22 November 2008

Will The Global Recession Wake Up The Horse Racing Industry

Horse racing handles were dropping prior to the official announcement that the world has entered into recession. Handles in North America recently can't even keep up to tiny inflation increases. Even though horse race betting is available in more and more homes than ever before, the racing execs have forgot that their product is a game of chance, and they have not even attempted to compete with other games of chance.

Click Image to enlarge it:

By all accounts, I expect 2008 numbers to be down anywhere from 5-8%. Here is an industry that should be experiencing nothing but tremendous growth. Horseplayers know that nothing compares to horse racing when it comes to gambling, when it comes to excitement and self admiration when it comes to selecting the right outcome.
I don't want to sound like a broken record, but the reason for the stagnation and decline in numbers boils down to one major thing: the cost of the takeout versus other games of chance.

While we are at it, lets look at another chart compiled by The Jockey Club:

As you can see, handle stagnated in the early 1990's but grew considerably from 1994-the late 1990's. This was due to teletheatre and mainly internet ADW growth. Many patrons didn't need to go to the track anymore to place a bet, thus on track attendance also declined, and continues to do so today.

Do these stats mean that people are gambling less? Absolutely not.
Take Canada for instance. $13.6 billion in gambling money was lost last year by Canadians last year. In 1992, only $2.7 billion was lost.
Canadians can and do bet on anything. Internet sports, poker, Pro-line, slots, all sorts of lotteries, oh and horse racing. We didn't have as many options in 1992, but we did have to go the track or the teletheatre to make a bet on a horse race.
In 1992 handle in Canada was $770 million, last year it was only $560 million. Not only is that shocking (I know slots took away a lot of it), but if racing grew at the same rate as total gambling grew in Canada, the handle number last year would have been over $3.5 billion.

In 2004, The Cummings Report was published. It seems that racing execs used the valuable information and recommendations in the 72 page report as toilet paper.

The problem is that they probably read it, but they didn't react. In 2004, they were still making money. Tracks were not closing.

The Report basically spelled out that racing needed to compete for gambling dollars, and pretty much predicted the downfall we are seeing today.

I'm sure the same is true with the North American auto sector, and their refusal to aggressively compete with Japan, by making more economical cars and cars that use other sources of energy.

I have news for the racing industry, not enough people care to even considering bailing it out.
But the biggest problem with horse racing today is that the industry might be too far gone. It is completely dysfunctional.

Some racing execs may now know that they HAVE TO REDUCE TAKEOUTS TO COMPETE AND GROW, but the horsemen groups won't take a risk on a complete new way of thinking. I just don't see it at this time.

Meanwhile, bettors are leaving, owners are leaving, handle is dropping, sales numbers are dropping, and tracks are closing, yet gambling overall is flourishing. Under the current pricing model (high track takeouts) there is no light at the end of the tunnel. There will be no growth, only decline from here.

There may be some temporary fixes soon, but don't get fooled. Horses will start running more and more for what they are worth, so tracks can put on a lot more low claimers, therefore paying out a lot less in purse money. And if the withholding tax law in the states gets overturned, gamblers will have more churn money, though they will end up losing the same as they would by the end of a calendar year, handle will spike a bit for a meaningless while.

If you play the horses and you mostly agree with what I have said above:
It is free. We are closing in on 400 members. The more members we have, the more pull we will have with the industry.


Steve Zorn said...

I agree that takeout rates are part of the problem. Certainly it's hard to justify the 25% rate that we typically see on multi-race or multi-horse exotics (even if you buy into Steve Christ's argument that, say, the Pick-4 is a lot better than a four-horse parlay where you pay 15% takeout on each of the 4 races).

But the real-life experiments that have been done so far don't show the sort of response to takeout change that you'd expect. I think there are two reasons for this. First, a significant share of handle (20%?) is being bet by "whales" who already get a very low takeout rate, in the form of substantial rebates; these are your economically rational customers. Second, for most people, going to the track isn't about rational calculation; it's about hanging out with your friends, enjoying racing, and having a shot at making money. The new field of behavioral economics would have a field day trying to find what these folks' motivations are.

So, sure, we should probably cut takeout pretty close to 10% (about what it is for slot machines), but even that won't do it unless we make both going to the track and the online experience a lot more fan-friendly.

Anonymous said...

Steve, low rakes work. Non whales can get pretty good rebates at Premier Turf Club for example.
Low rakes work at Betfair as well.
People who aren't even cognizant of takeout bet their bankroll, and low takeouts will allow them to last longer.
The real life experiments were not even close to adequate.
Example, the Win 4 at Ellis. Pools went up, and the extra money won by bettors didn't go to new suits, I guarantee it.
WEG rampled up the Win 4 rake to 25% FYI.
As for Laurel, it was only 12 days, and again, the extra money won by customers didn't go to by new suits. It just allowed them to last longer and bet other tracks.
WEG didn't put Laurel on the menu, and I think Youbet didn't have it either.
To test it in real life, look no further than what happens at Premier Turf Club or Betfair, because you get rebates or pay lower commission on everything.

Anonymous said...

"but the horsemen groups won't take a risk"

They remind me of Union Hacks with the Big 3.

It's a poor Product so everyone is buying a Toyota or a Honda etc..

With Horseracing you have a poor Gamble(and less intertaining by the day)and people are going to poker,including myself.