Shh! I Know How To Grow Horse Racing

In order for horse racing to grow, not decline, not go sideways, it needs to be customer driven. The industry also needs to finally concede that the customer is not the Horseman but the Horseplayer.

The industry has to kiss the Horseplayers' butt. Not only are they the major source for revenue, but they are the ones most likely to bring in new Horseplayers.

So what needs to be done? I'm glad I asked.

TAKEOUT

In the real world of business there is a concept called optimal pricing. Optimal pricing is a good thing, not a bad thing, it is the price that returns the net revenues to the business (in this case it the takeout rate(s) that makes tracks, horsemen and breeders the most money). The industry has not made any serious effort whatsoever to find the optimum price (takeout rate) for the various wagers they offer. Sure, we've seen takeout reductions by some tracks, but what is needed is an across the board cut by the main tracks in order to properly find the price points.

Why does takeout mean so much? The lower the takeout, the more money cashed by the Horseplayer. The more money cashed, the longer they last, the more likely they are to focus more time and resources to the game, and the more likely their focus becomes contagious with friends, coworkers, and/or family members. They don't even have to know what the takeout rates are, it all psychological and has to do with gambling satisfaction, the same concept that is used by casinos in high churn games like blackjack, slots, roulette, etc.

Lower takeout may actually create the odd visible winner. Horse racing has none that I can think of who beats a 21% takeout rate. Visible winners works well for poker. Millions lose billions of dollars, but there is a carrot dangling in front of all gambler's faces, and that is that the game is perceived to be beatable. Horse racing is not perceived to be beatable long term anymore because there are no visible winners.

Slots has a hold (the same as takeout) of around 7% on average. If takeout doesn't matter, if optimal pricing doesn't matter, why isn't the casino hold on slots 21% on average like it is in horse racing? You gotta give the player the psychological fix and/or give them the impression that the game is beatable in their mind (this happens because of all the wins a slots player has during their time at the machine).


It stands to reason that the bets that result in the higher cashing rates should have the lowest takeout as they produce the largest churn ie show, place and then win, followed by exactas, doubles, and then the other exotic wagers (the new dime superfecta bets put them now on an equal scale with exactas pretty much). In actuality, when you take breakage into consideration, show wagering is probably the worst bet out there even though WPS is typically has the lowest takeout rate associated with it.

Knowing what I know, I think WPS has an optimal takeout rate that is closer to 8% than 16-20%. Exactas and doubles would probably make tracks the most money if rates were closer to 12%, and so on.

And why is breakage still be gobbled up by tracks? Anyone who wagers these days knows that the industry is capable of calculating to the penny. Thanks to fractional wagers it is not uncommon to have and odd amount like $6.14 in your ADW account. If the industry is serious about nurturing their customers, they should immediately start paying off to the penny, especially show bets. In fact, to eliminate bridge jumpers, something tracks do not like as they can produce negative pools, why not make the minimum payout $2.01? Who is going to risk $1,000 to make a $5? Sure, it means changing some state laws, but since this will coincide with eliminating breakage, it shouldn't be hard to pass in most jurisdictions.

Tracks already know that the more a Horseplayer cashes, the more they bet back. And outside of big windfall cashes, all the money cashed winds up churned back into the windows. The idea of optimal pricing should be a no brainer.

Until takeouts are slashed across the board industry wide (I won't hold my breath), the industry should begin to embrace rebates because the odd rebated player makes money betting horses. With poker shut down, you'd figure that horse racing could attract some of these out of work players, but rebating for the most part is still a secret. If embraced horse racing could promote winning Horseplayers, but unfortunately embracing rebates is an admission that takeout is way too high.

Tracks in states that have source market fees that make rebating impossible should fight to have these impositions removed. Everyone should be able to get rebates if they want them and the track or ADW wants to give them out. Even though the thought of rebates causes some in the industry to shudder, the top racing execs know that if they elimated rebating, handle would dry up and valuable players (most who lose a lot of money each year) would finally say enough is enough.

DRUGS

Drugs are perceived as bad by the general public. Does it hinder growth? It would if horse racing were to attract more newbies by reducing takeout. Does it hinder the current Horseplayer? I'd say that many avoid betting or bet less on races that have super trainers in it.

Overall confidence when it comes to wagering has definitely eroded due to trying to guess which horse is drugged up (with legal or illegal untested drugs) or which horse had a hyperbaric session (which is legal, but produces milk shake like results in many cases) or two.

From a Horseplayer's perspective it would be nice to know when a horse got an oxygen treatment, or when a horse had a medical procedure. In the NFL, where gambling is illegal nudge nudge wink wink, if a player stubs his toe on a dining room table, he shows up on the injury report, but when a horse gets its knee tapped, it is a mystery to everyone except a few insiders. There is no way this game is catering to the Horseplayer when such an edge is given to the backstretch in these cases.

One thing is certain, horses raced a lot more in the 60's than they do today. Is the racetrack drug culture weakening the breed? Most likely it is a major cause we see a reduction in starts because these drug treated horses who run well with lots of time between races but are dependent on drugs to race well wind up in the breeders shed. Drugs have also increased recovery rates needed by horses who were given the drugstore treatment.

Racing needs to reduce the amount of drugs that horses can race on and it needs to be transparent to the public when it comes to treatments horses receive.

Cheaters need to be clobbered when caught. Whether they use a non tested drug or a masked drug that is not on the list of drugs allowed, they need to be criminally charged, simply defrauding the public will do. That is the only true way to deter the cheaters from ruining the game.

Cheaters put pressure on other horsemen to cheat in order to stay in business. This deters owners from expanding operations (unless they are a cheating outfit) and new owners from entering the game, as well. New owners are a great source when it comes to bringing newbies (friends, family, etc.) to the track so that the game can possibly nurture some new customers.

BREEDING AND STAKE RACES

By catering to the breeder, horse racing has contributed to its own decline. With so many stake races for 2 year olds and three year olds, the breeder is inclined to produce horses that are best suited for sprints to a mile and a sixteenth, and horses that peak early in their careers as well. This has totally weakened the breed. The fact that many of these "shooting stars" wind up in the breeder's shed at four makes it difficult to find horses bred for longevity today.

Longevity is an important way to lure in the general public. Quick name 4 top three year olds from 2007? I can't think of one. How about 2011? Blank again. I might remember if there was a Triple Crown winner, but the drugs horses get today and the fact they are a weakened breed from 3 decades ago makes running so quickly between races impossible if winning each race or consistency is a goal. Familiarity with horses like Cigar, Forego, and even Zenyatta is a big way to attract newbies to the game.

There are way too many stake races, and especially too many Grade 1 and Grade 2 races. Again, the high amount of stake races out there is to appease the breeders, not grow the game. To get the public buzzing throughout the year, and not just Triple Crown and Breeders' Cup time, the best need to race against the best. Not the best in New York running against in New York, or the best in Chicago running against the best in Chicago. Nation wide familiarity needs to be the goal here, not fake black type. Many grade 2 and grade 3 stake races mean about as much as the city auditions that American Idol has.

There should be only a couple of big races each weekend tops. And way less two year old races, and a lot more money should go towards 4 year olds and upward.

I remember La Prevoyante's perfect two year old career even though I was on I was only 11 at the time. She ran in the top two year old Stake races for fillies (against boys too in some cases) that were out there. They were all known Stake races at the time, why? Because there weren't that many Stake races out there. And even though her life ended tragically at four, she was able to race 12 times as a two year old, and 39 times lifetime. And I still remember her name.

When it comes to breeding and strengthening the breed, and creating horses the public will be familiar with for more than a year or two, there should be a rule that horses cannot enter the breeding shed until they are 6 (mares 5). Yeah, I can hear the jeers from the breeders, but this about what is good for horse racing's growth, not about quick fixes in order to turn money over as quickly as possible. Eventually, if implemented there will be a lot more money for breeders and in purses as the customer base will grow.

FREE PAST PERFORMANCES

Having free past performances available, with basic info going back 10 lines that include track variant based speed figures can only increase overall handle and nurture new players. The information provider (Equibase) should be paid by tracks, ADWs, and Horsemen. They are the three groups that benefit from higher handle. Some ADWs give out free past performances today for those who wager a certain amount, while other ADWs give out decent rebates and let the player decide how to spend those rebates, so at least there is an understanding that free past performances and/or rebates cause players to play more.

Tracks should have free past performances for their particular track available at their websites.

You can get free statistics on any major sports on the internet in order to make "illegal" wager decisions or legal fantasy decisions, but the customer has to incur an expense to get information play an unbeatable game?

NATION-WIDE LOTTERY

A great way to get more customers is to have a nation wide lottery where tickets can be bought at store kiosks, online at ADWs (the races involved must be carried by all ADWs), and at all tracks, there should be no reason why someone who wants to buy a ticket can't. The lottery should go once a week (Saturdays). A Pick 8. Field size must be large in order to possibly have carryovers, so races need to picked with weather reports in mind.

A website should be created with free past performances for all the races involved. A quick sheet giving the top contenders for each race should be available at tracks and store kiosks. Players can do quick picks, contender quick picks, or pick their own. Consolation prizes can be awarded to those who pick the most winners on carryover days, or the second most winners when the pool is won, as well as those who pick the first four or last four winners, thus keeping the player's interest alive for many of the races.

A nation-wide lottery a sure fire way to get more people introduced to horse racing.

One more thing, there are way too many carryovers out there today that would take a meet to make it worthwhile in attracting serious attention. Get rid of them. I believe they hurt the carryovers worthy of attracting big money and possibly new players. If a bet doesn't attract at least $15,000 on a day without it being a carryover, it should not be a carryover bet.

Thoughts On The Agenda Interview With OMAFRA Panel

I've developed quite a few thoughts after watching the Steve Paikin interview a couple of times.

First off, some ommissions and misinformation.

No mention of the fact that the OLG is now in direct competition with horse racing. It is an obvious conflict of interest. Ontarians only have so much is discretionary funds, especially those who are inclined to gamble.

Been over this one before, but calling the money the horse racing industry received under the SAR program tax payer dollars or a government subsidy is completely wrong. It WAS a business partnership, that helped both the government and racing industry out when it was drawn up, and the money collected by tracks and horsemen were not taxpayer dollars, but their share of gambling losses from customers. However, since the business agreement has been made null and void, any new deal will probably wind up being a subsidy (from tax already collected). Purses were subsidized, but not with taxpayer dollars, but the government got away with propaganda that even Paikin has bought into.

It still bothers me the fact that the $345 million that the tracks used to get will not automatically wind up in the government coffers as much of it will wind up as profit for the new operators. Something that was not mentioned in the interview or by the Liberal Party during their horse racing bashing propaganda campaign.

I still don't get how the panel can conclude that the SAR program was wrong, yet they concede that new forms of gambling such as Instant Racing or sports betting (which they didn't mention in the interview, which means that the OLG has probably told the committee forget about that one) or a lottery similar to the V75 is needed to sustain the racing industry in Ontario. Seriously, what is the difference if racing gets additional funding from slot betting at their establishments or Instant Racing betting at their establishments? The only case on the SAR program being wrong is the fact that there was absolutely no incentive to anyone from racing management to horsemen groups regarding growing the horse racing customer base. One could argue that the OLG didn't want the racing industry to grow their base either, but that might be giving the OLG too much credit.

The amount of money available has turned into an inside joke (watch the interview below). It is a secret. But I believe there is a cap number, and it has been OKed by the government. There is some confusion, because $50 million over three years was initially offered to replace the $345 million per year that will be taken out. The panel stated that $50 is too low (over a year or three years?) and $345 million is too much. It makes me believe that the cap could be close to $150 million a year.

I do like the new deal going forward in that the focus is now on growing the customer base and attracting new Horseplayers. This concept was completely forgotten, even before slots were put into Ontario tracks. The industry is going to be forced into being competitive with other forms of gambling, and if they take it seriously, it means we will see take-out reductions which will lead to higher gambler satisfaction from customers.

Questions, Questions, Questions!

Are they serious about giving 100% of wagering revenues to fund purse accounts and have the government subsize the racetracks (paying for everything from backstretches to utilities to management bonuses?). If a track has no upside financially to make a profit, then their only incentive to keep the track open is to employ their personnel. Sounds way too altruistic. And if this is true, the direction of racing in Ontario will have the horsemen actually running the tracks (something that doesn't sit well with me because horsemen groups tend to be completely ignorant when it comes to growing the game through new customers and increased handle).

The other thing that may happen with Woodbine, Mohawk and the Great Canadian Gaming tracks is that they could become the casino operators. That would allow them to be profitable, but then if that is the goal, why would they care or focus on horse racing? Good for the OLG, bad for racing.

The government will most likely come up with benchmarks for racetracks in order to keep their subsidies in place. But how long will the new deal be, and is that enough time to sustain horse racing?

$150 million a year should be enough for tracks that still want to operate in Ontario to operate. For example, it is estimated that Fort Erie which operates for 7 months a year with 75 plus racedates and an active backstretch costs around $10 million to keep their lights on without taking purses into account. This brings up another interesting question. Since around $5 million from wagering (home market wagering and signal fees from exporting their product) winds up in the purse account, under the old deal, some of that came from a split with HPI and close to another $5 million from wagering went for track operations, does this mean that Fort Erie will get around $10 million to put into their purse account if the panel allows them to race next year?

Currently, tracks get less than 50% of horse betting revenues, while horsemen get around 50% (into purses and breeding programs). Are tracks going to sign a new deal giving them 100% (after provincial and federal taxes)? One thing about a new deal is that allows tracks to play with takeout rates easier (as the 2% extra that went to horsemen put a damper on experimenting in the past since it was on each bet and not on gross revenues). But who will have the say on betting if the horsemen get all or most of it? Again, that is a scary thought.

Any hoot, it is December 5th, 2012 and there are still no dates for Ontario racing in 2013. There has to be some concrete news coming out very very shortly.

Here is the TVO video if you haven't seen it yet: