Thursday, October 27, 2016

Romney was Right

It's been a decent election cycle for Mitt Romney.

He called out the Donald personally very early for what he saw was not a good person, when a lot would not touch it, earning him praise. And of course, he was laughed at and mocked incessantly from the mainstream about his Russia comments in 2012, and now everyone concedes he was correct.

That's a pretty good run for a guy who is not even running for dog catcher in 2016. 

Meanwhile, I had a dabble into some old horse racing policy last week and came across this little gem from Massachusetts in 2003.

This was a plan that 13 years on looks pretty damn good, too.

Blocking money ended up being paid to racing from Atlantic City in Jersey, but that was intrastate, not interstate.

Currently, racinos tend to only benefit the horse racing inside the states themselves, while neighboring ones either move for more market share by passing more casinos, like New York, or pretty much cut out horse racing altogether, like Massachusetts, or are running on fumes, like present day New Jersey.

Those two strategies are counterproductive.

In Ontario, racinos were scrapped but the public didn't want any more casinos. The appetite for them are growing smaller and smaller. Not in my backyard is alive and well. Good luck getting a racino built now. 

Even if you do get one passed, the casino arms race has hurt revenues appreciably. Gross revenue might be higher, but the future looks bleaker and bleaker with government interference, and saturation is the current buzzword.

Years ago, New York would've paid Jersey (they don't want one near Manhattan) racing for a non-compete. So would Pennsylvania, at least Pocono. Casinos in Connecticut and elsewhere in New England would've paid similar to Massachusetts.

Those deals would be alive today and would've likely allowed Suffolk, the Meadowlands and Monmouth to be in pretty decent shape. There'd be no referendum in North Jersey, no issues about Suffolk getting a casino for horse racing. Why bother, they already have the money.

Tuesday, October 25, 2016

Horse Racing's Grumblin', Bumblin', Stumblin'

Average handle fell at the last Meadowlands meet. Handle was $1.07 million per card, down from last year's $1.24 million.

As MH's article notes, they jockeyed around racedates, and field size was off by a horse, and both were detrimental. But, more broadly, this continues the mid-Atlantic carnage we've seen of late (outside Laurel Park).

Now, the meet was not ugly, per se, and in 2014 the Big M thoroughbred meet did $1.03M per card, and in 2013, only $988,000 per card. So, last year's meet did stick out, and this meet was up from those two most recent years.  But because this coincided with a takeout change, there's some rumblin' and grumblin'.
  • While racetrack executives rarely speak out in support of raising or maintaining takeout levels due to fears of public backlash, many privately grumble that supporters of takeout cuts consistently overstate the positive impacts while ignoring the negative effects on a racetrack’s revenue streams.
Oh please.

The Meadowlands meet, way back in 2004 did about $2.5 million per card. In other years, around $2M per card with only $180k or so for purses. In 2016 dollars, this is pushing $3 million per card.

In other words, the business has been circling the drain for a long time. In real terms, handle at the M is down 70%, gross, the last 14 years.

If there's anyone ignoring "the negative effects on a racetrack’s revenue streams" the line is long, and it certainly formed long before anyone was talking about the juice.

Working racetrack pricing is not magic ball that spits out free money. If it was, I'd start PTP Downs, charge 1% takeout and make more dough than Mark Zuckerberg.

It took dozens and dozens of years to destroy customers' betting bankrolls with high juice and lower and lower churn rates. Finding the right price where revenue can increase maybe will never happen, but it sure as hell won't happen overnight. And trying something is a lot better than standing around watching the customer base continue to circle the drain, while waiting for someone to buy the track and turn it into a shopping mall.

Friday, October 21, 2016

Racing and "I Don't Know"

Why is it that when you ask a question to someone formulating and implementing racing policy, the answer is more often than not, "I Don't Know".

We need geotargeting.


People are betting on their ADW accounts at the track.

How much?

I don't know.

Are we losing revenue?


How do you know?

I don't know.

If we inconvenience customers for a slightly higher margin, will those playing on ADW's bet the same amount when on track at the windows, or will some stay home and play, hurting attendance?

I don't know.

That's one example. But you can ask the same questions about how much Derby Wars is "hurting" Magna, or how much revenue will be lost or gained from a takeout change. The answer, invariably, is "I don't know". 

You'd think with hundreds of billions of dollars of handle over the last 100 years, racing would be able to use data to change policy like a real business: Forecast, model, project, look at the cost-benefits, and then decide.

Instead, it's not like that. It's "I don't know."

Wednesday, October 19, 2016

Building and Distributing Modern Data. Who Cares?

Crunk had a nice post about data today. It's not sexy like drugs, or stewards, or who is going to start in the Pegasus World Cup, and it's not exactly click bait. But it's a really good piece everyone should, in my view, read.

Disruption is a word often used wrongly, and almost always used in some derogatory fashion.  It's like a Bond villain, who is up to no good. He's loosening double-oh-seven's ski boots, so he'll ski to a horrible death, or other such things (which to me seems odd, because most villains have guns and could just shoot him, but I digress).

Regardless, disruption is not a bad thing. It usually ends up being a good thing. For consumers, and the future of a business.

Innovation and disruption was first spoken about by a smart Harvard fella, who wrote a book called the "Innovator's Dilemma". There are innovations that are soft (he called them "sustainable" innovations). These tweak the current landscape, and look for incremental improvements of a product. "StatsLens" by Equibase, as Crunk notes, is this type of innovation. There are others which are disruptive, which can open new markets, and use them to your advantage.

Modernizing horse racing data -  creating a seamless pipeline of inputs and working to sell, or distribute, those outputs - is a chance to open new markets, and sell to them.

People lament that horse racing is old, that you need to sit for hours to find a bet, reading a paper racing form your grandfather great-grandfather used. A lot of people, in fact, love to do that. But what if horse racing data was more like Stats LLC, or MLBAM, which has data that tracks player movements and launch angles and just about everything else?

Me or you might use this data to model stride length, speed, wind and other factors to create better speed figures. We could use that to model energy distribution. There's no doubt we could do some amazing stuff with that.

Now, with these stats, let's say we find out that they can predict winners, while the race is being run. We are not the only ones. Some whiz kids somewhere found out similar. Now, what if demand for in-running wagering increases exponentially because of this data?

Well, this data was just thrown out into the landscape. It was inert. It wasn't created to service an existing product.

What if, in 25 years, this data spawns a new way to play the Derby or other races. What if millions are bet on the Derby yes, but hundreds of millions are traded during the race itself? That's a whole new market and a new revenue stream for horse racing, created simply by making new, cutting edge data available.

This inert data - the data not created to service an existing product - actually created a new product

The above is just an example, that probably will never happen, nor work, but the point I am trying to make is, good ideas, growth for an industry, new markets, and new products, rarely come from the business itself, or what we know in the here and now. This is probably exacerbated in horse racing, because so many are monopolies or duopolies.

New ideas, new products and new innovations occur because a table is set for the marketplace to innovate and find new markets and products.

Modernizing horse racing data might seem like nothing to some - especially those who like to sit outside on a sunny day reading the racing form. But it means a lot. It can find, create and exploit new markets, no matter how old your business or betting game is.

Tuesday, October 18, 2016

Newspapers Might be Finished, But Racing's Strategic Options Make the Big Tracks a "Strong Buy"

There's a really interesting article I dove through at lunch today by Jack Shafer at Politico.  He looks at a new study from University of Texas researchers who propose that newspapers blew it by moving forward online the way in which they have, and they should retreat to do what they do best - sell print newspapers.

"Buttressed by copious mounds of data and a rigorous, sustained argument, the paper cracks open the watchworks of the newspaper industry to make a convincing case that the tech-heavy Web strategy pursued by most papers has been a bust. The key to the newspaper future might reside in its past and not in smartphones, iPads and VR. “Digital first,” the authors claim, has been a losing proposition for most newspapers."

That smacks a little of what we hear from some out there in horse racing, where retreating to "getting people out to the track" (where margins are higher) is a workable strategy. No doubt the knee-jerk reaction from those in this sport may be,  "see, we have to do the same thing".

I think that's not correct. The quagmire with newspapers is a classic life cycle question.

In the University research, the authors contend (although they don't say it) the industry needs to begin a retrenchment business strategy. This strategy (doing what you do best, and diverting revenue to it) is one of three major business strategies for mature businesses who are at the tail end of the life cycle - the other two are harvesting and consolidation.

I am not remotely sold it will work, but the authors believe it's where the business is. And that is super-important. A lot of business have no idea what strategy is right when declining.

As for horse racing, it cannot retrench. Why? Because, frankly, it does nothing best.

For horse racing at slots tracks, harvesting (milking the cow) seems to rule the roost, as sad as that may be. I think these small tracks know exactly where they are, and that's exactly what they do. If 1% of revenues go into something other than purses and profits, I sure haven't seen it.

 For larger entities and the big tracks that rule the roost, they are certainly not going to retrench, or harvest. Neither of those strategies are remotely optimal.

I think they are going to consolidate. And I say that for more reasons than it's the only choice left that we learn in business school.

A consolidation strategy allows big dogs in an industry to hunker down, and let the competition kill itself off. In the end, the hope is that they will have a stronger position in a weaker industry, but with the industry less competitive, they can grow, and revenues (and margins) can improve.

In real life, a loose example of this would be a NYRA surviving with its three tracks, while Finger Lakes, Batavia, Vernon and other harness tracks fold. Their slot revenue - probably regulated and governed through a department of Agribusiness - would then go to NYRA.

This strategy is often serendipitous, unplanned and in no way normative. I think we're seeing that right now (although, perhaps, a case can be made this is what CDI has been doing for awhile, while divesting from racing).
  • Larger tracks are charging more for signals, and importing signals at lower and lower rates. Small tracks need them more than they need small tracks.
  • Handle has been trending upwards at large tracks, while small tracks are getting absolutely killed.
I think we are seeing a consolidation at the top, and Florida and NYRA tracks are positioning themselves to take advantage of it, whether they know it or not. As for another big dog -  California - I honestly don't know what they're doing.

Newspapers, I think, are dead. Retrenchment won't work, and neither will harvesting. The big dogs will probably survive online and off, so there might be a consolidation strategy at play, but in no way is that consolidation worth as much as it is to horse racing.

If the big tracks in horse racing were an equity, I think they'd be a "strong buy", whether they know it or not.  For fans, owners, trainers and customers, I believe we best get used to it.

Have a nice Tuesday everyone.

Friday, October 14, 2016

Stronach's Willingness to Take Shots Is Racing's Vanguard

Good morning everyone!

The big news yesterday that filtered twitter had to do with the announced ticket prices of the Pegasus World Cup, to be held at Gulfstream in January.

$100 to $765 sounds a bit steep to most, and I think that's true, but with a smaller venue, and  corporate sponsorship buying the seats, who knows. Plus, I hail from Toronto, where people pay $400 on a Saturday evening to watch the Toronto Maple Leafs. A couple hundred to watch the "world's best racehorses" might not be that bad at all.

Regardless, Frank Stronach makes us think and he makes us wonder. It looks like he is going to pull this off.  And in another 'who knows', one wonders if this could change horse racing.

This past week saw a couple of items in the news. Exaggerator was retired early, as we see so often in the sport, ho hum. And, the Thoroughbred Commentary piece on American Pharoah raised some eyebrows too.

From the piece, who is better, American Pharoah or California Chrome was broached, from an inside baseball, dirty laundry perspective. Whatever you may think, no one really knows, because, like Exaggerator, the cash in the breeding barn is too powerful to ever find out.

Most stud deals are not of the sweetheart variety like American Pharoah, however. But racing to breed beats racing to race, 10 times out of 10.

This is why what Frank is doing peaks my interest.

We now have $12 million for the Pegasus World Cup in January.

We have $10 million for the Dubai World Cup in March.

I wonder, if, say NYRA (after looking at the JCGC field this past week, and in past years where the race has simply lost its edge) follows suit and offers something out in May for the "World's Best Racehorses"

This made for TV 'Triple Crown' of greenbacks could (yes, I am projecting) total upwards of $30 million in purses over a six month period.

And, if a horse wins these races (or even one of three), not only do his connections earn some massive purse money, his stud value is sure to rise many millions, as well.

Would you retire a top three year old for $30 million in the fall, if you have a shot to race for $30 million at 4 before next May? Especially where your $30 million stud deal could be worth $40 or $50 million if you win a leg or two against top horses?

Most sports evolve and get better through trail and error. The playoffs are changed to include divisional series, and TV ratings and revenue are examined. Rule changes - a lot of times coming from fans -  are tried and tried again, and perfected. Horse racing can't do much of that because it's stuck in a strange, regulatory, alphabet and fiefdom bog that we all know well.

Horse racing changes, or experiments, only when there is someone there to take a shot.

Is Frank Stronach - one of the few willing to take shots - changing the game more than he thinks, with this crazy, wild, $100 to $765 a seat, $12 million dollar race? Time will tell.

But as Frank often does, he is sure making us wonder.