Thursday, September 10, 2009

Reader Thoughts on Purses and Stakes

Dave Hoffman wrote a comment below which is well written. I thought I would throw it up here.

On Labor Day, I went out to Freehold for the Cane Pace, the "first jewel of the pacing Triple Crown". I think this race shows how misused the resources are in developing harness racing. There are tremendous resources being put into purse money, but nothing done to relieve the ultimate customer -- the bettor. In the Cane Pace, the purse was $325,000. I didn't see the total handle for the race, but the win pool had a little over $13,000 in it. What does that mean -- at most $60,000 or so bet on the race? $10-$12,000 takeout for the house?

Instead of throwing money at the horsemen, for merely 3-4% of the purse money the entire takeout could have been eliminated. What was the handle for the whole day? I'm sure it was embarrassingly small. Why not use a portion of the purse money for bettor's relief?

This year the Cane Pace field was weak and did not attract the top three year olds. Notwithstanding the fact that the entire "triple crown" concept is a complete failure for harness racing, the stakes races should be reassessed and put into some coherent sequence that would a.) ensure that the best horses compete with each other in the best races, and b.) enable storylines to develop that might draw in the casual horseplayer.

What if the Cane Pace used a portion of the purse money to eliminate the takeout for that race. Is it not possible that using 3-4% of the purse money for this purpose would stimulate betting interest for the race, and thus for the stature of the race? Let's say that the purse were $300,000 -- would that have impacted the quality of the race?

Right now, I really can't see what the Cane Pace (and other stakes races) bring to the table in terms of building betting interest in harness racing. Ultimately, the slots subsidy will go (which will result in horseless states which will presumably discontinue sire stakes as well), and harness racing will have to stand on its own four legs. The only way to do this is to build the handle.

While racing had a monopoly for years and accumulated bad habits during that time, the good news is that there are so many more betting dollars out there than there were when Stanley Dancer was appearing on Ed Sullivan. Racing doesn't need to be the only game in town, but merely needs to have a respectable market share of the much larger present-day gambling market. The product that harness racing sells is wagering tickets -- not races, not horses, not horsemen. Improving the quality of that product vis-a-vis its competitors -- e.g., hold'em, lottery tickets, slot machines, etc. is the sine qua non, and is necessary for the survival of this pastime.

Dave Hoffman

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I don't know if one-off races with lower takeout will do much good. However, Dave does put forth some that need to be asked. When $325,000 is placed into something which brings back $10,000 in revenue, this should be looked at. The money from that purse does go to a horse owner, like myself. And we do sink it back into horse supply, so that is something to think about. But allow me for a moment to delve into what I do for a living.

Let's say I am contracted to sell subscriptions to a magazine and I have to spend $1M in year one on marketing. I can do this in myriad ways: Banner ads, contests, targeted site marketing, search engine marketing, youtube ads, television or radio ads pointing to a website.

After six months I measure what comes back to me. Banner ads had a CPM of $4, bounce of 92% and an ROI of 0.11. Contests had a 4% response rate, 32% bounce, 1% conversion rate and a 0.44ROI. Youtube ads came in at a 0.55ROI. Search engine marketing came in at 0.87 with a 34% bounce.

My re-up subscription rate overall was half. ROI was positive in two areas: Youtube ads and search engine marketing ads.

In year two, I will divert spending into those two areas and ease off on the others. I will continue to work on my metrics with bounce rates, response rates and overall ROI. I will know what to spend, when to spend, and how to spend to make the most money for my client. It is pretty simple.

In racing, what if we took that $325,000 and did something with a portion of it, like Dave suggests: Lower take, contests, TV ads, online marketing, and so on. And with each medium we measured, like everyone else does. We will learn what works and what does not.

According to the U of Louisville report mentioned below if we double a purse we get a 6% increase in handle - putrid. If we spend it on takeout decreases, handle will go up at a much higher rate. When we look at the spending of purse money for feed men and otherwise on the supply end, is the business better off with a handle increase, or more feed men?

It is something that I think racing does not know the answer to, because most spending is not measured in a macro, industry-wide way. But I do whole-heartedly agree with Dave - at some tracks, in no way should we be putting all our big cash into stakes races that no one wants to bet on. In fact, a good deal of the time a good competitive claiming race with a big field will draw more handle than that stakes race. There is a happy medium somewhere. Many businesses have found that medium. Racing seems to just scratch its head and wonder where it is.

Thank you for the thought-provoking post Dave.

3 comments:

Pacingguy said...

Well, Dave brings some good points but Freehold also hobbles themself as well. First of all the Cane Pace should not be held on Labor Day weekend; besides most people being otherwise occupied, in New Jersey asking someone to travel on the Garden State Parkway on the end of a three-day summer weekend is absurd (poking your own eyes out is probably less torture) so anyone inclined to go see a big race is going to stay home.

The over all card was very weak. With the exception of the two divisions of the Shady Daisy (the female companion race to the Cane Pace) what else did you have on the card? NW 1, NW2, nw1500l6, nw2500l6 and NJSS Green Acres (horses that could not compete in the regular NJSS and may have had a problem with nw2 fields). I realize Freehold has a problem attracting good horses, but instead of these races, could they have not at least scheduled the the state restricted stake races like the Charles Smith Trot and Helen Dancer Memorial? The point being if you are going to have a race like the Cane Pace, surround it with a card of the best races you could put on. Then, you may have attracted more people to take on the traffic and bettors on the internet who were not at BBQs may have taken a look at the Freehold card.

I would dispute the claim that the Cane Pace field was particularly weak. Sure, Well Said was not in the race, but a race with Vintage Master, Arctic Warrior, Mr Wiggles, If I Can Dream is not weak. Yes, only six betting interests does not make a great betting race.

Pacingguy said...

Actually, there is one problem with Dave's thesis. Other than nominating and substaining payments, the rest of the money from these stake races comes from the purse account; meaning the money is already the horsemens'. Earlier this year Freehold cancelled some stake races due to an overpayment in the purse account.

You want the horsemen to give up some of their purse money for to reduce the takeout? It will be a cold day in hell before that happens. I've been to meetings where a representative of a horsemens group indicated that racetracks should pay to market harness racing, not the horsemen, so the day they give some of their purse account to reduce the takeout, there will be peace in the Middle East.

Scott Ferguson said...

holiday Monday meetings used to be big in Australia, now they have died right off. People want to set off early from long weekends to avoid the traffic, they've had their big days on the Saturday or Sunday, whatever the reason, they are dead in the water and it's a similar sitation in the UK, although I don't know if they ever had big Monday meetings.

I'd rather bet on two quality $150k races on a balanced schedule than a $325k race with a weak undercard. Betting on one race seems a waste for me, and the tracks need to be thinking about reinvestment from patrons to build the total handle for the day up, not just one race.