26 February 2011

Positive Suggestions To Help Fort Erie Grow

Bill Finley just did a piece Constructive, Realistic Fixes. In the article he suggests 7 very doable things that horse racing can do to help improve horse racing's growth. You may not agree with all 7 of his suggestions, but he does make a good case for each. Personally, I think microbets make sense for many betting types, I don't think they are good for all types of bets. When it comes to creating a carryover, microbets are a negative, and I think pick 3's and pick 4's are most attractive and create the optimum pool size when they have a dollar or 50 cent base tops.

He didn't mention uniform drug rules or slapping drug violators with huge suspensions and fines. But then again, he was talking realistic fixes.

When it comes to his stance on rebates, again, he is being realistic. It is much easier to change the rules in a few states that make it difficult for their residents to get rebates then it is to get takeout lowered everywhere to optimum levels (every State, track, and Horseman's group would need to agree to it....good luck). One thing is for sure, whether it is done with lower takeout or rebates, players get to last longer, and the longer they last, the more likely are to play more often, play other games less often, and they are more likely to expose family members and friends to their hobby.

This brings me to my realistic list to improving Fort Erie. And I strongly believe that if all my suggestions were implemented, Fort Erie could grow handle by close to 50%, maybe more.

I've given suggestions previously, and some have been implemented. Pick 3's available in the first race, and the change in post times on weekdays (their biggest handle on Mondays and Tuesday occurs between 4:30 and 5:30) were a couple of things mentioned on my blog. Whether the head honchos at Fort Erie came up with them on their own, or read it here first, matters not in the scheme of things.

OK, enough Canrambling, now it is time for the realistic suggestions to grow Fort Erie:

1. Experiment with lower takeouts. A track cannot cultivate Horseplayers (especially those on track) when Daily Doubles and Exactors have a takeout of 26.2%. Fort Erie is rated 67th out of 69 tracks according to HANA's 2010 track ratings when it comes to takeout score.
Pick 3's at Fort Erie do not attract much in the way of pool size. This bet is ripe for the picking when it comes to a takeout experiment.
Solution: Drop the takeout on exactors and doubles to 21.5% or less, and the Pick 3 to 15%. If successful, look to reduce takeouts even more, on more wager types as well. Existing Horseplayers know more than ever before about track takeout, and Fort Erie simply has rates that insult the Horseplayer.

2. Fort Erie could use a Fortune 6 (Beulah Park) or Rainbow 6 (Gulfstream). Because a lot their handle comes from the US, and US customers can't take advantage of fractional wagers, a one dollar minimum must be used. This means that a Fort Erie Five makes the most sense. Like the other two bets, the Jackpot is not given out unless there is only one unique winner. A 25% takeout wouldn't deter players either. It would work the same way as a regular Pick 5, except only 40% of the money wagered (after takeout) on it during a race day would be split amongst those with 5 winners, 60% would be carried over until a unique winner comes along who grabs the pool all by himself, or herself. Being a dollar base, this pool has a chance to grow in a hurry, and if it does, it may get some of the slot players to play into it as well. Start it at Race 2 so as to not interfere so much with the Pick 4 that begins in race 4.
It is my understanding that the CPMA (Canadian Pari-Mutuel Agency) has to approve such a wager. I don't see them putting up much of a fight. But this needs to be applied for sooner than later.

3. The bigger the field size, the bigger the purse. This one will be tough to get by the Horsemen, because for them, their ideal race has the fewest entries in it. However, it doesn't take a brain surgeon to understand that the bigger the field, the more money there is bet on that race all things being equal, and since purses are fueled by gambling losses, doesn't it make sense pay more for this production? Shouldn't a horse that beats 10 horses in the same class deserve a bigger paycheck than for one that wins beating only 5?
Fort Erie averages giving out a little more than $11,000 per race with field size of just over 8 (about $1350 per starter).
Solution: If a race goes off with 6 betting interest or less, have it run for 75% of the allotted purse. For each betting interest above 6 that starts the race, add 12.5% to the purse. So an 8 horse race runs for the same purse as before, but a 12 horse race now runs for 150% the original purse, or twice as much as a 6 horse race. The cost to the track will wind up being the same, except, they might see an increase in field size, and bigger pools come out of this. Bigger pools means more money for future races.....hence growth. Arlington just announced a minor version of this idea.
Unfortunately, I can see Fort Erie scrambling just to make cards go off due to a horse shortage that is being predicted, this means that implementing this purse plan should be more of an imperative.

4. Scrap the first Pick 4. It hardly attracts a couple of thousand. Focus on the 15% Pick 3 until the regular Pick 4 begins in race 4. Diluting pools by having too many pools is not the way to go.

5. Give track odds on simulcast wagers. Why upset a live Horseplayer by paying them less on a win ticket at Aqueduct or a triactor at Keeneland than what it really pays at the host track? They will only churn back the extra money anyway, and they will last a little longer. But most importantly, they won't feel ripped off if they find out what happened. And most eventually find out, and it only causes the track to lose more customers and handle in the long run.

6. Sell programs and past performances as cheaply as possible. If a Horseplayer looks at a race, they are more likely to play it. If it can be done, plaster a free form or program on the walls, for simulcast events too.

7. If it is determined that Sunday racing is a must, despite pathetic handle, change the post time to 12:15 so as to get the simulcast player's first dollar. Many ADWs which give out rebates, give them daily in the morning. Fort Erie is in competition with other tracks. Why not try to get these players to handicap at least the first two or three at Fort Erie and get that rebate money bet on the Fort.
A players who starts handicapping a couple of races, may stick with the whole card as well. Note: For handle purposes it makes sense to scrap Sundays and race Wednesday afternoons instead.

8. Put a Swiss Chalet inside the track. I've lived in Fort Erie now for over 9 years, and I am forced to drive 20 minutes to the nearest Swiss Chalet/Harveys. My wife likes Swiss Chalet, and this gives her a reason to set foot in the track, and maybe even entice her to make a bet or two while she is there...assuming I influence her at all. Oh, and no racetrack markups on the price of a quarter chicken dinner. In fact, give out program vouchers if someone spends a certain amount of money for the dinners.

9. Call all businesses in Fort Erie, all the way to St. Catharines and of course, Buffalo offering them high discounts for group buffets (for 4 or more). Look to break even on it, even lose a couple of bucks a person. This is one of the most effective ways to get newbies to the track.

Doing all 9 things suggested will grow Fort Erie's business enormously. But if track takeout isn't addressed, these fixes will only be short term.

Fort Erie has filled the announcers position with Mike Dimoff. Here is Dimoff calling the 2009 Canadian Derby at Northlands Park:

Canadian Derby 2009 from northlandspark.ca on Vimeo.

Dimoff replaces Peter Kyte.

Fort Erie has also created a new Racebook by the slots, which is a very good idea. Tracks make a lot more on each $2 bet on horses than they do on slots. Free coffee too. Almost like Vegas:)

23 February 2011

Shhhh! Golden Gate Quietly Decreases Purses

It appears that Golden Gate has quietly decreased purses. By comparing Condition Book 2 and Condition Book 3, horsemen are now running for less. Bottom level claiming purses are around 2-4% less, while allowance races are lower by 8-10%.

For example, I noticed that an allowance non winner of one other than dropped from $34,000 to $31,000.

I can see why this has been kept quiet, there are a few 3 or 4 letter organizations that have their tails between their legs right now. The infamous takeout hike in California, which put the cart ahead of the horse, has been an abysmal failure. Not only has the higher purses not led to bigger field size (Golden Gate is down around a quarter of a horse per race this year), but it has led to an unprecedented Horseplayers Revolt that may or may not be responsible for the 20% decline in handle at Golden Gate so far this meet.

For sure, there is less value for Horseplayers. Higher takeout means lower probable prices, and they break the regular Horseplayer quicker as well, causing them to pay less attention to racing in general over time.

Santa Anita came out with "their" numbers to date. "They" claim they are only down 7.9% so far this year. But for those watching carefully, including "them," the recent numbers look like a horror story.

In the last four weeks, total handle is off over 20%, while total purse money given out is only up 4%. Two major things here, one is that the Mid Atlantic Co-op didn't start taking Santa Anita's signal until the last week of January last year. This meant that for the early part of Santa Anita's meet this year, Santa Anita had around a 10% larger audience than it did a year ago. Comparing the same potential bettors to the same potential bettors could only be done the last four weeks to date. Here is how those numbers look:

The other important thing to keep in mind is that they have cut Wednesday's out. This means they are giving out more purses per race, but running less races. And lately, the Horsemen, jockeys, jockey agents, etc. have only been competing for 4% more money. How long before they are competing for less money than last year. If the 20% decrease in handle keeps up, it won't be very long at all.

Solutions to California's problem cannot be solved by raising prices to the bettor. That wouldn't work if Wal-Mart was in trouble, and it won't work in horse racing either. The costs to own horses horses need to be cut. No reason why it should cost $100-$125 a day in California and only $55-$65 a day at Penn. Sure, maybe a little higher, but not that much higher.

Lower prices means more owners. Yes, purses are important too, but for many, it isn't how much you win but how much exposure to losses you have.

The powers in charge are very aware right now they screwed up. Hollywood Park owner Jack Liebau met with a huge group yesterday including 3 HANA members.

Craig Walker chimes in about California racing. He says that drastic changes are needed.

Woodbine's bottom line, as speculated here, was down a bit last year despite a handle increase which bucked the industry trend.

“Even though our handle was up last year a lot of that increase was coming from outside Ontario, which means lower commissions for us, and the contribution to the purse account was minimal.”

Woodbine finally allowed the big rebate shops to take their signal last year. This created larger pool sizes and has helped put Woodbine on the map amongst some of the biggest bettors in North America.

Sadly, they have failed domestically, and this is due to higher than average track takeouts, which their live customers have to deal with.

Woodbine is on the improve mentality wise since David Willmot left the boat and they are doing things right, finally.

Things like cutting the major stake races exorbitant purses to not so exorbitant purses is proof of that. Giving out $1.5 million for the Canadian International instead of $2 million will not hurt the quality of the field going forward one bit. And that is now $500,000 more that doesn't have to be taken away from the domestic horsemen.

Another great move is to move the big races to Sunday, when there is less competition as most of the American tracks card their big races on Saturdays. Now that Woodbine is on the map, Sunday's can be Woodbine's day.

Woodbine has good momentum right now. But now with a very good foundation in place, it is mandatory that they lower takeout rates and start to grow domestically.

18 February 2011

New Pimlico Wager Not Very Well Thought Out

Frank Stronach got laughed at by anyone who understands wagering for his Quad Superfecta idea, which would have resulted in the same potential combinations as 20 times the amount of stars in Milky Way Galaxy if only dealing with 8 horse races.

So it appears he toned down the odds. Instead of 8 trillion to one, Stronach and/or his brain trust has come up with a bet that has "only" 250 million combos (if all races at 8 horses). It is called the "Slider."

To cash the $100,000 guaranteed Slider you have to pick the winner of the first leg, the straight exactor in the second leg, the straight triactor in the third leg, and the straight superfecta in the fourth leg.

The goal of course is to have the pool grow because of the impossibility of cashing it, to a point where it will be worth millions and millions, thus attracting new millions every day.

The problem with this is that the Slider Pool has as much chance to grow to even a million as someone buying a quick pick has in cashing it.

Who is going to build the pool? Today's bettor is pretty sophisticated. And even if they even try it once just to get a first hand idea of how impossible it is to cash, they will stop donating in a hurry.

The lottery or slots player may not understand the bet. Go into a slots parlor and ask some blue haired old lady what a superfecta is if you don't believe me.

And besides, a bet that everyone can understand, the Pick 6, is a tough sell to lottery players even when the pools get into the hundreds of thousands or even millions.

As for the 18% takeout, what a joke. I can just hear Frank Stronach say, "dey vant low takeout betz, I give dem a low takeout bet. Dohs so called value players vont be able to turn dis bet down."

A bet like this that is potentially life changing (though if someone wins this won they might wind up with two or three years of income in reality), doesn't need a low takeout. There isn't enough time to churn back the winnings for most gamblers.
This is the kind of bet that can get away with a 35% takeout.

Lower the takeout on exactors and doubles to 18% or lower Frank, if you seriously want the game to grow, and if you are looking to attract value players.

Back to the Slider. If you make the following bet, key a winner onto an exactor box onto a triactor box onto a superfecta box, the 50 cent bet will cost $144 (1*2*6*24*.50cents). Good luck to that. Also, think about how many times in your life you ever would have hit that exact sequence. If you said zero, you are telling the truth.

Now lets say it is a super chalky looking four races. You like a 3-2 shot in the first leg, and exactor that will pay $20 in the second if it wins, a triactor that will pay $80 for a deuce in the third leg, and a super that figures to pay $200 in fourth leg for a dollar.
The probability of that hitting (when taking real odds before takeout) is something like 3*25*50*260 which is about 975,000-1. Again, I don't see the pool hitting a million ever, and there are probably only a very few days when a sequence like this is even likely, even at Pimlico.

Another reason this bet has failure written all over it is there are no consolation prizes. Lotteries and slots understand that churn is critical to keep players in the hunt. Lets say you are lucky enough to hit the first three legs in the Slider, it is an insult to say "thanks for playing, come again."

I'm all for bets that might lure slots and lottery players into betting on the races, but this bet will not do it.

The Gulfstream Pick 6 and the Fortune 6 at Beulah are very good ideas in that they can potentially grow enough to the point where the unsophisticated crowd might take a chance and might start learning about the races in the process. It is simple. Pick a winner each race, and the fact that if you do hit all 6 parts but share the pool, you will get more than just "too bad, so sad, try again." Even sophisticated players have admitted playing these bets when the pools get up high enough.

You can tell something about this bet, it was devised by someone who doesn't understand the bettor or the potential bettor. There was most likely zero market research done as well.

A National Lottery Pick 7 or 8 might work. But it would need to be available at Quickie Mart kiosks across the country. Oh, and consolation prizes are a must.

Why didn't Pimlico at least run the idea through HANA before coming out with a new bet? They'll help, I'm sure. But there is no way thumbs up would have been given for The Slider."

A real businessman would have reached out to the public first. This Slider is just a hare brained scheme devised by someone who just has zero clue.

15 February 2011

Some Recent Historical Takeout Info About Woodbine

It isn't very easy to find historical takeout info, outside of archived newspaper articles, it is especially tough to find old takeouts for Canadian tracks. I used to think they were found in the program. I have some old Queen's Plate programs from the 1960's, and couldn't find it.

I was over at my brothers house the other day, and he showed me his keepsake Daily Racing Form from Secretariat's last race, which was at Woodbine in 1973.

Incidentally, that was the first day I started selling racing forms. I was 12. Sold around 300 forms before the first race, got paid peanuts, and spent the rest of the day in the dining room (my mother was a regular and had a table).

Back to the the old form. Takeout information was in the charts. Eureka. So here are some findings from that form and a few Breeder's Cup forms I have kept through the year:

Woodbine's takeout in 1973 was 17% for all bets. 9 1/2% went to the track (for the track and purses), 7% went to the Provincial government, while another 1/2% went to the federal government. Back then, there was a daily double on the first two races, and 3 or 4 exactors on each card...that was it. Money was churned a lot more efficiently back then, that is for sure.

I'm working on finding some info from the 80's or early 90's, because lots changed from 1973-1996. I'm not sure when takeout on exotics shot up, but they certainly did.

One huge change happened the year Woodbine hosted the Breeders' Cup in 1996, the Ontario government dropped their cut on bets from 7% to only 1/2%. But takeout only dropped a bit on WPS that year. The takeout back then was 15.2% on WPS, 26.7% on exactors and doubles, and 28.7% on triactors and the Win 4. The federal tax was up to .8% from .5% in 1973 (today, the combined tax the government retains is still 1.3%).

In 1998, I notice that WPS was up to 16.2%, while other bets remained the same.

Woodbine got slots in 1999, but there was no immediate relief for the Horseplayer. Even with a cut from the government and slots, Woodbine (and Fort Erie for that matter) didn't even try to cultivate its horse racing customer.

I have some data on Fort Erie from 1999. 17.2% on WPS, 28.7% on triactors, and 26.7% on doubles and exactors.

Somewhere between 2000 and 2001, Woodbine finally made a significant move and dropped takeout in exactors and doubles to 20.5%. Fort Erie never followed suit.
WPS was up to 16.95%, triactors were 28.3%, and all other bets were 26.3% at Woodbine.

The only other changes that have happened at Woodbine since 2001 was a short experiment in reducing the Win 4 to 15% for a couple of years. It was raised back up to 25% on the hush. Just over a year ago, Woodbine reduced takeout on triactors from 28.3% to 27%.

Fort Erie hasn't changed much since 1999. WPS is now 16.95%, while triactors are 28.2% and all other bets are 26.2%. And they wonder why they can't grow their business?

Some other takeout rates from 1999. Aqueduct: WPS 15%, Tris/P3s/P6/Supers 25%, all other bets 20%. Gulfstream Park: WPS 15%, DD Ex 20%, All other bets 25%. Keeneland 16% on all bets. California A tracks had takeouts stay the same except they raised 1/2% in 2004 on exotics, and recently apparently just blew themselves out of the water by raising takeouts on exotics 2-3% at the beginning of this year.

For an up to date chart on track takeout click here.

Speaking of California, predictably Santa Anita is looking to rescind the takeout hike racing dates in March by eliminating Wednesdays.  What happened to promise of bigger fields thanks to the hike in purses from the extra money coming in from the takeout hike?  Well lets see, handle is down, field size is down (despite cutting to 4 days this year in January and February (though they had a few rain outs last year), and most importantly, the racetrack is losing a lot of money each day they run in comparison to last year.

Personally, I get as much of a rush these days looking at the end of the day handle from Santa Anita and Golden Gate while comparing it to last year's handle, as I did betting their product (I stopped the day the bill was signed by The Terminator to raise takeout).   Maybe David Israel is right,  horse racing is entertainment (at least when you aren't betting on it).

Lately, especially since the impact of the Mid Atlantic Co Op can be seen (last year, Santa Anita wasn't on their menu until January 22), handle at Santa Anita is consistently down every day anywhere between half a million and close to $3 million (last Saturday).

Meanwhile handle from Tampa Bay has been amazing.  Management there should send the TOC and CHRB a huge thank you letter.  For example, on Saturday, they did over $8.2 million in handle compared to last year for the same Saturday and same amount of races when they did $6.7 million.  I don't think Woodbine does anything close to $8 million on their biggest days.  

Andy Beyer has a new article out about Microbets.  The two pluses when it comes to making fractional wagers on supers, etc. are that it allows smaller players to participate better when it comes to chasing big payoffs, and most importantly is the tax advantage (a lot less winning bets are subject to withholding tax which takes money out the system that could be churned back). 

Canadians don't have to worry about withholding taxes, thankfully, but it is no reason to have such high track takeouts.  

I especially like Beyer's line..."Gulfstream promoted the Pick Five by offering it with a takeout of 15 percent (compared to the extortionate 26 percent it takes from trifectas and superfectas."

One negative when it comes to microbets is that they entice Horseplayers to usually higher takeout bets. Some the same money that used to be churned at lower rates in WPS or exactor bets (which usually have lower takeouts) is now being directed to superfectas which typically have higher takeout rates. This generally moves up the blended takeout rate that Horseplayers now have to overcome, which at the end of the day, makes a bettor go broke quicker than before.

The other negative is that Americans betting through and American based bet taker cannot play microbets offered in Canada, and visa versa. With the Canadian dollar and US dollar close to par, this rule needs to be dealt with. It really gives the local Horseplayer an unfair advantage, especially when allocating dollar wagers on possible pool shot combos or split pool shots that can be had for 10 or 20 cents.

For example, Woodbine offers 20 cent supers and Pick 4's, but Americans have to play them with a $1 minimum and Canadians betting through HPI or at Canadian tracks or simulcast centers can't make microbets on US tracks.

This includes the Gulfstream Park new Pick 6, which Beyer calls a suckers bet. I think Beyer is missing the point in that this bet can draw fringe Horseplayers to bet on a card they wouldn't normally bet, and more importantly possibly entice slots and lottery players to cross over to the "dark side."

Any hoot, it looks like Andy Beyer has officially coined the term microbet. I like it because I was very uncomfortable using the term "fractional wagers."

10 February 2011

Anti-Gambling Groups Were All For Takeout Hikes

A thread was started at Pace Advantage "What Was The Takeout In The Golden Age Of Racing."
A forum member csperberg posted a Sports Illustrated article entitled "The Intolerable Squeeze" by a Johns Hopkins professor Dr. Albert Hammond. The article, which is all about track takeout, is dated 1963, but many of the points and facts in the article are as relevant today as they were then.

The first thing to really catch my eye was this:
"Some favor an increase in the take because they want the tax to discourage, inhibit, penalize betting."

Yes, those who didn't gamble, and were against gambling, understood the economics of track takeout more than groups like the TOC and CHRB seem to understand it today.

Tracks understood it right from the start, as the article points out that they fought any imposed takeout increases by the government. Those were the days.

It is important to understand that although the points in the article are mostly in tune with racing today, there are some major differences. When the article was written, racing still had monopoly status. You had to be at the track to make a parimutuel bet, there were only 8 races a card, and one or two exotic bets tops. Churn was the name of the game, and a good percentage of Horseplayers left with at least something in their pocket so as to entice them to come back as quickly as possible.

Another point that can be paralleled to today is that when takeout rose, it was good for bookies. They had less risk and more incentive to operate. Something not mentioned in the article is that bookmakers were probably the first rebaters. I remember as a teenager in the late 70's, there were a few bookies in the stands at Woodbine. Almost every regular remembers Woody (who passed away recently). He used to hang out on the second floor at the far left of the grandstand. Not only providing credit for those who didn't have money at the track, he also rebated up to 10 points to his best customers. He got pinched a couple of times, barred a couple of times, but when he wasn't around, there were other bookies to play with.

Nowadays, horse racing's competition isn't only off shore bookies, but other forms of gambling and lotteries.

When Dr. Hammond postulates that if takeout were 99%, there would still be line ups to make bets, that may be true in a monopoly situation, and he does concede that there would be much turnover amongst the patrons. Today, that turnover isn't there anymore, but tracks seem to ignore that. High takeouts wipe out players quickly and when someone finally has had enough there isn't a replacement gambler waiting in the wings.

I also enjoyed the history of track takeout outlined in the article. It caused me to do further research. Doing a Google News archive search I found that New York raised takeout from 10% to 15% in 1946. It helped the state coffers immediately but it began the slow kill of racing.

Some things haven't changed unfortunately as seen by California's latest takeout rise. The typical attitude prevalent in the industry was the same then as it is now:

Racegoers may well be the most put-upon and the least represented of groups. Last winter a good race writer, discussing a proposal for the conduct of racing and an increased take, said that "for once all parties concerned" were in favor. He listed the parties, and nowhere was there a mention of the most numerous—and financially most indispensable—party: those whose dollars keep the totalizer flickering. The Jockey Club and tracks, stockholders, management, state commissions and their association, officials, horse owners and trainers, riders, jockeys' agents, veterinarians, farriers, mutuel clerks, stable help, concessionaires, cooks, waiters, janitors, charwomen—all these sometimes speak and sometimes act in their own interest. But not the vast, miscellaneous, disorganized racegoers—33,073,712 last year—on whose patronage the well-being of the others depends.

For horse racing to grow going forward, all decisions should be based on what will attract more Horseplayers and betting, not what will make Horsemen happier.

It is kind of interesting that Hammond states that takeout was a secret from the 1940's to the early 60's. Again, pointing out the number doesn't stop a player from playing in most cases.....if the takeout number is high though, it stops the player from playing in the future, or at least really slows the player down.

Some track takeouts from 1963:
Maryland 13% (increased from 12% in 1962)
Kentucky 14%
New York 15% (no increase since the big one in 1946)
Florida 15%

The thing that really is kind of mind blowing is the percentage the State took. In New York, two thirds of the money collected as takeout went to the government. In Maryland and Kentucky, the percentage of takeout going to government was between 28 and 35%. Those numbers are huge in comparison of what government receive today.

Tracks generally existed on 2-4% of total takeout, while purse accounts were funded with 2-4% of the takeout. According to Jockey Club stats, in 2009, 8.9% of money wagered went to fund purses (now this number includes alternative gaming subsidies so if there was zero coming from slots, etc., still over 6.5% of all that is wagered would wind up in purses.

In 1962, $2.6 billion was wagered on horse racing in the US. Today, race dates are up around 35-40% since then. The US population is up 72% since then. Around $11.5 billion was wagered last year. $1 in 1962 had the same buying power of $7.20 today. Taking population growth and inflation into account, if there was zero growth in wagering per person on horse racing, over $32 billion would have been wagered last year. Horse racing is available to just about anyone, anytime of the day. You don't have to be at the track anymore. This should lead to major growth one would think, even enough to make up for competition from alternative gambling (but that would require optimal pricing). The rise of blended track takeout from 14% to 21% is surely one main factor why horse racing is faltering badly.

The article ends off:

At first the states, then the tracks, and now the horsemen have learned they could not only be cut in on the take, but could be allotted more of that bonanza of hidden extortion from undiscourageable bettors. Certainly it is the cumulative cupidity of the state that is primarily to blame. But one wonders sometimes if all those concerned are not forgetful of simple mercy—if not justice—to the fellow who pays the bills. A motorist would not be quiet if he were asked to pay twice the cost of his car in order to get it. But he would at least have his car. The racegoer who pays the present cut in order to take a chance on winning is almost at the point of paying double for what has become a chance to lose but not to win. In any event, it appears to be time for the victims themselves to reflect, retract, resist—or perhaps find some means of avoidance. As a beginning, every track should be required to put prominently on its program a full and clear schedule of all cuts and fees and taxes, and who gets how much of each.

Well, we finally have HANA to give Horseplayers a voice, place takeout rates out there in everyone's face, and to finally say ENOUGH IS ENOUGH!

California is in the process of learning a very expensive lesson right now. I doubt we will see another takeout hike anywhere for a very very long time. In fact, I expect takeout rates to only come down from here on in as racetracks are now starting to get it.

To Join HANA, click here.

I felt like I was doing the bidding of blogger Colin's Ghost when putting this blog piece up. Check out his post about when horse racing finally eliminated breakage back in 1927.

5 February 2011

Why Didn't David Willmot Hear Himself Talk

With handle still plummeting across North America, I though I'd bring out a brilliant speech by none other than David Willmot back in 2001 when he accepted The John W. Galbreath Award for Outstanding Entrepreneurship in the Equine Industry. Racing execs everywhere should take live by the observations he made in the speech. it is a shame that Willmot himself didn't live by those words.

In 2001, Woodbine was doing great. Some history, Willmot took over the reigns at the OJC around 6 years earlier. They were on the brink of bankruptcy, unable to compete with lotteries, the Blue Jays, and Charity Casinos which were popping up all over Toronto, Willmot first sold some of the tracks non-income producing (and/or losing) assets (paintings, Fort Erie, etc.), and also got involved in optimizing the payroll.

But most importantly, he lobbied the government to drop their cut from takeout to next to nothing, while simultaneously bring slots to Woodbine which fueled purses. What he failed to do was cut takeout by the amounts he didn't have to pay to the government anymore. This is one major reason that after 2001, business slowed down.

The other important thing he did was start up phone betting which made it very easy to get into internet betting without any delays when the technology was in place.

Yes, Willmot made it very easy for customers all across Ontario and all of Canada to wager on many horse races a day. The problem of course, was and still is very steep takeout rates which makes winning impossible.

Willmot's failure to compete in the first decade of this new century gave medium and large gamblers no choice but to give Betfair and offshore bookies their action. Woodbine lost close to a generation of new bettors, and Willmot could have saved at least half the loss if he had only acted on what he said when accepting the award.

By not taking his advice, Willmot just allowed Horseplayers to lose faster and faster as more tracks are available from just about everywhere to everyone now. But you won't find any Chris Moneymakers' betting the ponies in Canada, at least into a 21% blended takeout rate. And that is the problem. Winners create new players, and hideous track takeouts only creates losers.

Here is his speech:

Thank you, Bob. I am delighted to be here. My wife, who is from Lexington, was editor of the now-defunct Thoroughbred Record when I met her and brought her to Canada. She found the following words of George Bernard Shaw that were often quoted by John Galbreath. Let me read them to you.

“I want to be used up when I leave this earth. For the harder I work, the more I live. I rejoice at life for its own sake. Life is no brief candle to me; it is a splendid torch, which I have got hold of for the moment. And I want to make it burn as brightly as I can before passing it on to future generations.”

When I read words like that, I am so honored to be associated with an award that is named after John Galbreath. As a younger man in racing, I saw him manage Darby Dan, and I saw him operate the Pittsburgh Pirates. The combination of sportsmanship, business talents, and integrity that Mr. Galbreath possessed was astounding.

I couldn’t be happier to be here today, especially to talk to students in this program. I majored in economics and then law, but my minor was history. All my friends say that I am a frustrated history professor. I love to lecture to students, but I won’t go on too long. When I was in college on a Thursday afternoon, I didn’t want to listen to some guy go on about himself. I wanted to get out. "Where is the nearest pub?"

What I do want to talk briefly to you about are some of my earlier experiences as a breeder and horseman, and how I feel about the business. For me, the epiphany came when I went into track management after almost 30 years on the other side of the sport. It was astounding for me to realize that I knew absolutely nothing about the business of conducting horse racing.

The first race I ever saw was the 1964 Kentucky Derby won by Northern Dancer, a huge Canadian hero. That was the day that I fell in love with the business of horse racing. I love horses. I admire their beauty and courage. But what I have always felt passionately about is the business and the challenge of horse racing. Competition. Can you nick your mares better than other people? Can you raise a better horse? Can you train them better? Can you manage their careers better? And will any of that equate to success at the racetrack?

Kinghaven, the farm that I owned with my father – he died in 1994 – and that I have owned since, has bred over 90 stakes winners, a lot of good horses. During those years I spent on the backstretch, I thought I understood what this business was all about. It was pretty simple. You tried to breed a good horse, you managed it, and then you tried to make sense of your income statement. Of course, everybody that showed up at the racetrack was there to watch your horse run.

In 1984, I was appointed to the board of the Ontario Jockey Club – the youngest member of the board. I am now 51, and it says something about the place, and about horse racing boards, that I was still the youngest member until this past year. But after I went on the Board, I, along with many others in the industry across North America, watched racing go into a serious decline. There were lots of reasons and finger pointing about why horse racing was getting into difficulty.

In 1995, the OJC, which was 120-years-old, operated five tracks. In terms of racing days, it was the largest racing organization in the world before Churchill and Magna became holding companies. The Board asked me that year to go in as the CEO. I had been the “angry young man,” and I think they’d had enough of listening to me complain about how we were messing things up. So they said, “If you are so smart, come in as CEO.”

I had been involved in other businesses: insurance, oil and gas, bottled water, and computer supplies. I had managed to turn some companies around and had done well buying and selling them. A friend of mine, once the head of Hockey Canada, another not-for-profit, where there is a lot of politics and nobody has real ownership, said to me, "David, don’t go in as CEO up there until things get really smelly. Because they are not going to let you do what you think has to be done until things get smelly." By 1995, things were getting pretty smelly at the OJC. In fact, they were so smelly that I began to wonder why I was in that business.

I would look out the window at my farm thinking, “Am I nuts to have money invested in this business? It’s a dying, contracting business, and a dangerous place to have your money invested.”

When I went into the OJC as CEO in 1995, we were about three months from having the Bank of Montreal call our loans. My first meeting with them – I remember well – I was asked to go down and meet with the bank. I thought it was an introduction, just one of those get-to-know-the-new-CEO meetings. When I walked into the room and saw these five faces, I knew this was no introductory meeting. This was a “come-to-Jesus” meeting. I was there to be informed by the bank that if things didn’t change, and quickly, they planned to pull the loans.

The unusual thing about the OJC – we have since changed our name and I will talk about that in a minute – the unusual thing about the Ontario Jockey Club is that it is a dual breed organization. Its harness racing product is on a par with the biggest and best in North America, the Meadowlands. Our Thoroughbred racing is not quite that high, but we would probably have about the fourth best product in North America on Thoroughbreds. Between the two arms of racing, there are about 40,000 jobs in the province of Ontario that rely on the business.

So, I felt a huge pressure to try to make sense of this business that was in difficulty. The first thing that I realized, aside from the lecture from the bank that we had better start proving that we were a business, was that I didn’t really know what business we were in. And it is pretty hard to turn a business around when you don’t know what business you are in.

During the first month that I was CEO, I had a meeting with about eight or ten of our biggest gamblers. During our discussion, I used the word “fan,” and talked about our “fans.” And one of these guys looked at me and said, “Don’t insult me.” I said, “Well, what do you mean?” He said, “I am not a fan of anything that you or your rich friends do around here. And don’t call me a "patron" either, because I’m not a patron. Those are people who give money voluntarily, like for the arts. Philanthropically, I am not a patron. I am a gambler. I am your customer and I want to be treated with the respect that a paying customer deserves.”

Since that day, we have never used the terms fan or patron around our company. It is customer. Since that day, everything we have done to turn our business around, and to resurrect horse racing in the province of Ontario, has been customer driven.

One of the difficulties in this industry, and I say this as a horseman myself, is that there has been too much focus on the supply side. This is the side of the business that provides the product, the horses to the tracks, and includes breeders, trainers, and backstretch employees – and I spent years on the backstretch. But there is a demand-side of the business also. The customer, bettor, gambler – who provides the capital; those purses that enable the rest of it to make sense.

Over the years, the thinking in this industry – certainly among management of tracks across North America – has been driven by this supply side. Everything has been, “What can be done for the horsemen. How can we fix up the backstretch? Let’s do whatever the horsemen want. If they want more racing, then we should have more racing, even if that means smaller fields.”

But if you sit down with the gamblers, it is pretty simple what they want. They want field size, they want pool size, and they want low takeout. Frankly, they don’t care if a horse is by Mr. Prospector or Santa Claus. The truth of the matter is, racing is a gambling business 99.8 percent of the time and a sport the other point-two percent. Granted, it’s a sport for a lot of those people who supply the product, but for the industry to work, we have to take care of the customer. I think for decades we have not.

The customer doesn’t want small fields. He doesn’t want “trickle-down economics” like a lot of horsemen do. Horsemen figure, "if we race all year round and have five horse fields, I will pick up enough fourth- and fifth-place finishes that I might make sense of this." Well, racing is still competition. It is not there to guarantee anybody a way of life. You have to be good at what you do, be competitive, in order to provide a product that the customer wants to bet on. And the customer wants things that I just mentioned plus quality racing, but if you don’t give them the fundamentals, five-horse fields of well-bred horses won’t encourage the bettor to bet.

A Philadelphia Park executive said to one of his biggest bettors on Breeders’ Cup Day, “Who are you going to bet on in the Distaff?” He said, “I like so-an-so, and I am watching that race because I’m interested in it.” (I think the race had six or seven horses in it) “But I am betting on the eighth race at Finger Lakes. It has 12 horses in it.”

We have to realize that the customer does not want the same things that horsemen want, and that the customer’s best interests are not served by what horsemen want. But we have to deal with the customer side. Bring the customers back and give them good value for their entertainment and gaming dollar. Only by doing that will we get purses up high enough to make the participants, the supply side of the business, healthy again. It is happening – slowly. Keeneland is dropping its takeout rate. New York is dropping its takeout rate at Saratoga this year. These are terrific signs that a few racing organizations – and I include ours among them; organizations that used to look at things only from the horsemen’s perspective – are beginning to look at them from the point of view of the customer.

So, beginning back in 1995, we adopted a customer-driven philosophy. We lobbied the Provincial government to reduce the pari-mutuel tax, and we were successful after years of trying because we were able to make the argument that the lotteries, the commercial casinos, the charity casinos, the scratch-and-wins, the break-open tickets – all of the things that the Provincial government introduced to compete with horse racing – were being taxed at a lower rate than racing. After years of crying poor, to which the government wasn’t going to respond, we found an Achilles heel, and that was fair taxation. For the first time, when we went to them and said, “We want a reduction because you are unfairly taxing us,” the argument was made, it was accepted, and the tax was lowered. And immediately, some of the tax reduction was passed on to our customers through a lower takeout.

At the same time, we had been lobbying very hard to get the enabling legislation for slot machines at racetracks. It took us three years of negotiating with government on the final deal and the entire industry had to hang together for the Province to agree to a deal that was fair and a true “win-win” scenario for government and the industry. The fact of the matter is that slots are merely a second product line at an existing gaming destination. They don’t create an expansion of gaming locations. This is a politically safe and socially responsible way for government to raise more gaming revenue without introducing more gaming locations in a jurisdiction.

The key is to try and convince government and to be proactive. I think this is one of the challenges that Kentucky has. The key is to convince the State or the Provincial government to put expanded gaming in the racetracks only; don’t put VLTs or slots across the road in bars and restaurants or casinos. That will hurt the horse racing and breeding business. With slots, yes, there is additional capital for purses, which brings back financial health to the business, but you also bring more people back to the track…customers that you can then convert.

Now, a lot of gaming consultants, and you have one on the faculty of this university, will say that racing is cannibalized by slot machines and that you cannot cross a slot player over to racing. But we believe that we are proving every day that that is not true. When we brought slot machines into Woodbine and Mohawk, our two tracks, we physically integrated the machines in such a way that no one coming to the slots could not be exposed to horse racing, as opposed to going in and out for the slots and not knowing they were at the races.

We built or modified our plants in such a way that slot players, whenever they go for a walk, find themselves on an attractive racing floor. We spent millions improving our racing floors so that when slot customers went up the escalator, they didn’t walk out onto what we used to call “1956 industrial Woodbine” – gray steel pillars, gray walls, stereotypical racetrack, cigar-smoking guy standing in front of the TV saying things you don’t want to listen to and throwing paper on the floor. We completely renovated and rebuilt our tracks so that they were modern, clean, safe – we beefed up security, and barred about 50 of the worst actors. Incidentally, since we’ve done this, female attendance is up about 40 percent and families are coming back.

We want customers to have a very entertaining experience in attractive surroundings, and to feel they are getting really good value for their dollar.

At one of those early customer meetings, that gambler I told you about, said, “For years, what you guys have done for those of us who want to bet on the horses, is drag us in, turn us upside down, shake the money out of our pockets, and then kick us back out. And you think the only reason we are here is to watch you, your friends, and your brown furry animals enjoy your elitist activity.”

Those are pretty harsh words, but he was right. That is how customers at racetracks have been treated. They’ve been dismissed by management as people who will be there no matter how they’re treated. Well, we spent $120 million on our tracks, which was funded by turning our business around, by bringing people back to the tracks, by restoring the confidence of our bankers, by the general turnaround in the industry, and by the prospect of slots. We created facilities that a lapsed customer would come back to and feel comfortable and that a new user would come to and say, “This is not what I expected from a racetrack. This is very nice.”

At the same time, we realized that we had to distribute our product off-track. Our TV department now has over 100 people in it, which makes it as large as a station in a large city. We have gone out on three platforms. We have gone out with what I term hard-core, medium, and soft-core distribution of our racing product in Canada. The hard core is The Racing Network Canada (TRNC). The TRN in the U.S. went broke competing with TVG for several reasons, including a high cost of distribution. TRN Canada, which is owned 100 percent by our company, has been very successful. In just three years, our telephone account betting has grown from zero to $60 million, and it is because we are putting our product into the home. If you have TRN Canada, you basically get barraged with racing and betting information.

Our soft-core product is SportsNet, where we have a lot of racing on basic cable. It is more the TVG style; that is, explaining to people how to bet, although they don’t use horseracing jargon. They wouldn’t talk about a horse running for a “tag.” If you had never watched a horse race, what does it mean? A dry cleaning tag? What’s a tag? So that product is much more geared toward exposing racing and converting new people to racing.

In the middle is full-card simulcasting. We have 426 live race programs a year, so we have a lot of product we send out to various simulcasting networks across North America.

You folks are obviously in this program because you are interested in the business side of the equine industry. For those interested in racing, the opportunities for skilled management are endless. As the industry starts to turn around, the opportunity for exciting and challenging employment is growing dramatically.

In our company, the Food and Beverage Department has 450 employees and does $30 million a year in business. Our Television Department has over 100 employees. There are more than 400 employees in the Mutuels Department. It goes on and on. We have 26 teletheaters, which is another department. So, there are a number of different areas that you could look upon as a potential career opportunity, and those are in addition to the racing departments. Presumably, you like the equine industry, and may like being involved with horses. But the business of racing needs capable, bright, young people who have had formal business education.

For years, racing used to rely on people coming up through the backstretch for the management side. But we are desperate for bright, young people who can come in and look at the horseracing industry as a business. Who can understand demand side and supply side and what has to be done in the way of marketing. You have to understand your product before you can sell it, and you had better understand whom your customer is before you can sell that product to them.

We have an incredible opportunity in horse racing today. We have the bubble of the baby boomers for the next 20 years. Racing probably has the best demographic of almost any business in North America in the sense that it is basically 45-year-old-and-up people who have disposable income and discretionary time for racing. I’ve heard people say we need to get more young families out to the races. But I know that when I was younger, going to the races didn’t make an awful lot of sense. Our two kids did not want to go and we were too busy.

We have a great demographic. If we can build on that demographic, give them what they want, give them security, give them good transportation, give them good food, give them good surroundings and give them good racing product that is based upon all the fundamentals of what a good gambling product is, we can succeed. If we are ever going to expand horse racing, if it is going to regenerate itself, then we do have to bring new people into the business.

A few years ago, Andy Beyer referred to racing as “a gambling game.” I believe it is more often that than a sport. It is a sport on Kentucky Derby day, and on Breeders’ Cup day, or on Queen’s Plate day at our track, but it is not a sport most of the time. Most of the time it is gambling. A $20,000 claimer on a Thursday afternoon is not a sport. Jerry Bailey may be brilliant when he wins the Breeders’ Cup on a horse, but he is a bum when he gets beaten on a 4-to-5 shot in a $20,000 claimer on Thursday. At that moment, he is not a sports hero. He is simply a means to a gambler winning his bet, and if Jerry blows it, that gambler is very upset.

So, we have this hybrid between sport and business. Over the years, by convincing ourselves that it was purely a sport, we let the business slide. We lost track of those people who come to the tracks, why they come, what they want by way of product, value, and entertainment for their dollar. I believe we are starting to bring them back and I think we have to just not be naïve about what brings them back.

We have two teen-age sons, 14 and 16. If I am watching TRN Canada at home and they walk into the room, they will ask, “Do you like anything?” If I say, “No, I’m just watching,” they are gone out the door. But if I say, “Yeah, I like the five horse in this race,” they’ll ask, “Can I have a piece of your bet?” They will sit and watch with me because they have $2 or $5 riding on the race. Even though our foaling barn is 50 yards from our house, our sons have not taken much interest in “the horse” or “the sport,” but they like to gamble. We can talk about juvenile gambling, but forget that. They are going to be on their own soon and I want them as customers.

So the fact is, we have got to attract the next generation of fans by making it a fully and excitingly interactive in-home product. I don’t think with conventional marketing that you can get many people who have never been to a racetrack to go.

We have to get people out to the tracks for reasons that are necessarily associated with racing. They have to come out because the food is good, and the ambiance is good. They feel the entertainment experience as well as the racing experience. We will soon have fully interactive in-home wagering where the picture comes up – you put up your account – you build your bet – you place it – it is automatically credited or debited. When that kind of legal in-home wagering becomes common, I believe that young people of today, who are computer literate, who love that interactivity, will start betting on racing just because it is a gambling game.

Ultimately, they may become interested in the horse and the sport and will one day ask, “Why don’t we actually go to the track and see what this is like live?” I believe that is the way to bring new fans to the racetrack. But when they get there, they had better be able to find a combined entertainment-sport-and-gaming product that will satisfy them. At the very least, the track can’t be so empty that they walk in and say to themselves, “What’s wrong with me that I am here?”

People are coming back to tracks today and it’s a challenge. It is going to be a long row to hoe, but I think racing is over its worst days and has its brightest days ahead.

When I started as the CEO of the OJC, we had negative cash flow of $10 million. Today, we have positive $40 million in cash flow. In terms of perception, our name sort of fit our management. We were the Ontario Jockey Club, a bunch of elitist, self-perpetuating, self-appointed guys, running their horses, and hoping the public came and bet enough money that they could make sense of their “elitist activity,” as that gambler told me. We have now changed our name to the Woodbine Entertainment Group. We are not-for-profit, but we don’t think of ourselves as not-for-profit. We are a business with over 3,000 employees that does $1.3 billion a year.

Today, just the change of name evokes for customers and potential customers the fact that we are an entertainment experience and not an outdated club. Our vice-president of human resources was meeting with the Deputy Minister of Labor, and when she put her business card in front of him, he said, “How many jockeys are in your club?” So we changed the name to change the image of racing.

Thank you very much for having me today.

A couple of final things. Willmot did drop takeout on doubles and exactors around 2000 by a point. The thing is that the government gave the track around a 6% cut. The good majority of it was split between the track and the horsemen and not the bettors, though some more was given to larger bettors through a very minor rebate program through their betting account system.

I'm hopeful, new Woodbine Chief Nick Eaves will actually follow through on Willmot's superb ideas and observations (the one's I highlighted as his crystal ball was way off when speaking of the future). There are indications that he is as Woodbine handle bucked the trend last year (allowing the big rebate shops to take the signal, getting TVG to feature them, and also being placed in the Eastern edition of the DRF is why). Domestically they still sucked DB's (the first initial is Donkey), as they are priced too high as a competitive form of gambling, though they look like they are starting to get it (the change of direction on their Racing Show on The Score) as they realize that nothing has changed since 2001, 1981, or 1931: Horse racing is fueled by the bettor. The bettor is the customer, not the fan, not the horseman.