Archives for September 2013

CNBC reported that live attendance in every major U. S. sport, except pro hockey, has either leveled off or declined over the past three to five years. To illustrate, the crown jewel of American professional sports, the New York Yankees, has seen a decrease of 2,500 fans per game in 2013 and the club sold tickets on Groupon at half price.

Reasons for stagnant attendance encompass the tepid economy, steep ticket/concession prices, proliferation of sports offerings, and the comfort of watching at home on big-screen television sets. Some of these are structural and are not easily addressed via sales and marketing efforts. The quest for compensatory revenues by a sports enterprise, therefore, depends ever-increasingly extent on how successfully it can boost its television ratings and command higher rights fees from broadcasters.

One approach is to augment male-dominated audiences with additional female viewers. Nielsen has found that females currently account for approximately a third of the television audience for the most prominent sporting events, with the number rising to about 46% for the Super Bowl.

Three years ago, the Baltimore Sun wrote of how Robert Evans, chairman and CEO of Churchill Downs, had crafted a marketing plan “after seeing data from NBC Sports that showed…only three major sporting events…have more female viewers than male.” These are the winter and summer Olympics and the Kentucky Derby. In 2013, females comprised 52% of the viewing audience for the Kentucky Derby.

Results of the Evans/NBC strategy are evident. The 2010 Kentucky Derby attracted the largest television audience since 1989 and the 2013 Derby telecast drew nearly as many viewers as in 2010. The recently signed multi-year agreement between the brand-new Fox Sports 1 and the Jockey Club to televise a series of graded stakes, beginning in 2014, presents the opportunity for the fledgling cable network to capitalize on a proven strategy.

Copyright © 2013 The Blood-Horse. Used with permission.

Every year, usually around the Triple Crown season, a writer or two pens a column on how horse racing is a dying sport. Racing, in fact, is often put into the same category as boxing.

Then the Kentucky Derby turns in outstanding attendance and handle figures and another dying-sport article does not appear for a while.

The boxing-is-dying thesis was put to the test last Saturday night in a junior middleweight championship fight.

According to ESPN, the match at the MGM Grand in Las Vegas between Floyd Mayweather Jr. (the winner) and Canelo Alvarez broke the previous all-time pay-per-view dollar record, attracting 2.2 million buys and grossing $150 million. The 2007 fight between Mayweather and Oscar De La Hoya attracted 2.48 million pay-per-view buys and $136 million (valued at $153 when adjusted to 2013 dollars).

Mayweather-Alvarez revenues from all sources (the live gate, merchandise etc.) topped $200 million. Mayweather’s cut is at least $41.5 million.

While horse racing and boxing are not what they were in their halcyon days, they are far from dead, but writing that they are evidently attracts readers.

Copyright ©2013 Horse Racing Business

This is a follow-up post to:

“What if Takeout Rates on Pari-Mutuel Wagering Were Drastically Reduced?” September 6, 2013.

“The Withering of U. S. Pari-Mutuel Handle,” August 30, 2013.

“Pari-Mutuel Handle, Purses, and Yearling Auction Prices, August 23, 2013.

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Fact: Pari-mutuel wagering on horse racing in North America peaked at $15.942 billion in 2003 and fell to $11.571 billion in 2012, a decline of 27.4% without accounting for the effects of inflation. It would take handle of $20.263 billion in 2013 just to be comparable to handle of $15.942 billion in 2003. Viewed thusly, handle in real (inflation-adjusted terms) has decreased by about 43% in a decade.

Assumption: The subsidies that horse racing presently receive in racino states will eventually be ended by government officials, just as they are being eliminated in Ontario. Pari-mutuel wagering will have to stand on its own.

Fact: The precipitous decline in pari-mutuel wagering in North America has persisted long enough to be classified as a secular trend; if the trend continues, the prognosis is grim.

The Critical Issue: To what extent this trend is a result of new generations of North Americans simply not taking a liking to a centuries-old sport or, alternatively, is a result of an uncompetitive pari-mutuel product is unknown. If the sport of horse racing is becoming a cultural anachronism, then no strategy will save it.

Fact: If the perilous situation for pari-mutuel wagering can be reversed, it will take a significant strategic catalyst.

Assumption: While initiatives like improving customer service at racetracks and ADW facilities, banning race-day medication, and fostering safety for horses and jockeys, are important tactical steps in marketing horse racing, none of them, even in combination, are likely “significant strategic catalysts.”

Assumption: The most likely strategic catalyst is a vastly enhanced potential return on investment for bettors. That requires racetracks and ADW providers to offer a much more compelling value proposition, particularly to large-scale bettors who are acutely aware of takeout percentages on various kinds of gambling products. (Exchange wagering might also be part and parcel of tendering an enticing value proposition.)

Fact: Opinions vary greatly on how sensitive demand for pari-mutuel wagering on horse racing is to changes in takeout rates. In proceeding to determine whose opinion or hypothesis is closer to the truth, the observation of the late British scientist Peter Medawar needs to be kept in mind: “The intensity of the conviction that a hypothesis is true has no bearing on whether it is true or not.” Let the empirical findings decide.

Recommendation: What is needed is for a racetrack or ADW facility to conduct rigorous experiments on the effects of takeout reductions on handle for a protracted period of time, for at least two or three years. The price elasticity of demand needs to be tested for various segments, such as among prolific bettors, casual bettors, etc. (Click here for an example of the type of theory-grounded approach that is necessary.)

Describing how such an experiment could or should be done requires esoteric detail that is beyond the scope of a blog post. However, in an upcoming Horse Racing Business, a very specific organizational modus operandi for conducting the experiment is recommended, including a brief analysis of which existing racetrack/ADW is best suited to undertake the task.

Copyright © 2013 Horse Racing Business