Friday, July 3, 2015

Slots Incentives, Handle Disincentives

The first week of slots play is in the books at Plainridge, just south of Boston, MA.

"Plainridge Park Casino, the state’s first casino, raked in $6.1 million in gambling revenue in its first week of operation, enough for the casino’s owners to declare themselves “pleased” with the results and for one industry specialist to call it “a great start.”

Of that $6.1 million last week, about 9% or $567,000 goes to horse racing (mostly to the track and purses). The racino is pegged to do over $200 million this year. The net to horse racing: Somewhere around $20 million.

Conversely, let's look at handle. Let's say Plainridge does $100,000 in handle per card. At a low signal fee, let's set revenue at 5% of that handle, which would mean the track and purses would drive  $5,000 per card in revenue.

If they race three cards a week, that's $15,000 in revenue.

$15,000 from racing, $567,000 from slots.

Let's say you and I have a plan to grow the bet, with giveaways, marketing, social media, takeout reductions and seeded pools and we bring that to the track.

"This would raise your handles by 20%" we say. "It will only cost you about $2,000 per day to achieve this."

Well, handle goes to $120,000 (a great success) and revenue goes to $6,000. And it cost them money.

When you are getting $567,000 from slots, handle is inconsequential. Do no work, make $567,000+ $15,000 a week from betting, do a lot of work to grow the bet and attendance, invest money and time, get your hands dirty and get $567,000 + $18,000 a week from betting.

Wow, a 0.51% increase in revenue from investing in your racing product and working your tail off.

Tuesday, June 30, 2015

Modern Technology Kind of Wrecks Things

I read an interesting column today at Around 2 Turns. It was in regards to the American Pharoah Triple Crown, and the assorted memorabilia of such.

"Ephemera, or at least the hobby of collecting it, is dead or at least seriously unwell. Sure, a dinner menu from the Titanic or a JFK campaign poster still holds some residual value to somebody somewhere. But if Antiques Roadshow is to be believed, the market value of such things has been in steep decline for quite a few years. The pet theory here is that technology – aka, the Internet – has made such things less valuable because digital images of them are so easily obtainable. Why spend money on the real thing, when a perfectly nice digital representation of the thing is just one free click away?"

I think that's so true.

Years ago, well in the 1980's when I was getting into horse racing, I would keep a lot of things. Program pages from races, tickets, souvenirs. I did so like so many others did.

I remember when VCR's came out. We bought one, but for some reason the store shipped us two of them, and for another some reason, when alerted, they didn't pick up the extra  - no matter how many times we called - for around a year. Having two VCR's was the bomb. I taped every race that was shown, even a few stretch drives from the nightly sportscast, and with a second VCR could make a mixed highlight race tape. If my friends in school liked racing I would've been the coolest kid ever.

I cherished this tape, and still do until this day. "They" said VCR tapes would die after so many years, but they were clearly wrong. That baby still works like a charm. First Breeders Cup, check. First Breeders Crown, check. Derbies, North America Cups, a grainy stretch drive of Cam Fella running down Millers Scout, Easy Goer and Sunday Silence, check, check and check.

Today, did I tape American Pharoah's win? I don't even think I've rewatched the race (honestly, it was - other than the obvious - not exactly a barnburner.)

We can watch any race on Youtube anytime. I can buy a program. I can order archived SI's. For $20 I can buy a $2 win ticket. Surf, click mouse, buy. It's all just there, as the writer alludes.

Simulcasting is a great thing. I can bet on a horse anywhere, anytime. Wonderful. But from a from a being-a-romantic-fan of great horses point of view, it sucks.

Back in the 80's, Greenwood/Mohawk (the now Woodbine Entertainment Group) had the Canadian Pacing Derby, the North America Cup and a few other races where we'd actually get to see the horses we'd hear about. Was Call for Rain any good? Was Jate Lobell? Who knows, because we'd never get to see them. A trip to the track for these races, for a racefan, was like a four year old going to Disney World. Although Woodbine rarely attracted US Thoroughbred talent, I could get my fill of the gaiters with no issue, and it was magic.

Now, I can watch any horses career with a click of a button. Why go to the track to see them? I know what they can do, because it's old hat.

People say it's easy to be a racefan now, and they're right. We can do and see almost anything, or buy almost anything right from our home office or living room. Seeing things we have not seen before at the track is gone. We live it, bet it, watch it and rewatch it each day, we can buy it with a mouse click. The 'old days' are indeed gone. But, nostalgia has a pull. And often times I miss it.

Enjoy your day everyone.

Monday, June 29, 2015

Shuffling Around the Recipe in Pennsylvania & The Dreaded 'Monetization'

Good day racefans.

Over in good old Pennsylvania there have been a couple of interesting developments.

First, Philly Park Parx is cutting winter dates and sinking money into a fall festival of racing.

"Parx Racing and the Pennsylvania Thoroughbred Horsemen’s Association (PTHA) announce the creation of a new, annual $20 Million Parx Racing Fall Festival that will commence on Saturday, Aug. 29, 2015, and continue through Oct. 20, 2015. By doubling purse levels throughout the two month festival, Parx and the PTHA have created a signature racing meet that will attract top horse racing talent in the industry, increase the field size of the races, enhance betting interest, and draw new fans to the racetrack."

What we have noticed empirically, is that when purses go up, it is not strongly correlated to increased handle. Some people inside the sport, and some pure fans, can't seem to get their head around that, but it's not really that much of a paradox. If you serve up six horse fields going for $50,000 instead of $35,000, while asking players to play into 30% juice, your handle probably won't increase much. It's like a restaurant increasing the wages of their serving staff and improving service, but still serving bad tasting pasta, at $35 a plate. The bump from better service does not fundamentally change your restaurant.

What Parx is doing is preferred, however. They are splitting off a meet and creating a separate meet with some buzz. I believe all slots tracks should've been doing this since forever. When I have brought this type of short meet up there were crickets; mainly from the argument "the horsemen won't go for it". But I did, and still think, it's a good idea.

Parx could really create buzz by lowering takeout with the shorter meet/festival. That's the Kentucky Downs model. But they won't because well, they're in Pennsylvania.

Meanwhile in the Keystone state, we are seeing slots revenue further wean.

"Up to 250 slot machines could be placed at OTW parlors under certain regional restrictions. The state tax rate on the slots-only facilities would be 54%, none of which go to support purses and breed development programs."

Fewer dates and a decrease in revenue off new machines seems to be the general elixir.

Racing in Pennsylvania has always been a 'what might have been' for me. So many riches, so little long-term vision.

Moving on to the Mike MacAdam column about the changes to Saratoga, and NYRA and Chris Kay in general, it's been quite the buzzsaw (there are 50 comments on it at the Paulick Report).

It seems people have given up; that racing 'companies' can and will do everything that they want for the short term. That's fine, but the meme that this is taught in business school and it's just the way it is perplexes me. What a load of nonsense.

Companies market and position themselves in the marketplace with the long term in mind all the time. It's a massive part of business. Travelers Insurance doesn't charge people to use these charging stations (even non-customers), they do so because it makes for good business. Ball teams are not sponsored by the local mill because they're "monetizing", they do so to be a part of the community they reside in. In my town growing up, the big Toronto 'corporation' didn't have management deliver turkeys to miners Christmas morning to monetize some offshore investment in a turkey farm.

And Frank Stronach doesn't do what he often does in this sport to 'monetize', that's for sure.

NYRA seemingly wanting to charge for the air that someone breathes at Saratoga and CDI masquerading as the big bad wolf, are outliers, not doing "what everyone does".  Travelers Insurance could monetize a charging station, but it would hurt their long term business so they don't. CDI and NYRA might be hurting theirs too. There's no need to throw up one's hands and say 'that's expected' from these 'corporations'. It's not.

There's a fine line to walk between monetizing and pissing off people so much, the drip drip becomes a wave, and the wave becomes impossible to stop (think the long-term destruction of the betting base with seven decades of marginal takeout increases as an example) . Good "corporations" walk it finely and with skill. If you love the sport and want to see it flourish, demanding the same of horse racing entities isn't even remotely radical.

Have a nice Monday everyone.

Saturday, June 27, 2015

MacAdam on Saratoga: The Modern Enterprise, Old School Game

The Gazette's Mike MacAdam penned an article today about Saratoga Racecourse that should get its fair share of tweets and retweets. He writes what oh so many in the sport would like to say - or more appropriate scream - but don't have a forum to. It's about the monetization (Mike, not wrong in doing so, calls it gouging) of almost everything.

"It’s one thing to look under every pebble in the quest to turn a profit. That’s all that a corporation is about. And it isn’t NYRA president and CEO Chris Kay’s job to win a popularity contest.
But NYRA is playing with fire at Saratoga. People are — what is a “P” word I can use for angry? — perturbed. Perhaps there will come a point when that starts to reveal itself through the kind of metrics Kay prefers, like hotel tax revenue."

You should read the article. If you like the romanticism, the feel, the everything that makes a racetrack a racetrack in a community, I suspect you'll like it.

This is nothing new, quite honestly; managing to EPS, managing to today. What's going on is not subtle or some grand experiment.

In The Other Side of Innovation, Vijay Govindarajan, a professor at Dartmouth's Tuck School of Business, talks about traps that old-school enterprises can fall into. One of them - the strategic trap - is when the 'performance division' of a company tends to steer the entire ship. This process is a trap because it focuses solely on the marketplace of today, with little regard to past branding, or future, long-term ROI. It appears some racing companies are hell-bent on being married to this strategy.

I will disagree with Mike in one of his points: "turning over every pebble for profit is all that a corporation is about." The best, most successful corporations have innovation divisions, and creative branding that's a large part of the overall strategy. That's what stops the Kodak's of the world from being the Kodak's of the world. On the surface, and looking at the continued monetization of the nation's most storied, most branded Thoroughbred racetrack, unfortunately, as Mike ably and passionately writes, it appears NYRA is not one of them.

Enjoy your Saturday everyone.

Thursday, June 25, 2015

Bill Casner Knocks it Out of the Park

Bill Casner's op/ed today in the TDN regarding federal legislation didn't hit a single, he pretty much blew the cover off the ball. He laid out, with precision, some of the reasons he is for such legislation.

"Without having a central professional organization that is dedicated to creating gold standards for testing with the authority to conduct out-of-competition testing and administer punishment, we will continue to have those trainers who will seek an edge and we will continue our slide into irrelevance. Whether we want to accept it or not, the public views horse racing as drug-infested with impotent testing."

Casner is right, in my view, on several points, including, "The trainer’s mentality is that if it is not on the illegal list and won't test, it is okay to use."

That's right up there with my favorite quote from a trainer I know regarding soda and cobalt: "If a little of something works, a lot of it must really work."

We've seen bad things in this sport numerous times, and numerous times the perpetrators - who are cheating, no two ways about it - don't get sent off to suspension land, or probably more apropos, jail, they get year end awards. I think the worst part of the issue is not the sheer number of bad people in the sport - there are really not that many - it's that these people (after miraculously winning) have a barn full of horses within three months. Honest owners bang their heads against the wall, and just like a horseplayer gets ground down with high takeout, they just stop investing in horseflesh.

I don't love this legislation. I think the lasix angle in it is a red herring, and I worry about federal oversight. I especially worry about what happens if harness racing gets lumped into that legislation (lasix is not abused in harness racing because the horses race so frequently and only those who truly need it tend to be on it). But in the big picture I agree with Jeff Gural that fear - jail time, etc - is the only thing that will stop the bad people in the sport. As the Lance Armstrong incident showed, no positive test was needed to change the entire sport of cycling - the entire sport - when the feds had the bit between the teeth. I believe that there is a possibility that they will change horse racing as well.


Bill Shanklin wrote a good piece on Pete Rose, and horse racing. His last paragraph was a doozy:

"When it comes to provocative image-laden issues like race-day medication, insider betting, and aggressive whip use by jockeys, my opinion or your opinion is anecdotal and irrelevant. What counts is how such matters are viewed by the betting cohort and the general public. An enterprise that does not maintain a generally favorable standing is on a slippery slope if not doomed."

Slots and racing, why is it do damn hard to understand? Why is it do hard to do right? Plainridge, Tom LaMarra noted on twitter, cancelled Thursday's card due to casino traffic. You can make that up. It will never cease to amaze me that a track like the Big M - with no slots - is the number one promoter of the sport in all of harness racing; that tracks like Balmoral with no slots try have decent rakes, while Pennsylvania slot tracks are a scourge to every horseplayer in existence; Woodbine creates ridonkulous 25% juice pick 5's, cancels D barns while on the government teat, and on and on.  It's not dissimilar in Thoroughbred racing. I know it should stop surprising us - the harvesting business strategy is in use with slots, sadly - but if you like the sport and want to see it succeed, it's truly one of the most disappointing parts of the business.

Chris Kay, who seems to keep saying things that are just really, really odd, noted that Saratoga might cap attendance, say on Travers Day. I am for this policy for a number of reasons, but Alan's rant opposing my view is top-notch. 

DFS article about its future, and it's bang on. The rake will have to be cut or attrition will set in. Horse racing should've been doing the same thing.

Have a nice Thursday folks.

Wednesday, June 24, 2015

Like in Baseball, Racing's Innovation Has Been Good, Except for One Thing

The Los Angeles Dodgers baseball club is going through a cable provider dispute, and this fight has resulted in a television blackout of their games in most of the entire Los Angeles area since last year.

But there's good news. As Mina Kimes writes in her ESPN magazine piece "Stupid Tech Tricks", they are innovating, for the "fans" and "fan engagement":

"On April 14, the team issued a press release. It didn't mention the blackout. Instead the Dodgers announced, in a statement brimming with enough tech jargon to arouse a roomful of MBAs....

"The sports industry is ripe with opportunities for innovation," the release continued. "There are countless ways for new technology to create more powerful consumer experiences, heighten fan engagement ..."

Kimes adds in her piece: "Such as ... finding a way for fans to watch games?"

Last evening I re-read the NTRA report, done way back in 2008, by their online marketing
task force (with a few people I know and respect and you probably do too). Some of the items in the report are brilliant and were very ahead-of-their-time in 2008. Some of these suggestions were implemented in some form (although it took many years in most cases, which is a shame) and they work. A good deal of the items depend on an industry working together, and that's not really a good thing for implementation. Regardless, the ideas and the will were probably there.

Since 2008, the racing industry's innovations for racefans has been decent, I think. TwinspiresTV, live video streams, some HD, the work of the tracks on social networks have all been pretty good.

But, like with the Dodgers and MLB, bells and whistles and "fan engagement" are something that's done in addition to the core product - which for baseball is being able to watch a game, for racing about consuming a good gambling product - and without the fundamental building blocks it's little more than noise.

In fact, the NTRA report in several instances references the issues that are holding it back.

In horse racing, if you want to consume the product online and support the industry long-term through wagering, you often have to resort to some mind-boggling sorcery.

If you reside in a state where the horse racing alphabet braintrust wants you at the racetrack, you can't bet online. In some states you can bet online, but with a "source market fee", which stifles your consumer choice and makes the game harder to consume. If you live in these states, or say California (where you might want to get away from high juice in exotics and get a couple of points back on your betting), well, you can use your grandma's address in Florida and sign her up. Just make sure you pay her tax bill.

 How about being in Canada? There's one ADW, and it's a monopoly. To sell their signal to other ADW's - in Europe and in the US - Woodbine made it a condition that these competitors kick out their Canadian clients.

And, hey, if you go through all of that, we have six horse fields at 17.5% juice for you. Pop the champagne!

Free video, free PP's, youtube replays (do you believe this industry once tried to charge for race replays?) are all good. Bells and whistles are good, but like baseball:

"What's ironic, though, is that MLB already owns some of the most impressive technology on the planet: the league's streaming service, which fans in LA can't access because it would jeopardize the team's multibillion-dollar TV deal. So Dodgers diehards must find their own workarounds, like paying for an online service that masks their addresses, a trick that lets them access local games on MLB.TV. Some might call it innovation."

Without a core product that can be consumed fairly, at a fair price, and in a uniform fashion, you don't really have a product, and no technological innovation can fix that.

Enjoy your Wednesday everyone.