A condensed version of this post appeared in the Blood-Horse. Reproduced with permission.

The Internet has reduced the power position of experts in virtually every commercial endeavor. Prior to widespread consumer access to the Internet, experts had an asymmetric, or lop-sided, information and knowledge advantage over their customers or clients. The expert continues to know more than the layman about a particular subject, but the Internet has markedly narrowed the gap because consumers are better informed.

Physicians and lawyers, for example, are highly educated in their respective fields. Yet, mostly free technical information has become instantaneously available to patients and clients at reputable websites like WebMD and DearEsq and the well-known LegalZoom is essentially an online law firm that provides legal forms and consulting services.

The bestselling book Freakonomics provides a superb empirical example of the Internet’s rationalizing effect on business transactions. One of the authors, Steven Levitt, a University of Chicago economics professor, conducted a carefully controlled study using public data on 100,000 home sales in suburban Chicago. Three thousand of these were transactions in which real estate agents sold their own homes. The study’s purpose was to determine how well the experts–in this case, the real estate agents–did in selling homes for their clients as opposed to selling homes that they personally owned. The key finding was that an agent typically held out for a better price on his or her own house. To be exact, real-estate agents kept their own homes on the market an average of ten days longer than clients’ homes but got an extra 3-plus percent selling price, which would amount to about an $8,000 premium on a $250,000 house. However, importantly, a follow-up inquiry found that, with the proliferation of information on websites like Realtor.com, the realtors’ average premium in selling their own homes has been reduced by one third.

Freakonomics reported similar results for sales of term life insurance. With the appearance of Quotesmith.com in 1996 and other such websites that allow the consumer to search for the cheapest rates, the amount paid out by buyers for term life insurance shrunk by $1 billion per year.

The same kinds of Internet-enabled effects are occurring in many facets of the racing and breeding industry. For example, a farm buyer can quickly find out how much a parcel of land previously sold for by going to the local government website that maintains records of property-tax assessments and real estate sales. Prospective investors in racing partnerships can discern how much a managing partner paid for a colt or filly at auction and therefore can calculate the percentage markup that the managing partner is taking. Pari-mutuel bettors have the capability to conveniently shop around for the best deal of the moment from an advance deposit wagering company or for the racetrack with the lowest takeout.

The search capability of the Internet has vitiated the longtime information advantage of experts over clients and sellers over buyers. This is a development much to the benefit of consumers.

Copyright © 2010 Horse Racing Business

A condensed version of this post appeared in the Blood-Horse. Reproduced with permission.

The National Thoroughbred Racing Association (NTRA) is pursuing a leading-edge media strategy by streaming prominent stakes races live at NTRA.com. This is an increasingly effective way to reach younger viewers in particular.

The validity of these statements is shown by the results of a recent scientifically conducted study by the Retrevo Pulse Report headlined under the caption “Is the Internet Killing Cable TV?” (Retrevo is a consumer electronics shopping site that provides contemporaneous information from the Internet about what products to purchase, when to buy, and where to acquire them.) Over 1,000 people “distributed across gender, age, income, and location in the United States,” were asked the question: “How much TV do you currently watch on the Internet/online?”

For the entire sample, the answers were: some, 51%; most, 8%; all, 5%; and none, 36%. When answers for respondents under 25 years of age were isolated, the results showed a stronger preference for online viewing: some, 54%, most, 23%; all, 6%; and none 17%. Thus almost one-fourth of the “under 25” age group said they do “most” of their television viewing online.

There were marked gender differences in online viewing across all age groups. About twice as many men versus women said that they do “most” or “all” of their television viewing online, 17% for men and 9% for women.

A question was included to determine enhancements that would encourage additional online viewing: “What would it take to get you to watch all your TV shows online?” The top responses were: HDTV, 20%; premium shows like HBO, 19%; and live sports, 15%.

The upsurge in online viewing is made possible by evermore sophisticated mobile communications devices, faster broadband, proliferating wi-fi, and free access to television programs on websites like Hulu and ESPN360. The Retrevo study confirmed that another important cause is the escalating price to consumers of cable and satellite television service. Retrevo asked: “Have you considered cancelling your cable or satellite service?” Fifty-seven percent of respondents said that they are happy with their service and another 17% indicated that they have not contemplated cancelling “because I would not be able to watch my favorite shows.” Yet 26% have already cancelled or are considering doing so.

The research indicates that online viewing will expand with inevitable improvements in the visual quality of programming and more access to popular television shows. Online viewing is following a pattern similar to cell phone usage. As cell phone service improved, long distance became part of the package, and prices declined, subscribers increasingly took out their landline phones altogether.

Racetrack owners did not embrace television in its early years and the sport paid a lasting price vis-à-vis other sports that dominate today. It appears that NTRA is determined not to repeat this Luddite blunder when it comes to online viewing. The racetracks need to quickly join in by streaming all their races on the Internet for free.

While online viewing is in its infancy, the practice is accelerating and the future is evident.

Copyright © 2010 Horse Racing Business

The weeks leading up to the 2010 Kentucky Derby fostered some reasonable expectations for Eskendereya to win the race and possibly to become the twelfth colt to win the Triple Crown. As racing fans know all too well, in this sport, there is many a slip between cup and lip. Eskendereya incurred an injury days before the Kentucky Derby and was eventually retired.

With no dominant 3-year-old, the Triple Crown races were not only won by three different colts, but not a single colt raced in all of the races. The lack of a rooting interest for the vast majority of the public had a predictable effect on the business performance of the Triple Crown. While the Kentucky Derby is eagerly anticipated by racing fans, the Preakness and Belmont suffer if fans sense that a Triple Crown accomplishment is highly improbable or know that it is out of the question. In the case of the 2010 Belmont, a Triple Crown sweep was impossible. As a result, even racing fans were largely unfamiliar with the field.

The Kentucky Derby did extremely well in attendance, in spite of rainy weather, with an official count of 155,804, as compared to 153,563 in 2009. The 2010 gathering was the fifth largest in the 136 runnings. The Preakness had a huge increase of people in attendance; the 2010 crowd was 95,760 in contrast to 77,850 the previous year. However, this was accounted for by the relaxation of alcohol restrictions in the infield; the 2009 infield crowd was sparse because of a Pimlico alcoholic beverage policy that caused a boycott, primarily by college-age students. The 2010 Belmont attracted 45,243 people. The last year that there was no chance for a Triple Crown winner was 2009, when 52,681 was the official crowd at Belmont Park. Using this as a benchmark, the 2010 Belmont did poorly with respect to attendance, with a 14.1% decrease.

The television ratings were 9.8 for the Kentucky Derby, which is the same number as in 2009. The Preakness had a rating of 6.4, down from 7.9 in 2009. The Belmont garnered a rating of 2.7, in comparison to a 4.3 in 2009 (click here to see a graph of Belmont Nielsen television ratings in previous years–from 2001-2008).

By contrast to the Belmont TV ratings, the Indianapolis 500–run on the Sunday of Memorial Day weekend–had a rating of 3.68, down from 3.96 in 2009; Game 1 of the NBA finals, played on Thursday night or two days before the Belmont, had a 10.4 rating, up by 17% from 2009, mainly because of the classic matchup of the Boston Celtics and the Los Angeles Lakers.

Without a “big horse” to generate buzz, the decline in ratings as the Triple Crown progressed is unsurprising.

The Kentucky Derby racked up $112.7 million in all-sources handle on the Derby-day card, up from $104.8 million in 2009. The comparable Preakness handle was $79.2 million in 2010, down from $86.7 million a year earlier. The 2010 Belmont had all-sources handle for the card of $74.6 million, down by 16.8% from $89.9 million in 2009.

In a year with no colt or filly to generate interest–such as the matchup between Kentucky Derby winner Mine That Bird and the filly Rachel Alexandra in the 2009 Preakness—the 2010 Triple Crown did as well as could be expected, especially considering  the relatively stagnant American economy with a nearly 10 percent unemployment rate and so many people having given up on finding a job.

Anytime there is a possible Triple Crown champion with a Big Brown or a Smarty Jones to capture people’s attention, the performance metrics will be more satisfactory. Otherwise, as in 2010, the Triple Crown will have to depend on its tradition to bring people to the track, entice them to watch on television, and provoke wagering.

This writer does not as a rule make statements on Horse Racing Business unless they are based on facts and analysis, but here is an opinion based on perception. The quality of the NBC telecasts of the Kentucky Derby and the Preakness seemed to me to be superior to the ABC coverage of the Belmont. Not only was the NBC programming smoother and more interesting, but NBC’s on-air personalities were, as a group, more compelling. NBC also did a far better job of creating awareness and interest among potential viewers about the Kentucky Derby and Preakness programs, particularly on its cable channel CNBC. The attractiveness of a telecast is, of course, in the eye of the beholder and others may not share my viewpoint.

Copyright © 2010 Horse Racing Business