14 June 2012

What Ontario Horse Racing Should Do With The Transitional Funding

I'm still not convinced that this nightmare for the Ontario horse racing (the removal of the revenue sharing agreement for slots at racetracks) can't be reversed. But those who seem to know more than me say "no chance," so I'll believe them for now.

The OLG seems to have acted way too fast as they do not have their ducks in a row, not even close. They don't know which tracks will remain, which jurisdictions will accept new casinos (with or without referendums), who will operate the casinos, who will build and operate new casinos, and they don't even know what the new deal is going to look like.

I think they are going to have a huge problem attracting reputable casino operators without giving away an arm and a leg. In Ontario so far, the current casinos that are operated by outsiders, are losing money propositions for the operators, and that is based on a program where the OLG only gets 20% of the total gaming revenues. It is a tough sale, even for the best of salesman, and the OLG not only needs to sell to communities but also to new potential operators. If the best they can offer is that transparent huckster Paul Godfrey, who is well past his prime, they are in bigger trouble than I give them credit for.

However, the OLG, being a Crown Corporation, needs to privatize operations badly, especially if they are to move ahead with this expansion, as they cannot afford the risk of building new casinos or even expanding current ones. Much of the reason is due to the Ontario Liberal Party way: salaries and benefits for OLG workers has gotten way out of hand, much like the majority of other public sector jobs under the Liberal reign of overspending. And the OLG knows that the expected ROI on table games isn't very high, so they want private corporations to come in and assume the risk.

There is also the aspect that government workers are much better at cashing paychecks than being creative and bringing innovative ideas to the table. Private business tends to be creative and motivated, as well, they have an understanding of things like optimal pricing of their products.

Before I share my idea to save horse racing in Ontario, I want to add one more thing. It is imperative that racetracks play hardball when it comes to renting their locations to the OLG. There is no way the OLG will be in a position to move a significant share of slots to locations that aren't even built yet. My advice is for track owners to get together and hold out for even more money than the horsemen and track's share was under the old deal. As for terms. Ask for two years, but don't take anything less than a year.

The OLG will have no choice but to pay as they cannot afford to give up the revenues from slots. This will buy an extra year or two for the industry. The only risk I see is if we are dealing with a small track with a small amount of slots where the profit margin isn't very high. Still, where is the OLG going to move the slots? To an out of business laundromat?

As for Fort Erie, Windsor, and Sarnia. I think lawsuits are in order. There has to be something wrong with a government restricting a private enterprises right to make a living by giving preferential treatment to a Crown entity. This could be an anti-trust situation. Liberal Party embarrassment Dwight Duncan referred to the slots at tracks as competition to the casinos when trying to rationalize the raid of slot machines from these tracks. Of course, the real reason was to prop up the stand alone casinos bottom line so that their numbers in the future won't be as bad, therefore making it easier to attract potential operators for the other casinos province wide.


Just to bring everyone up to speed, around a week ago the Ontario Liberal government announced that $50 million would be made available over the next three years to help sustain the horse racing industry. A panel has been created to take suggestions. Their mandate:
Work with the industry to help develop a vision for the future.
Provide recommendations to the government on how to allocate transition funding.
Advise on the modernization of other industry revenue sources to assist the industry in becoming more self-sufficient.
A final report from the panel is expected in late summer 2012.

Assuming that the slots at racetrack program is dead, the only revenues to fund purses will now come from betting dollars on horse racing, and perhaps some rental income to whoever is operating the casinos that remain at certain racetracks.

The horse racing industry must come to grips with this, and they have to do it now. The money needs to be used to try to create more bettors willing to wager on horse racing. The Ontario government, through the OLG, may have the rights to casino gambling and even sports betting, but when it comes to parimutuel wagering on horses, that territory belongs to the Ontario horse racing industry.

If the horse racing industry can't get enough money wagered on it to be sustainable, well then, it really is time to give it up or reduce down to two or three tracks. But I think horse race wagering can be revitalized and actually compete with not only slots but the OLG lotteries (take that McGuinty).

What horse racing in Ontario needs to do is develop and market their own weekly parimutuel lottery, much like the Swedish V75, however, because of shorter fields than in Sweden (which is a Pick 7 format), as well the reality that inside horses have a big edge in harness races, a Pick 12 in Ontario may be required.

It would be a Sunday lottery that cuts off at 2 PM. Thoroughbred tracks, when racing can be used as well as harness races. The last three or four races in the sequence will be broadcast live from 5:30 to 6:00 PM either on the internet, the Score or Sportsnet. It will have a 35% takeout (high for parimutuel, low for lottery). Two thirds of the money paid out will go to those who select all 12 winners (no winner means the money will carryover to next week). The other third will be divided up to those who select the first four winners, middle four winner, and last four winners as well as another consolation prize going to those who select the most winners (all lotteries require some churn, plus giving a prize for the last four winners will create more viewers for the live show).

It is highly unlikely that the OLG will add this to their menu, and who needs them as a partner anyway if slots go bye bye? That is why most of the $50 million will be needed to develop the technology to bring this across Ontario and maybe even all across Canada, as well, the money will be needed to create kiosks to place in variety stores. Tickets can be sold there, as well as through wagering accounts. But money will be needed to market this wager on TV, radio and the internet.

Money may also be needed to guarantee the first few pools. I figure that by making this a 20 cent base wager ($1 minimum), there needs to be something close to half a million being offered in order to attract the masses to begin with. This is not unrealistic at all.

The public will get excited watching races under this format. And it won't take long for them to realize that handicapping can improve their odds, instead of going the quick pick route. This is how to cultivate new Horseplayers from lottery players. Quick picks will definitely need to take post position into account and come up with a higher rate of low numbers to give the buyers their best shot at churn money or a jackpot win.

So where does the 35% go? A small commission goes to variety store owners of course. Some goes back to marketing, some goes to breeding awards, but the overwhelming chunk goes to the racetracks to split amongst tracks and purse accounts.

The monies can be allocated using various formulas. For instance, money bet within a 30 mile circumference from a racetrack goes to that racetrack, or the entire pool can be allocated to tracks based on the percentage of races they put on each year, or the last 6 months, etc. A mixture of these formulas can be incorporated just the same.

Having horse racing kiosks in stores opens the door to allowing patrons to wager on any horse race there as well, not that I expect that to be a huge win, it is still additional money and exposure. As for parimutuel lotteries. It doesn't have to stop at a once a week Pick 12, but daily Pick 4's (with a 25% takeout ahem!) can be offered as well.

Betting cards can be bought at convenience stores, either anonymously or using one's actual info. These betting cards can offer rebate points that can be accumulated to make future wagers.

Wins of under $300 can be paid out by the convenience store, but larger wins means going to the track...and that is another way to keep the momentum going.

The Ontario government wants horse racing to stand on their own two feet. This is how to do it, my friends.


rather rapid said...

nice post. the window of the 50 mil gives a great opportunity. to a degree u hit the nail on the head. i have been mystified, utterly, over the year for racing's failure to market it's pick 6 pots. Seems to me we have an eminently marketable sport should someone make an effort. Any thoughts to a track owned ADW in the nature of Twin Spires, competing with Twin Spires, except marketing outside the Church? Is there an unlimited market of horse players out there on the internet?

Cangamble said...

There are many track owned ADWs out there. They don't tend to give enough in rebates though to keep their customers interested.
I think there is an unlimited market of potential Horseplayers out there if takeout were reduced to the 12% range on average.

horse racing form guide said...

Through this method people who want in on the action only need to take a few moments to get online to bet on the horse of their choice. Their system of play is immediately in place. After that, they can continue doing whatever life requires in the day-to-day.

Anonymous said...

Bottom line..the ontario governments misguided decision to break the slots at raceteacks contract prematurally is unlawful and a lawsuit has been filed. If anybody thinks our government can get away with putting thousands of people out of work do to blatant ignorance is sorely mistaken. There is no justification for destroying a healthy industry. Enough is enough! This self serving government needs to be stopped!
60,0000 peoples jobs r at stake!
30,000 horses lives r at stake! Breeders r already sending colts and foals to slaughter!!!
Wake up people! If u live in a town that recieves slot revenue ur taxes will increase! Innisfil beach recieves approx 5 million a year and in march 2013 that will stop.
Write/call/email your local mp. Ask what good will come frm this?
Whether u care about racing in ontario or not i promise u the ramifications from the destuction of this industry will be far-reaching.