Friday, August 19, 2011

Slots at Racetracks: Poor Policy Haunts Racing

The DRF yesterday compiled figures in terms of handle, field size and purses for slots and non-slots racetracks. The results, although alarming, should not be a surprise to anyone who follows the sport, or who has followed how these slots agreements were written.

"Racetracks that received subsidies from slot machines in 2010 generated on average only two-fifths of the betting that non-subsidized tracks generated even though they distributed nearly equivalent levels of average daily purses"

In harness racing these results are commonplace. It is normal to see a track give out $100k in purses, with less than $40k of nightly handle. It is also not uncommon to see upwards of 90% of all purses come from the slot machines.

What went wrong? I believe it can all be traced back to the singular policy-focus on the supply side, with a hopes that this would increase demand.

As far back as 1995, while lobbying for the machines, the narrative focused on purses leading racing to the promised land. The thought went: If we offer better racing through higher purses, people will bet more, and off we go. This might make sense on the surface, but when we dig deeper it was a plan built for failure. Studies like the University of Louisville showed as far back as 1998 that when we double purses handle only increases six percent.

Not to mention, takeouts were always too high and were still at 22%. Now they brought a 5% takeout slot machine on the premises and expected to have on-track demand rise?

In addition, adding slots at tracks seems to have taken the dumb money out of the pools, making betting even a less desirable proposition to core customers, or to potential ones.

The demand side has never even been looked at. A lot of people, way back in 1996, were warning about this. And even governments were trying to lead racing (believe it or not.) In Ontario, the politicians offered racing back a 7% parimutuel tax, asking it to be used to stimulate demand, through lower takeout.

What happened? Very little. The money was taken by different alphabets and never returned.

The sad part about the above, is that we keep doing the same thing over and over again, expecting a different result. Virtually every slots deal written since Ontario, almost 15 years ago, is exactly the same: Put all the cash into purses, and demand will go up. It was this way in Pennsylvania, it's this way in New York. On the demand side, the entire slots castle was built on a premise of pure folly, and we have repeated it.

Even today in other areas, the demand side is ignored with the hopes this failed mantra catches on. In California purses were raised in the short term, at the expense of the customer. It will likely fail, just like the dozen or so previous times it's been tried.

Adding to the economic morass we see in the sport, allocation of purses has thrown even the supply side out of whack, exacerbating handle losses. Slots rich Indiana and Pennsylvania for example, have killed field size at Keeneland and Churchill. Slots at Chester has killed field size at the Meadowlands. Our flagship tracks, the ones that people patronize, are being hampered by places that people do not bet. It's like opening a top of the line lemonade stand in the Arctic, and expecting to grow demand for lemons.

Over the years, on this blog, at wagering conferences and elsewhere, there have been suggestions offered to grow demand. Things like player rewards, takeout reductions, set asides of slot monies for slush funds to attack and cultivate a new base, etc. There is some recent movement from the tracks and horsemen to finally address these things. For example, Jeff Gural has asked for "2% or 3% of slots money to be set aside" for player and customer cultivation. In Ontario, funding a slush fund from slots to enact numerous (mostly customer-centric) ideals, was shot down; but the plan was at least spoken about, and constructed.

But really, there is little progress. There is simply no one there to lead.

In the meantime, customers continue to look up, see a $30,000 purse with $2000 in a win pool, and wonder what might have been. It seems tracks and horsemen groups are starting to see the same thing - when you focus on the supply side, you get supply, but when you ignore the demand side, there is no one there to buy.

6 comments:

Tinky said...

Excellent summary.

Anonymous said...

HP put $400M developing the Touchpad- but they won't do that again. Racing tends to make more Touchpads.

Phil

Eric P said...

In Ontario there is NO criteria required for tracks to EARN their slot money. Put another way Racetracks recieve free money simply because they have horses running around an oval.
Horsepeople and Racetrack owners convinced the Ontario gov't that they were ENTITLED to a 20% share of the slot money.
Had the Ontario government attached specific criteria for the Racetracks to EARN their slot revenue, the industry would look very different today.

Cases in point:
-Aug 13 Sudbury Downs-$69,900 purses, $9,471 wagered, 6.75 horses/race. Gross handle/purses=0.14
-Aug 14 Ajax Downs-$138,500 in purses, $13,779 wagered. Gross handle/purses=0.10

Sadly, slot agreements that have and are coming due are being renewed without any conditions attached to EARNING the slot money!

frank mitchell said...

The reason that the racetracks have no requirements to "earn their slot money" is rooted in both the history of the development of the tracks and in the way that slots have filtered into the fabric of American legal gaming.

It all started just a bit more than a century ago when the holier than thou set managed to outlaw gambling. Period. After a few years that nearly bankrupted everyone associated, a handful of genuine leaders (Joseph Widener, William Woodward, et al.) put together a coalition that promoted legislation that let states have a stream of "voluntary taxation" through the pari-mutuel wagering on horse racing. This also gave horse racing a monopoly on legal gambling almost nation-wide, and as a result, racetracks did not have to compete for gambling dollars or even think of themselves as businesses.

That model flourished for half a century, until different media and communications began to make gaming accessible in a lot of markets and to millions more people. In the years following this change of access, racing has diminished, and racing's ownership and "leadership" has not thoughtfully assessed the situation either to defend or to improve their sport (the old crowd being long dead).

So, when states wanted another line of voluntary taxation and looked to lotteries, racing got nothing in the deal. The tracks were somewhat savvier when it came to slots, getting a toe in the door, but as PTP points out here most cogently, they have done little so far to suggest they are using the money wisely and effectively to make racing stronger and more exciting or even more playable than its competition (which they have just been paid for allowing to take part of their turf).

The short-term conclusions from this predicament are not sunny. Tracks are going to close. The long-term issues can still be dealt with constructively if people take arms and make it happen.

Frank.

Pull the Pocket said...

Really interesting comment. Thanks for taking the time out to share it Frank.

PTP

Horse trainer said...

I completely agree that the way the slot money has been doled out is absolutely misguided. While understanding that owners need some level of increased purses to match the rising costs, horseman AND tracks AND politicians AND breed organizations used a simplistic view when putting the money where it did. The belief that higher purses will increase the quality of racing to some degree IS true. There is no doubt that racing at Parx, Delaware, CT and even Penn Nt'l is better than it was 10 years ago but the issue is that there simply arent enough good horses to go around to make the racing good enough to attract players when combined with ridiclous takeout levels. And as PTP points out they have taken enough good horses out of play at bigger/non slot tracks to decrease the quality of racing at these venues. Not using a % of the proceeds to lower takeout/fund a rewards/rebate program and put a % of the money into a aggressive marketing program certainly was a mistake. Of course you have to also realize that it isnt as though the management as these tracks are really that interested in their racing programs and in the case of the PA tracks the tracks are actively trying NOT to grow the racing product.