Several weeks ago, I spoke at the National Horsemen’s Benevolent and Protective Association summer conference in Minneapolis that was held in conjunction with the Claiming Crown at Canterbury Park. The panel I was on was titled “The Future of Racing.” The other participants in this session were: Robert Reeves, Executive vice president of the Ohio HBPA, who chaired the session; Randy Sampson, president of Canterbury Park; Joe Santanna, president and chairman of the board of the National HBPA; and Greg Nichols, the Managing Director of Sporting Affairs for Betfair.
Following is a summary of my presentation, with a few additional points.
A Warren Buffett quote describes how he searches for companies to invest in: “In business, I look for economic castles protected by unbreachable moats.” He is referring, of course, to entry barriers. Not many companies in this day and age have a reliable moat, as today’s winner can rapidly be displaced, especially technologically. The current Fortune magazine (August 16, 2010) has a cover story that asks: “Is Google Over?”
For years, racing’s moat around its economic castle was its favored status as a government-protected quasi-monopoly. Racing’s moat was breached, for sundry reasons. Six of the most important ones are:
- Failure to embrace TV in its early years.
- Traditionally poor racetrack marketing.
- Proliferation of alternative forms of gaming and entertainment.
- Inordinately high takeout on North American wagers compared to competitive products and what is offered offshore.
- Availability of illegal gaming via the Internet.
- Chronic unemployment among adult men, racing’s core market for pari-mutuel handle.
Racetrack management’s answer has been diversification into alternative gaming and other types of entertainment. Churchill Downs, for example, has extended its product line into alternative gaming and has opened a new entertainment division that stages concerts (the most recent concert lost $5 million).
The bloodstock side of the racing industry should not proceed on the assumption that the interests of racetracks are aligned with racehorse owners and breeders. Racetracks’ overriding objective is shareholder wealth maximization, which may relegate racing to a second-class status or even lead to its elimination. Penn National, to illustrate, began as a racing organization but has transitioned into a casino company.
Alternative gaming at racetracks is a necessary but temporary answer to racing’s problems. Racing’s reliance on alternative gaming to subsidize purses will be unsustainable because racino owners and state governments will eventually curtail or eliminate the largesse.
When slots are introduced at racetracks, research shows that racing handle typically declines by 20% to 40%. If racinos were later to quit subsidizing purses, the dangers to pari-mutuel handle are evident.
There is no panacea for revitalizing betting on horse racing. Multiple steps are needed to attract new players and fans. People who are self-professed fans of racing are a very small percentage of the U. S. population, perhaps one percent. This is not a strong showing but, on the positive side, there is plenty of room to gain market share.
Here are some very abbreviated suggestions on how to expand the sport and handle.
1. Sell racing as a gambling product, especially online, because this drives handle and purses. Las Vegas tried the family-oriented approach, but later retreated to the suggestive theme “What happens in Vegas stays in Vegas.” Harrah’s became a rousing success under former Harvard Business School marketing professor Gary Loveman by implementing sophisticated data mining to target customers, carefully tailoring appropriate value propositions. Woodbine has recently demonstrated the effectiveness of selling the gambling aspects of horse racing.
2. Position racing on television as a sport, where, unlike at the racetracks, women and children comprise a significant audience.
3. Go hard after the right target markets. For instance, aficionados of fantasy sports are a fertile demographic for racing. The profile of a fantasy sports enthusiast is a 37-year-old male with an annual household income of $94,000. The data-intensive nature of fantasy sports is right in line with the massive handicapping data available in horse racing. Fantasy sports are exempt from the Unlawful Internet Gambling Act of 2006.
4. Craft pari-mutuel products for people who know little or nothing about racing. Instant racing, for instance, appeals to people who like electronic games of chance and the Swedish experience with its weekly V-75 bet in attracting lottery players to betting on racing is proven. A V-75 type wager (a pick-7 with at least 12 entries in each race) with races for first-time starters and cheap claimers has so many permutations and is so hard to handicap that professionals do not have that much of an advantage over amateurs. This means that a Steve Crist (of the Daily Racing Form) won’t win every week.
5. Experiment with drastically reduced takeout and embrace betting exchanges. Churchill Downs or Penn National could experiment with a single-digit takeout at one of its racetracks for perhaps a year to determine how handle would respond. The fact that New Jersey is pursuing the legalization of a betting exchange for its citizens demonstrates that betting exchanges may not be confined to Europe. While betting exchanges will undoubtedly cannibalize pari-mutuel betting on win and place bets, it will create new players, who will wager on pari-mutuel exotic bets (betting exchanges only accept win and place bets).
6. Hold racing cards more at night. I wrote an article for The Blood-Horse in 1993 titled “Nighttime is the Right Time” in which I advocated more night racing. The recent experience of Churchill Downs has shown that big crowds are possible on Friday and Saturday nights. Look for a prime time Kentucky Derby and/or Breeders’ Cup in the not too distant future. The Breeders’ Cup should definitely go that route on Friday night, rather than hopelessly try to compete with college football on television on Saturday afternoon or night.
7. One issue that I did not talk about at the HBPA meeting is medication. Until American racing uniformly adopts the much more stringent rules of Europe, it will be difficult to counter the often-conveyed impression that racing in the USA depends on crippled and drugged horses that are ultimately sold off to slaughterhouses. Horses breaking down is no way to cultivate fans. The drugs and thugs need to be run out of racing, even if it means that some racetracks that depend on bottom-level horse talent cannot survive. A smaller and cleaner industry is preferable to what we have now.
8. Hire the most capable person feasible to fill the role of chief racetrack marketing executive, which is often not the case. It is a critical position, the most important in fact in attracting patrons. Make sure the person is highly analytical, skilled in using market research, data-driven, and knowledgeable in information and communications technologies and customer service.
The future of racing in the United States cannot be generalized about. By that I mean racing will not have the same fate everywhere. Some venues will do well and others will falter because individual states have different policies and attitudes toward the sport/business and some racetracks are much better than others at marketing the sporting/gaming proposition.
A final thought: My impression is that the National HBPA and its state affiliates are organizations with dedicated officers and staff who are truly working for the benefit and welfare of their members.
Copyright ©2010 Horse Racing Business
First time I have seen this sort of thing in print. Year 2010. Nice job! I’d only add:
NTRA to develop models for each of the above steps that might be used, borrowed, purchased by marketing challenged race tracks. Possibly an on call outside marketing firm that has already developed the add products which may be purchased or donated to tracks in need.
Bill, you have a long history with the sport and I have always enjoyed your writings. But, over the years I do not remember you ever addressing two most basic marketing issues, which need to be fixed before the steps you are proposing can work.
First, the product, or how the racing product is packaged and presented. It is the only sport that does not segment its product by presenting only the highest level as a sporting event. Monmouth took a stab at it this year, but they didn’t change the packaging away from low level claiming races.
Second, distribution-pricing, or the control of bet takers in an off-track “buyers market”, where the host event does not receive enough to cover the costs of producing the races. There is no more basic business issue than “how do you make money”. This is very similar to the dairy industry, where processors and retailers use the over supply of milk to drive the costs of production lower than the dairy farmer can produce it. My suggestion is to use the same remedy as the dairy industry by establishing a price floor of 50% paid to the host event.
No racetracks have marketing budgets, because they cannot make money on their own product. If the off-track pricing model flips to favor the host event, then they could consider implementing the eight items mentioned above.
Third, the role of the HBPA in assuring purses receive an equal share of the takeout on off-track wagers. Recently the TRA boasted the 6% of an average 20% takeout going to U.S. purses is the highest in world, without addressing where the other 14% of the takeout is going. If the tracks are getting the same 6% as purses, then 8% of more than $10 billion in off-track handle is going outside the industry. Why? And how do you close the loss so that purses get 50% of the takeout, whatever the perfect takeout is at the time?
It should be noted the original deal between tracks and racehorse owners is a 50-50 split of takeout. One of the track’s responsibilities under that agreement is the costs of “taking the bet”. Today the HBPA and others granting approval of off-track agreements are allowing the costs of taking the bet to be deducted from the owners’ (talent’s) share. Why?
I would love to see you research and address these issues with the same thoroughness you always incorporate. These are foundation issues that must be in place before any renewal of racing can be built, IMHO.
All the best, Fred.
not imo. Pope misses utterly that racing is a sport. Foundation issues are how to propogate and expand the sport instead of putting most of it out of business.
Pope is a one trick pony. He keeps espousing an ideal with no sense of the day to day market dynamics between big players, big rebaters and the tracks. The ideas from Pope are overly simplistic and unworkable.
Bill I think you’ve hit on a number of interesting ideas.
The NTRA will solve nothing. They’re nearly useless and I would sprint away from anything they bring to the table.
Real innovation and change in our sport will come from the West (CA) or from a group of regional tracks actually capable of getting things done. Lexington has proven itself time and time again to be more interested with the makeup of who’s sitting around the table and whether the participants have been properly blessed by Industry leadership than truly solving any problems. The worst thing that can ever be done with a new idea is to have it be embraced by New Circle Road.
Mr. Pope’s suggestions are unworkable. Like to hear how he would propose to go about putting them into practice.
Great read with sound ideas, as usual, Bill.
I would place special emphasis on #3-#7 inclusive. Especially the latter, as I feel we are trying to sell a defective product due to medication which leads to break-downs, pull ups and deaths – and all the negativity that comes from suspicion that the animals are at the mercy of syringe crazy vets and trainers and someone has something that will make one horse faster than another. In most cases, this perception is mistaken, but we have to, as you argue, clean up our act and adopt the international standard on medication to demonstrate that we are treating these wonderful animals with compassion and concern. Not enough of us in the industry seem to see this medication issue, and excessive whipping, as driving away fans, but it surely does, whether the fans are at the track on in front of a TV or computer.
And you are right in arguing that in disseminating the signal more widely on TV, we have to offer a sport that can be appreciated and enjoyed without betting being shoved in fans’ faces. True, handle is the lifeblood of the sport, but we have to find a way to sell it to families without over emphasizing betting. A fine line, true, but if you want ratings then you have to reach outside the traditional demographic.
Take out, and as Fred rightly points, the tracks’ take are important, and we have to find a way to make sense of a diverse and dysfunctional industry with major players unable to see the dividend in co-operation on a national basis. Australia, for example, schedules its meets sparingly and its stakes races never overlap or compete as they do in this country. Japan and Hong Kong restrict racing so that the focus is on the very best and for only a couple of days a week. This year-round grind with the philosophy that more is better is just not working. Yes, tracks have to cut back and some will go out of business, but the gradual erosion of owner support will probably take care of that in the long run anyway.
Take-out makes race betting a bad bet when compared to its competition, let’s face it and it has to be corrected, somehow, but as other posters have pointed out, it does not seem attainable at this time lacking a central ‘league’ office.
We have technology now that would enable us to track every horse on every track 24/7 to build fan base. Webcams can take fans right into the heart of the racing world, but track owners and other special interests don’t want us to see the backside, which at too many tracks is a gulag for horses and humans.
The industry has a lot to consider and a lot to change if it is to survive and your speech and article is valuable if it pushes us toward accepting some harsh truths for change.
Thanks for this – very interesting.
Excuse my ignorance, but I have a question about existing data on the response of handle to changes in takeout rates. Is there none? I’ve seen several suggestions recently that experiments be run to see how handle responds to lower takeout. Why is the experiment necessary? Have takeout rates been flat over time and are they insufficiently variable across tracks? I understand there’s unlikely to be a centralized data base, but it seems as though some sort of estimates could be derived and other important factors determining handle in the time series or cross section controlled for.
Re: #7 and #2. Just my opinion, but I don’t think you’ll attract women and children on a large scale as TV viewers or racetrack goers until 7 is thoroughly dealt with. I’m not sure how that can be achieved, in the absence of national industry leadership. But if horse racing is to survive in the long-run, it’s going to need to be above reproach in regard to the care of its equine athletes. Ask the greyhounds.
Caroline,
No track to my knowledge has reduced the takeout percentage to below double digits and left it there for a protracted period to give time for word of mouth communication and advertising to work. In my view, this experiment would take at least 9-12 months to provide valid feedback.
I could not agree with you more on your comment on attracting women and children.
Bill,
thanks for this answer. I’m thinking that exploiting cross-track variation in the takeout rate, however limited, would be very difficult as you’d have to control for so many other variables. But it was worth asking about the history.
Very informative. I believe that the sport does a lousy job of marketing itself. Although many in the industry believe that if you decrease the takeout percentages, that would cure the sport. However, your average novice race fan has no idea what they mean by takout or breakage. Market the sport and bring in new fans.