Where's the Edge?

Every customer needs an edge, every business needs an edge. An “edge”, or a margin that leads towards a profitable outcome, guides just about everything we do, as well as what happens around us.

There was an article today about Wal Mart workers planning to strike on Black Friday. Wal Mart is certainly not going to like that, nor will they stand for it. Not because they are evil vulture capitalists, but because if their prices move up even an inch, their edge is totally destroyed: The Dollar Store will buy up Wal Mart stores quicker than a Magna horse racing exec is shown the door. Prices guide Wal Mart, and they’re its edge. Destroy the edge, they have no business. This is why they fight any increase in costs.

Costco’s edge, similarly, is having tight margins, but with a volume component. If they can convince you that you need 874 boxes of Cherrios, they’ve won; they have their edge.  If one day, you, me, and the dude down the street decide we don’t need all that product, they better change and change fast or they’re toast, because their edge is gone.

In terms of gambling, the edge comes in many forms. For slots it’s the ability to get treated well while losing your money over a long period of time, but knowing you have a shot to hit a big one. For poker it’s about capitalizing on low rakes, and your opponent’s poor play. Craps, roulette and any other game of chance is similar. If you can play a long time, have a good time, and have at least a chance (psychological, or otherwise) to come out ahead, you have a game you want to play.

This is why casino’s are so reticent to raise takeouts. A 1% rise in poker take can clear the tables in a hurry. Their edge, like Wal Mart’s, is like walking a tight rope.

What about racing's edge?

Is it win betting? We’ve always heard you should pick your spots, only select races you have a strong opinion on, and bet win only. If you do that you can come out ahead.  That’s probably sound advice. But with 16 or 17% win takeouts how many can actually win? How many even want to try? You study the form all evening, you plan your bets, you wait for your odds – all for a 4-1 so you get $10 for your $2 investment? And let’s not forget, with an ancient tote system you are likely to bet something at 3-1 at post time and see him or her drop to 9-5.

It’s clearly not an edge for racing to exploit or that it has exploited, because if it was, betfair would not exist. Betfair has two components of an edge that racing does not have – fixed odds and low takeout. They, not racing, made the win pools, fun, profitable for some, and exciting, by turning it on its head.

How about place and show betting? Well that’s a non-starter. If you can beat that rake and breakage in those pools you should be working for NASA.

 I believe racings main edge is in a pretty simple spot:  Large pool horizontal and vertical bets. Where else can you use some skill, have a little bit of luck and make a huge, monster score, other than racing? I can’t think of any other game that allows you to.

I took this ticket last week at the Breeders Cup to try and hit the pick 6. 

I bet you've taken, or had a result that was similar. It does not take much to be close, or to hit a $500,000 score. And it's not a lottery - you get to pick your strategy, your ticket or tickets, and have the joy that that brings if you succeed.

There are of course a couple of problems with racing pushing these bets:

 i) You cannibalize your existing customer base and break their bankrolls. Over time, they leave. For this to succeed long term, you need new money each day, or week. Your everyday players need low takes to keep them around.

 ii)  If the target market you are selling these bets to can not make the bets easily you are marketing in a vacuum. NFL pools work with newbies in office towers because they're easy to join and play. Racing makes it extremely difficult for people to consume their product (state by state rules, charging for past performances etc)

 I believe racing can grow these bets with organization and forward thought. In Canada in 2009, one of the planks of the Racing Development and Sustainability plan was getting these bets in corner stores, just like a lottery. It didn't get done, nor was it even tried, mainly because of industry infighting, but they were onto something.

If we bring horse racing's edge to the masses, I believe it can succeed. Huge pool skill bets, marketed to the right people, in the right way, with proper distribution, could give this business a massive shot in the arm.