STEVE JOBS AND THOROUGHBRED RACING BY FRED A. POPE

The breeding side of our industry is in trouble only because the racing side is failing.

Racing is failing because off-track bet takers are ripping off racing content. Tracks and purses used to split 18%-20% of every dollar wagered on their races. Today they are getting less than 5%.

I know of no track that makes a profit on its own races.

Can the problem be fixed? Sure. Businesses re-invent themselves when they get in trouble. None better than Apple, which was failing until Steve Jobs returned. Today it is the most valuable company in the world.

The biography, Steve Jobs, tells how music execs went to him for advice. Napster was ripping off their music and sales were falling fast. Jobs figured out what they needed, a secure, central platform to sell their music. He called it iTunes.

The music execs knew music, but not changing technology. They thought they were in the record/cd business, because that was how they were making money at the time. Jobs changed their focus to music content.

The music execs would not do for their industry what Jobs did for them. They were competitors who didn’t know they needed a central solution. When they reluctantly agreed to iTunes, Napster disappeared.

Here’s the lesson. With iTunes handling digital sales, the focus of each music company shifted to producing and marketing music content. Now they make more profit than ever before.

The music case study applies. Racing needs the same solution as iTunes, a secure, central platform to sell racing content direct to customers and eliminate the Napster-like bet takers ripping off the sport.

Once our tracks are no longer in the off-track, bet-taking business, they will focus on packaging and marketing their own races for profit. That changes the future for tracks, the sport and finally, the breeding industry.

National wagering has fallen to about $10 billion, which should still yield over $2 billion to be split between tracks and purses. That’s enough to make this industry whole again, but the revenue isn’t coming through.

When technology allowed off-track wagering, racing chose a bad model for reasons that no longer apply. For example, when Keeneland sends its races to New Jersey bet takers, only 20% of the revenue comes back to Keeneland, while 80% stays with the bet takers in NJ.

But unlike the music companies, the track owners are not victims. They created this insane business model that is killing the whole industry. The tragedy is they will not fix it without outside intervention. That’s because some of them own Napster-like subsidiaries and those with casinos no longer need racing.

Every time racing has been threatened, powerful men and women have used their influence in Congress to protect the sport and agricultural jobs at risk.

That’s what needs to happen now. A central wagering platform will equally protect and serve customers, tracks and racehorse owners.

The vehicle for a secure, wagering platform is within the federal law that permits interstate wagering. A national wagering “trust” can be established by tapping the cash flow in wagering. No federal funds are needed. The new trust can partner with the likes of Google, or maybe Apple, to make it simple for customers.

With a central wagering platform, tracks will profit from their own races for the first time in thirty years. They will have a virtual on-track model with 18-20% of every dollar wagered. That’s enough. Their incentive to package and present races that customers desire increases by 38 states and perhaps worldwide distribution.

Congress wants to help this sport with tracks and breeding farms in most states. When they look across the table at resolute owners and breeders trying to save a sport and way of life, will they also see other people in opposition? Who will appear to say they should be allowed to continue ripping off the sport? Nobody.

Racehorse owners and breeders fund more than a hundred thousand jobs and there are very few track owners to object. A central wagering platform is a politically sound strategy.

If Congress brings in track owners, they only need to ask one question: “If a central wagering platform will give you every dollar of revenue from wagers on your races, tell us why you would not want that platform?”

What odds would you have given that Steve Jobs would take one-third of the music company’s sales, cut them off from contact with their customers and herd those cats to iTunes?

One person can make a difference. Powerful ideas do change the world.

Steve Jobs didn’t save the music industry for the music execs. He loved music and to assure a sound future for the talent who wrote and performed the music, he created iTunes. Economic satisfaction was a bonus.

Some wealthy breeders have donated millions of dollars to influence Congress on political philosophy, but not one dollar has ever been donated to incubate creative ideas for the sport. Breeders need to understand their future is the re-birth of racing.

If there is ever a good time for the silent partners in racing content to be ready to fight, this is it, because without racehorse owners taking a stand, with strong support from influential breeders, the racing side will not change and will soon fail as a national sport.

Timing is everything. iTunes would not have happened without the problem of Napster. And, the technology for a central platform like iTunes, or one for wagering, was not available years ago.

To re-invent a proud sport and industry, we need to follow the words of the late Steve Jobs — “think different.”

Racing content will have enormous value when the talent in the sport moves to protect it, not when those who take bets on it are in control. A central wagering platform gives the sport a new future. As Jobs would end… “Isn’t that cool?”

Fred Pope is president of Pope Advertising, Lexington, which specializes in the Thoroughbred industry.

Copyright © Fred A. Pope 2012. Used with permission.

Comments

  1. Your article and Pope’s game plan is completely based of false assumption.

    Racing is not failing because bet takers too much. Racing is failing because the price of the product to the customer is too high. By turning it to a monopoly, it will only get worse.

    If you check out the percentage North America tracks and horsemen receive relative to handle, there is no other jurisdiction on this planet that comes close to them. Sure, alternative gaming has something to say about it, but it just helps prove my point.

    Racing is failing because it gives horsemen groups far too much say, especially when determing price.

  2. Bill Shanklin says:

    Cangamble,

    To clarify, this is not my article, but rather, is Fred Pope’s. I agree that takeout is the major problem with pari-mutuel handle and will be writing an article on the subject soon. I espouse entrepreneurial capitalism, not monopoly.

  3. Caveat: I’m running out the door and haven’t had a chance to read the full article, but… a centralized wagering platform means zero incentive for innovation. All one has to do is look at NJ Bets for an example. But who cares about bettors, right?

  4. Cangamble, a central wagering platform is just technology to take the bet. Each track would price their product as they do today. If they want to use price to compete with the other tracks, they could.

    You take your single argument into these forums when the only place you need to vent is to the individual track owners. They set the price.

    You might note the above article is about Apple. Perhaps you should enlighten them about your theories of selling more by charging less for their products. Obviously they have it all wrong.

    Price competition is what it is, a way for a less quality product to compete in the market. It isn’t a way for an entire industry to do business.

  5. Bill Shanklin says:

    Fred Pope makes the same point that crossed my mind. Apple saved the music industry.

  6. OK, I’ve read the entire article and stand by initial reaction. Furthermore, aside from being an astute businessman, Steve Jobs put users first in the Apple design process, something I can barely imagine anyone in racing doing when it comes to how a bettor would use a wagering platform.

    Would a centralized platform “save racing”? I have no idea, and can’t argue with current pricing being a disaster, but unless you had someone involved who cared about the how people would use it, you could forget about attracting new (read: coveted young people) to wagering. Why? Because they’ll have Apple products and a whole host of other great user experiences to compare it to. Give them something like New Jersey Bets and they won’t bother. Generally speaking, racing would do well to stop assuming that people will wager no matter what.

  7. Holy smokers, this is backwards.

    If Steve Jobs ran horse racing he certainly would like a centralized platform, but he would price on a marginal cost basis, with the basic understanding of the Internet.

    What Mr. Pope is espousing is a “pre-Steve Jobs” platform, whereby CD sellers sell their CD’s at $22.99 and disallow every other music seller out there to sell digital music. Sounds great! WHo wouldn’t want to sell CD’s again for about 800% more than the internet says they are worth.

    All this plan will do is drive our bettors – some of them who bet some serious money – offshore. This is what happened in the pre-rebate time of the late 1990′s and early 2000′s in racing.

    Steve Jobs – and really, any good internet businessman – would ask racing for a central website, price at a proper rate and sink virtually all of the profits into the platform to gain new customers…. the classic internet axiom of “low margin, high re-investment, and high volume”….. Just like Itunes.

    Racing would laugh at Steve Jobs, because all they want with this plan (and others) is a larger piece of a dwindling pie.

    RR

  8. Bill, the analogy and similarities with the music industry are striking.

    The music companies were packaging music in albums, with seven or eight duds for every one or two good songs. That was good for them, but not customers.

    That’s what our tracks do every day of the year, with 70% claiming races for every one or two good allowance or stake races.

    The public rejected albums when Napster gave them an alternative.

    Jobs insulted the music execs by saying what they were doing was stupid. Then he went back with a plan to sell only single songs on iTunes. The music companies said he was crazy, but he proved them wrong. Napster disappeared.

    With a central platform, every race will stand on its own. Those that make money for the track/purses will be replicated and those that fail to provide enough revenue will find a future home at a lower level where alternative gaming funds purses.

    A central platform will provide the common technology backbone, then perhaps Amazon, Google and/or Apple will provide the customer interface to existing and new customers.

    Those who suggest such companies would not be attracted to racing, do not understand the draw of $10 billion.

  9. “A central platform will provide the common technology backbone, then perhaps Amazon, Google and/or Apple will provide the customer interface to existing and new customers.”

    Amazon, Google and Apple aren’t design shops for hire.

  10. Here is a letter to the editor in Thoroughbred Daily News of Feb. 29 about Fred Pope’s idea, written by a man in Italy.

    I have read the letter sent to you by Mr. Fred Pope published on the TDN of Monday Feb. 27, 2012. I totally disagree with what Mr. Pope stated.

    The U.S. racing and breeding industry is very healthy, and this is due to the great success of the what we call Racinos.

    Mr. Pope and everybody who is involved in the industry should bear in mind that racing is part of what we call the leisure business, so it’s perfectly compatible with gaming.

    Unfortunately, in Italy we have a centralized wagering platform, and Mr. Pope and your readers should be aware of what’s happening in my desolate country (desolate racing and breeding wise).

    If the Americans want to kill racing and breeding, they have to implement the centralized wagering platform.

    Racecourses must deal among themselves without any “centralized organization” unless the Americans want to kill the industry, as I said before.

    Please don’t destroy a system which goes very well and which should be a model of efficiency for the whole racing world.

    Every racecourse is able to sell its TV signal as well as the betting rights worldwide on a base of what we call simulcasting or, in Europe, commingling of pools betting.

    Best regards,
    Carlo Zuccoli

  11. Several comments.

    You say “Racing is failing because off-track bet takers are ripping off racing content. ”

    True, but only partially. Racing is primarily failing because there are too few fans to support it. Racetracks have given up (if they ever tried) to make racing prosperous and are spending all of their time trying to get slots or casino games. The ones that already have slots put all of their promotion/advertising/clean facilities there; none on the racing side.

    While the Apple comparison has some parallels, there are also differences which cannot be very easily overcome. Apple controls its product. Racing does not control its product; the state governments do. Apple provides top-level customer service. Racing could do this, but few track owners even give bottom-level customer service. Apple has some distributors, but they are fundamentally a single company. However, the racetracks only own the land and racing surface; not the horses. The horses are owned by private individuals who are trying to survive as well (and not doing very well as most owners spend almost double what they take in in purse money).

    You say “Once our tracks are no longer in the off-track, bet-taking business, they will focus on packaging and marketing their own races for profit.”

    There is absolutely no historical evidence of this. Long before there was any off-track betting, the racetracks did absolutely nothing to package and market their races. Why would you think that they would start now? There is substantial evidence that many racetrack owners would like to do away with racing completely; particularly those that already have slots.

    There are many things that the racing industry could do to turn around the situation. One, as you list, is to get rid of the off-track bet takers that contribute nothing to racing’s success. However, there also needs to be a major push to build up the fan base with promotion/advertising/classy facilities/top-level customer service/top-level and exciting races.

    I’m more neutral on the takeout than others and believe that the “gamblers” that focus only on that are not interested in racing prospering but only on getting a better edge for themselves. That said, I do think that there is an optimal takeout level and do think that an increase in the number of fans would enable that optimal takeout to be reduced.

  12. Mr Z had a centralized wagering system, run by tracks, with 41% takeouts. Probably what would happen here with racing running their own.

    Regardless, in my opinion, It didn’t matter if it was central, fractured, run by Steve Jobs or Steve McQueen….. at 41% takeouts it was assured to fail miserably.

    PTP

  13. This absolutely ludcicrously untrue statement renders this entire article (and argument) useless:
    “Here’s the lesson. With iTunes handling digital sales, the focus of each music company shifted to producing and marketing music content. Now they make more profit than ever before.” – That is absolutely not the case. Labels and the big music companies are freaking out and NOT “making more profit than ever.” – If they are sir, a little documentation would help.

  14. Follow Up:
    “”The digital music business has been a war of attrition that nobody seems to be winning,” said David Goldberg, the former head of Yahoo music. “The CD is still disappearing, and nothing is replacing it in entirety as a revenue generator.”

    http://money.cnn.com/2010/02/02/news/companies/napster_music_industry/

  15. Pope has been writing this kind of stuff for years. Never goes anywhere…fortunately.

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