enjoyment, this enjoyment has a lot to do with the ability to win coupled with the amount of action they get from an initial bankroll. We also know that higher purses don't make people bet more.
It is all about the cost of the bet, and Pope is asking to increase that price to the customer with his NYRA letter.
Why? If NYRA increases their signal fee to other tracks, other tracks will increase their signal fees to NYRA. Two things can happen, maybe one, maybe both, NYRA will refuse to pay the increase and that track will take NYRA off their menu (and at best will not be promoted by the bet taking track anymore), and/or all tracks will increase signal fees. What that means is that there is no hope for takeout decreases anymore, and the increase in signal fees will create a lower rebate from places like HPI and NYRA rewards on tracks that increase their fees.

Bottom line: less customers will be left standing, many will bet less, and many will just quit.
Pope's idea will create less customers, and as PTP put it, racing's problem is that they need more customers.
Pull the Pocket said…
I am not sure how lower prices can be blamed for less gross handle. I don't think Karl Marx even believed something like that.

PTP
Sal Carcia said…
I have been through all the debates on this and all the theories about free markets. I am sorry, as it turned only one study was done by a market research group and their conclusion was that rebates would result in lower handle and lower profits. And that is what happened. I think a closer look by this industry should have done before allowing the pari-mutuel pools to be mucked around with. As a counter example, Oaklawn blocked the rebate shops and their handle went up.
Anonymous said…
I think Sal has to explain to everyone how giving a customer who bets 20 dollars, 2 dollars back to rebet makes handle go down.

Not only does that fly in the face of everything we know about business, it lacks any common sense at all.

RR
Sal Carcia said…
RR. The simulcast manager at Oaklawn showed that rebate shops increased the effective takeout for everyone else by over 1.5%. Increasing the the takeout could have a larger impact on the remainings players than it might first seem. Ed DeRosa showed that a 2% increase in handle could cut a players handle by 10% in a two week period. It might be one week. I'll check tomorrow. I believe pari-mutuel pools are sensitive and complicated. It needs to be looked at closely before any changes are made to them.
Cangamble said…
Oaklawn handle 2000: $247 million
Oaklawn handle 2013: $153 million

Oops
Pull the Pocket said…
Sal,

My numbers have shown 1.2% increase.

Takeout increases are bad, but when we are talking about dynamic pricing, and basing decisions on such, we can't look at anything but the whole picture. For the 20% of the people supply a large portion of handle, their takeout goes down. For the others it goes up. Effective takeout is probably down, which results in higher handle.

It's likely not optimum (cheaper rake for everyone probably would be), but the sky is not falling, nor is it saving the game. It's probably helping it stay afloat, while making it slightly harder for newbies to get involved.

PTP

Sal Carcia said…
Bobby Gieger at Oaklawn claimed it was 1.64%. But, whether it is 1.2% or 1.6%, it represents an effective increase in takeout for more than 90% of the players of the game. In a game where takeout is often considered a fundamentally important issue, this is unacceptable. Ed DeRosa showed the a 3% increase in takeout takes away one out of every ten playing days from a player with a fixed bankroll. That one day every other week could result in other negative effects.

To me, rebates hurt the majority of the players in the game. The larger number of players are sacrificed for the minority. But, worse than that I don't consider the people behind the bots as real players. They are skimmers. How does that benefit anyone?
Pull the Pocket said…
Sal,

If takeout is as important as your track contacts say, then ask them why they don't lower it for everyone then?

There's an easy fix with rebating: With lower rakes there is none. The tracks fail to move, which tells you all you need to know.

PTP
Sal Carcia said…
First of all, I am just a player in this game, a low-end one at that. :) I agree that lower takeout will benefit everyone. It seems a bit too subtle and longterm for the game's management to see it. If the tracks raise the takeout, even it lowers the handle, it probably increases their profit. Shortterm gain probably overrides their thinking. Also, most players are not conscious of takeout. I'm not. But, if your bankroll disappears quickly, it could start having longterm negative effects. Players might get discouraged and disappear. Strangely, they might not know exactly why. And more strangely racing management might not know why either.
Ron said…
If the management at Oaklawn concluded that the overal takeout was raised because of rebates, and he also concluded that a players handle goes down with higher takeout, why don't they drastically reduce takeout to increase a players handle?
Sal Carcia said…
Ron, handle does not necessarily equate to profitability. Lowering or increasing takeout should be a break-even proposition for them. For example, if you have a bankroll, you either lose it faster or slower based on takeout. If you lose it faster and stay home an extra day every so often, your handle goes down, but the track breaks even. But, if you increase your bankroll to play that extra day, the track gains. It makes them more profitable. Strangely enough, the handle might be lower, but the profit is higher. Of course, if you get discouraged and quit playing, then they lose. In essence, raising the takeout is racing trying to squeeze more out their existing players. As PTP suggests, this is not a good longterm way to run a business.
Sal Carcia said…
Cangamble, Oaklawn was mixing in instant racing into their total handle and then dropped this practice somewhere along the line. In 2005 their handle was $220m and in 2013 it was $155m. I think this was ~30% drop which probably still proves your point.