Sunday, May 9, 2010

Betfair & Racing - Two Entities, Two Different Goals

We often hear racing labeled old and out of touch. When the pari-mutuel industry is not growing it is easy to want to assess blame. Usually this blame lies at the feet of the executives; after all, who else are we to blame? Let's get 'em! But I think there is much more to it than that, and it is pretty unfair to lay blame at the foot of people who for the most part are smart and passionate.

I believe the people in racing are not to blame, what racing has become is the reason we lack meaningful change.

Many racetracks are owned by large casino companies, public companies or non-profits. The way to grow profits is through expanded gaming, with a dash of bean counting, protection of your slice, and some cost cutting. Rocking the boat to win big - where at the end of the journey lays a pot of gold for your racing product - is not overly important. I think this is why when you ask racing a question about changing takeout, or betting exchanges, or a wholesale change of the racing product with a long term growth vision, the answer tends to be: "Sounds good, but we can't do that. It's difficult. Have you seen our plans for table games? There could be some big money there."

From a bottom line business perspective in the short-term, there is really nothing wrong with that is there? Racetracks are now positioned as gaming companies, and they want more gaming, because gaming makes them more money. It’s good old-fashioned capitalism. If we look at the landscape, with Kentucky wanting slots, New York in slot hell, Ontario and Pennsylvania with slots, and so on, one might be led to believe that the racing gambling product is nothing more than an albatross. If racing didn't function as a conduit to more gaming, we get the feeling they might as well scrap it all together. If it was worth more, you figure they would be changing it so it could grow, wouldn’t they?

I was at the wagering conference in Windsor a year or so ago and met Mark Davies, Managing Director for Betfair. He was a rather young looking chap, who had some verve and confidence and it looked like the grass did not grow much under his feet. Despite being busy, he took time to chat with a betting friend and I for close to an hour. This struck me as odd frankly, because although he and I were on the same panel, I was nothing more than a bettor. Regardless, we talked about betting, horses, gambling, racings growth and where the betting world will be in the coming decades. I left the conversation with a complete lack of bewilderment that his company moved from zero customers to three million in less than a decade. It was probably the most enlightening conversation I have ever had with anyone about selling gambling on racing, and I have spoken to dozens if not hundreds of folks in our sport about that very topic.

I stumbled upon Mark's blog awhile back. In two pieces, he wrote about being ten years at the company, how he joined betfair, and how they grew. What struck me in them (other than the conversational tone and lack of corporate-speak, which is rare for executives on the web) is that they grew by selling betting on a core product, nothing more, using an innovative way to bet. They made betting work, not as a way to get a table game or a slot machine, but as a means to grow their customer base and build a business.

What they did was certainly impressive, but not really that remarkable, in my opinion. They just wanted to build a business, like millions of people before them, and millions will after. They looked at an existing mousetrap and built a better one; and when a government or racing commission told them they could not do something, they fought back and said 'just watch'. They were concentrating on their core product because the core product was all they had; if they could not make the core product work, no one would be giving them a slot machine to save them. If they failed, they would be hitting the want ads, or in their case, probably craigslist or Careerbuilder.

We have those same talented people in racing here in North America, but when success is measured by how many slot machines we have or if a city government will let us build a hotel with a roulette wheel in it, we are what we are. Until the culture of racing changes and we take risk to grow the core sport, I feel meetings on the steps of state houses and legislatures with cap in hand looking for alternative gaming will continue to be the norm. Heaven help us when they one day say no.

It makes me wonder. If racing is not concerned with selling and making money on their core product, why not do something worthwhile with it? Why don’t they spin-off their horse racing gambling product to someone with a passion and expertise to make it work. Tell this new group that you will take care of the horsemen and the casino (with such a high percentage of handle coming from the gaming side, they are one in the same now), and you will let them take care of the betting business. It might not work, but at least we would have one set of people working on the gambling game, completely detached from the gaming side.

I expect Betfair to keep growing. They are selling betting and they keep score by calculating how much money that betting brings them - no betting, they don't eat. I expect handles in racing to keep falling, because racetracks are not selling horse handles, they are selling slot machines, table games, hotels, or whatever else they can get passed by governments. That's the way they keep score.

In the end we have two sets of people who are ostensibly selling the same thing, but with two entirely different visions of what it means to be a success. If history tells us anything, the one who sells what they are is usually the better bet.

If you are interested in a birds-eye view on the growth of Betfair, read Mark's two part series on his blog. Part one, when he left his old job is here and the early years are here. Part two is more about the day to day items we are familiar with. I found them really interesting reading.

3 comments:

Anonymous said...

We have never had gambling people in charge of racing, only people who were gambling experts with a monopoly. When the monopoly changed, their focus was on gaming. As you allude, It in itself is the watershed moment in racings modern history.

Peter

Anonymous said...

Very good......... the saddest part for me as an industry person is that there are plenty of people who realize we need change..... but they can only change their track alone. Changing alone wont cut it... we need uniform change in the parimutuel betting product.

malcer said...

Good post!

I think what Anon2 said is exactly the problem in almost all aspects of North American racing. For example, as much as I appreciate Monmouth's idea to half the number of races and double the purses in principle, I would be extremely surprised if this experiment works out. Every track profits from the lower number of races, but Monmouth is the only one to shoulder the handle reduction (the same would at least to some degree be true for takeout reductions).

A classical prisoners' dilemma that creates a very hostile climate for improvement.

As for the racinos - if you skip the question of whether or not many of them want their tracks to fail - for most of them even a 20% increase in pony handle would be such small peanuts and still so far below covering costs that I guess it makes sense for them to entirely focus on the casino part.