Wednesday, October 3, 2012

Bezos, Google & Innovation in Horse Racing



In 1998, Amazon.com founder Jeff Bezos made a trip to a Menlo Park, California garage.  In that garage, which was a make-shift office and workshop, sat two kids who were trying to sell a new way to search the Internet.  They were seeking seed money for their venture. 

Bezos almost immediately obliged. He invested $250,000 of his own money into the concept.

Those two kids were Sergey Brin and Larry Page and the concept they were working on was Google. This year, with Google’s stock hovering around $600 a share, that investment is worth about $2 billion.  Mr. Bezos, way back in 1998, paid 8 cents a share for his stock. 

Why did he do it? In his own words he said:

“There was no business plan, but they had a vision. It was a customer-focused point of view.”

He didn’t know what was going to happen with search. He didn’t know what his investment may be worth. He took a shot, because what they were building made sense.

That seed capital created a company; one who innovates and makes all of our lives a little more convenient, and at the same time opens doors for more innovation.

Harness racing, like seed capital investing, is for swashbucklers. It’s a sport that has always been for those rugged individualists who yearn for risk, with a probability for a huge reward.  We don’t ask for special treatment or to work an eight hour day with summers off and a cushy 401k. We’re different. 

We see it at every yearling sale on the planet. It happens with the Cancilliere brothers who swing for the fences on a brother to Donato for the price of a Massachusetts beach house.  It happens with a couple of bettors who decide to take their superfecta winnings from last week to buy that Shadow Play yearling out of a mare they made a score on in 2006. It happens with little guys like me, who showed up at a sale with no trainer, and saw a horse I witnessed race a couple of weeks earlier not drawing bids at $5,000, so I put my hand up and bought him, never seeing the horse or even knowing how I get him from the sale to a stall. It happens with you too, almost every day.
It’s how we’re built. It’s what we do. 

I had a recent discussion about the “Racing Development and Sustainability Plan” which was structured and tabled in Ontario a few years ago. The plan, which was created to buffer the loss of slots revenue should it be discontinued, asked for 5% of purses to be squirreled away and used for eight or ten previously studied and reviewed planks. These included items like new betting concepts, betting exchanges, pick 6 tickets in corner stores, and a few other pro-growth ideas that were new, fresh and innovative.  Each idea, like Google’s, was “customer-focused”.

I remember when it was constructed; I thought it would be a slam dunk. Almost all of these issues were complained about by those in the sport, and 5% of slots-fuelled purses seemed like a drop in the bucket. After all, if you nailed a 5th place at Grand River Raceway, instead of cashing a $250 purse check it would now be about $238. It didn’t seem like it was an earth-shattering ask, especially since that $5000 purse could be $500 if slots were killed.

In the end it was rejected by us, the participants. It was “too risky”, “too vague”, “there was no business plan”, “we don’t know how much each plank would cost” and various other gripes were put forth to kill it. 

Why do we have a love of risk, and hard work, and “taking a shot” when we throw $20,000 at an unraced weanling, but we can’t give up a paltry 5% of slot-purse money to do something planned to gain new customers and new markets?

I wish I knew, because I think it’s one of the biggest problems in horse racing.  

When we take a shot, we innovate, and when we innovate it opens doors. When we don’t innovate we stagnate and there are no doors to open.

I’ve often wondered of late: What if the RDSP in Ontario passed in 2010? 

If the plan passed ‘go’, one of the main items – a betting exchange – might be up and running, with the participants of harness racing as its owner. It might be helping with the bottom line, but it could be doing more than that. 

As everyone knows, all slots revenue is being (tentatively, there is a final report due next month) removed from Ontario racetracks in March of next year. The government has been looking for ways to appease racing, because the new gaming policy has pulled the rug right out from under it. Right now there is really no conduit for them to fund racing with some sort of bridge financing or restitution, as there are very few avenues that make sense. Currently, what’s being batted around is a $50M severance package to be paid over three years. 

However, as a part of this new gaming policy, the government itself has laid the foundation to pass sports betting in the Province, which could be a huge business for them.

If a harness betting exchange was now running, with an existing fan base patronizing it, it is probable, or at least somewhat likely, that Ontario racing could ask the government this simple question today:

“Since you took slots away, how about allowing us to offer sports betting on our exchange?”

To allow for some pay back, or to allow the government to save face, a right of first refusal, or exclusivity may have been granted for sports betting via the medium. This would be a boon for the sport in Ontario. If others came in and tried to offer sports betting the same way, they’d likely have to go through racing. As Betfair has proven, betting games on an exchange brings in plenty of dollars, too. Those dollars could run into the many millions per year, and they could be used for harness racing purses.  The Ontario Sires Stakes may be funded by this exchange each year alone, instead of everyone wondering what a sires stake purse will even look like in three years. 

The above is purely hypothetical of course, and it may have never occurred even if the RDSP was passed. But it shows that racing could be another example illustrating what many other businesses prove each day: If you are innovating and trying new things, it can spawn growth and uncover new comparative advantages and revenues; sometimes from unexpected places. 

This maxim could be applied to all other ideas, like a V75 type bet in corner stores, new bets in new markets, scheduling, the list is almost endless. 

In my opinion, racing needs to look at all ideas. It needs to fund working committees of professionals to bring these ideas to the fore. It needs to bring our swashbuckling nature from the yearling sales floor to the boardrooms to shake up the business and destroy the status-quo.  If so, we will at the very least be trying things that can help us learn and move the sport forward. 

What we are currently doing, and our culture of saying ‘no’ to any change, is simply not working.

This article is copyright via Harness Racing Update


1 comment:

Christine said...

Interesting about the foundations of Google - indeed there are many industries or sole individuals that could make good use of a willing finance provider!

Sometimes taking a chance really pays off and if it doesn't, perhaps it's not a big deal that people went out on a limb just in case...