Monday, April 13, 2009

Changing the Mindset & Growing Handles

A long time ago a scientist noticed that when a dog saw a lab coat, he drooled. It turns out that the scientist wore his lab coat when feeding the dog. Pavlov's work was begun and we learned all about conditioning. In racing, it turns out when a track sees a horseman group, and vice-versa, we are conditioned that there is gonna be trouble.

At Woodbine this month, negotiations between the horseman group and Woodbine are ongoing, so I hear, to strike a deal. There are a number of things at issue, namely dates, private property rights, purse distribution and so on. Those are all important issues, and I am sure they can be worked out, however, it will not be easy; it never is.

I wonder though, why not work on some common ground, and help the game at the same time?

Currently the revenue agreements banged out between these two parties are pre-1990 in nature (and this is not just here, this is the way they are done all over racing). If the takeout is 22%, the horseman’s group takes a fixed percentage (let’s say 10%) and Woodbine takes a fixed percentage (say 10%) and the rest goes to various entities. This is how I understand it anyway. So, what happens if we want a wagering sale, for example a 10% takeout pick 4 on Friday’s? We can not. The ink on the deal assures it. The horseman group is entitled to 10%, the deals are not pro-rated, and Woodbine is not a charity. We are boxed in by deals like this and if you don't believe me, look at how hard Ron Geary at Ellis Park had to work to get his 4% pick 4 done.

In other parts of the world, the funding of purses is based on gross profits. For example, betfair gives 15% of gross profits to purses, as do bookmakers. This incentivizes them to grow handle, and churn as much as possible, by finding a price point that makes them the most money. When they make the most cash, there is more cash for purses. If betfair, or a bookmaker wants to have a 4% takeout sale, they have a 4% takeout sale. They do not worry about splitting a pie at the beginning, they worry about it at the end. That is why you see decent takeouts and a more optimal system across the pond. Hong Kong is currently under a similar arrangement.

Why not here? It can be done in this small way, rather easily. All we have to do is make sure there is a provision in deals between horsepeople and tracks, where the pie is split at the end, not at the beginning. This way it can free up this business to do business.

Will this cure harness racing and its handle problems? Of course not, but it at the very least allows some promotion for some bets to the $15-20B betting market out there. And as we all know, if a ton of this money that is bet at 10% takeouts versus 20% takes, and they are bet in HPI, or other internet platforms, you will see this money churned back. If someone gets paid $2000 for a pick 4 instead of $1600, they do not stick the extra $400 in a sock. They just know that their balance is higher and they rebet it. This has been happening all over the internet betting world since the late 1990's.

The time is now perhaps, to change the funding model in the business in a relatively simple way to grow handles and catch up with the rest of the world. We are not reinventing the wheel here, we are simply trying to write a 21st century mechanism, where we can do things that everyone else in gambling has been doing for years. And in the end, finding common ground in these deals is better than the alternative that we seem to see all too often.

7 comments:

Scott Ferguson said...

Mark Davies from Betfair will be attending the Standardbred Conference later this month. He is an exceptional PR man. He has had all these debates around the world from hostile racing authorities, watch him run rings around any old crusties who are stuck in the dark ages. The Aus lobbying against Betfair was a dirty campaign "Betfair are parasites", "Betfair will cause every race to be rigged", "Betfair will destroy prizemoney" blah blah blah.... What's happened since Betfair got the licence? Best time ever for bettors and horsemen...

Wind Gatherer said...

You're asking for a change in cultural mindset and those are inherently difficult to alter.

'That's the way we've always done it.' is awfully hard to shake and I am not as sanguine as you about the possibility of it happening on this side of the pond.

Allan said...

The reason why it can't happen is the horsemen are for the horsemen and the track is for the track and each side could care less about the other (a necessary evil).

Look at what is happening at Freehold in the states. The governor apparently feels Freehold can go away because the last time they got together to develop a casino purse supplement agreement, the owners of Freehold were not allowed to be at the negotiating table. The horsemen got the agreement to give $1.6 million in purse subisidies to Freehold provided Freehold agreed not to try to get slots for the next three years. One problem, the casinos, realizing Freehold is owned partially by Penn National Gaming decided that Freehold could not seek slot machines anywhere in the state, not just at the track as been the case in the past.

Anyway, the horsemen demanded Freehold accept the purse money. Freehold refused because PNG could not agree to these terms being they are a casino company. After trying to get Freehold's license pulled, the money went back to the Meadowlands. Freehold's purses have been cut severely and they are now on the ropes.

The long and short of it (should have been said earlier), is the horsemen worked out an agreement with the casino industry that worked for them and not the track and then they got ticked when the track refused to go along on an agreement they had zero say on. Why didn't the horsemen try to negotiate on behalf of the track as well as themselves? Because all they care about is getting whatever they can from this carcass called NJ racing and the heck with anyone else.

Cangamble said...

I just wrote the same thing on my latest blog post a couple of days ago.

Pull the Pocket said...

Nice article. You attacked the payout question, which is certainly a good one to tackle, that a new mechanism would fix.

Allan and GTW,

Those deals are certainly disconcerting to say the least. However, I do not think changing this by making sure that the deals are written in a prorated measure is reinventing the wheel. For example, if the Sam Houston pick 3 is 12% takeout, and 10% in a deal must go to purses, there is no way a track can offer the pick 3. They will charge over 20% because they want 'their 10% too'. If we make it so 45% of rev goes to the track, and 45% of rev goes to purses, simulcasters can offer the same payouts to gamblers, and not have them pee'd off beyond belief for getting paid $100 less for a hit.

That is what CG was exploring on his piece, which is a good one.

PTP

Pull the Pocket said...

Yep, I read your piece today CG, and speaking of the HIP stuff is important, however I am speaking of the core takeout being fixed at 10% each, rather than 50% of each gross.

Anonymous said...

Great work again.