(This is the final segment of a three-part series. The first two articles were: “Why Horse Racing Declined,” Horse Racing Business, March 21, 2009 and “In Search of a Future,” Horse Racing Business, March 28, 2009.)

Last week’s article discussed the concept of a business model. A key component, in fact the sine qua non of a business model, is a customer value proposition (CVP). A CVP encompasses the benefits an organization is offering to potential customers if they purchase or consume its products and services. For example, Wal-Mart focuses on utilitarian value, as defined by product quality vs. price. By contrast, Tiffany & Company tenders something quite different, as it provides the finest products, a strong dose of prestige, and lofty prices.

The CVPs developed by individual racetracks can and should be quite different, as local conditions dictate-consider New York Racing Association’s summer racing at Saratoga as compared to its winter racing at Aqueduct. Moreover, all racetracks have separate CVPs for their on-track patrons and for their advance deposit wagering customers. These are as different as stock brokerage services packaged by Merrill-Lynch and E*Trade.

Well-meaning people, ranging from fans to longtime industry participants, are wont to express their convictions that racing’s fortunes would be enhanced if racetracks were only to adopt, say, the Keeneland CVP, or the European CVP, or the Hong Kong CVP, etc. This is equivalent to saying that all retailers would improve their lot if they were to follow the highly successful Wal-Mart CVP, or the Nordstrom CVP, or the Target CVP.

In reality, each racetrack has to craft its own CVP around the circumstances in which it operates: the demographics of the target market, the weather, the economic profile of the market area, and so on. Trying to force a Monmouth CVP into a Hawthorne environment would not be a good fit at all.

The nomenclature”the racetrack industry” is much too broad for purposes of crafting and tailoring CVPs to market areas. Simply put, there is no generic CVP-or one size fits all-that will work across racetracks. There are tracks that are successful providing ambience, others that are working people’s tracks, some that are racinos, and a number that are basically television studios supplying simulcast signals. An executive of a major racetrack told Yours Truly that his company could make a better profit if it had no live racing at all and operated as a bare-bones simulcasting and advance deposit wagering facility. A West Virginia legislator recently remarked that state law could be changed to enable Charlestown and Mountaineer to abolish live racing and have the tracks concentrate on alternative gaming and off-track betting. A proposal like this has also been introduced as a bill in the New Hampshire legislature.

Another often-heard opinion is that racing needs a commissioner (or even federal regulation) to oversee the sport in the United States, which is wishful thinking.  In the first place, under federalism, the states have the power to regulate commerce within their boundaries. Additionally, as with the major sports leagues, a commissioner must have real legal power to enforce conformance by franchisees.  Independently-owned racetracks are unlikely to cede their authority to a league office.

Because racing is a decentralized industry, the job of tailoring a winning CVP rests with the individual racetracks. In fact, that is where racing’s fate will be determined…in the trenches, so to speak.

Elements comprising a racetrack’s CVP include the level of racing, the takeout on handle, facilities and creature comforts, customer service, parking, food quality, and prices. One track can be successful blending these in a certain way, while another track is profitable by deemphasizing on-track amenities and instead focusing on gamblers who bet remotely.

Some racetracks will craft their customer value proposition around both gambling and the sporting aspects of racing, others will mostly emphasize gambling and cater to people so inclined with handicapping contests and the like, whereas a very few tracks may gloss over horses and gambling altogether and instead offer a setting to congregate and socialize, say, “where the surf meets the turf.”

The debate about whether horse racing is a sport or gambling is a forced and unnecessary dichotomy. Ideally, to aficionados, racing would be presented as a sport. To estimate if this appeal would work or not one only has to go to horse shows, where there is no legal gambling, to typically find sparse crowds. Las Vegas attempted to promote itself as being as much about family-oriented entertainment as gambling…and retreated to a “What happens in Las Vegas stays in Las Vegas” message. The degree to which a particular racetrack promotes racing as a sport, or as gambling, is a key aspect of the business model it develops for its circumstances, so there is no pat answer, but gambling must always be an attraction of the CVP.

Part and parcel of a racetrack’s CVP is its approach to dilemmas that are public-relations landmines and can and do turn people off to horse racing. The way that each track handles such issues is critical to its success over the long term. For instance, Presque Isle Downs in Erie, Pennsylvania, has put a premium on the safety of racehorses and jockeys by installing a Tapeta racetrack designed by former trainer Michael Dickinson, who has a deserved reputation for putting the welfare of the horse first. (I once heard him say that Thoroughbred races should be started like harness races, behind a moving vehicle with a gate attached, because the Thoroughbred starting gate is the most perilous place for horses and jockeys.)  Another example:  Suffolk Downs has made a statement about horse slaughter by instituting a zero-tolerance policy of banning any trainer caught shipping animals from the racetrack to a slaughter house.

Racetracks devoting more than lip service to reform-like Presque Isle Downs, Suffolk Downs, and others-will honestly and credibly be able to communicate to the public that they are sincerely addressing the underbelly issues of racing.  That will enhance their CVPs.

Even here, though, there are important distinctions to be drawn and generalizations are inappropriate. Every track, for instance, should not be painted with the same negative brush concerning such problems as catastrophic injuries and breakdowns. While breakdowns during races plague Thoroughbred racetracks, they are much less of a concern for harness and Quarter-Horse tracks. Standardbreds and Quarter horses don’t break down in the midst of races to the degree that Thoroughbreds do. Further, all Thoroughbred racetracks do not have the same incidence of breakdowns.

People who care deeply about horse racing and the animals involved are rightly concerned with catastrophic injuries, drugs, and slaughter.  If these black-eye issues are to be mitigated, racetracks will need to address the problems head on, for two reasons.  First, it is the ethical/moral course of action.  Second, doing so is good for business–companies that behave in a socially responsible way have a lot to offer and promote.  By acting in the interests of horses and jockeys, the racetracks will put a patina on their CVPs that will appeal to customers who might otherwise spurn the sport.

What about racetracks that primarily run low-level claiming races? If they crack down on the practice of medicating unfit racehorses, will there be enough entries to put on the show? The answer is very straightforward: If a racetrack has to rely on sore and gimpy racehorses whose ailments are masked by drugs, then its CVP is so weak that it may not be sustainable, or at least not very profitable.  From the standpoint of equine welfare and racing’s image, this is a case of addition by subtraction. 

Racetracks that are able to craft CVPs attractive to their target markets, beginning with a laser-like focus on customers and including a zeal for the safety of the stars of the show, will do well. The free market works and it rewards companies that provide what the target market wants…and punishes those that don’t.

Copyright © 2009 Horse Racing Business