Arguing for Slices of Revenue, Episode 61

Racing sometimes makes me shake my head. Or as the kids with their fancy phones say, smh.

Yesterday in the TDN the HBPA's Eric Hamelback spoke about the biggest challenges and solutions for horse racing.

"A critical step is ensuring that owners are fairly compensated for their property and their horses’ images and statistical records being used for wagering in this tech era by entities that benefit without contributing toward the care and upkeep of our horses"

This was similar to what was said way back in 2010.

Looking at the logic of the statement is a little difficult, because, well, it's difficult to decipher in the real world.

A reseller gives you approximately 50% of what they generate from handle revenue, for purses and for tracks to put on the races. Some of these resellers are the racetracks themselves. They use statistics and images of horses to generate revenue, because without them both you and they get nothing. It's a factor of production that's already being compensated for through simulcast agreements.

More broadly, maybe the point is that the Jockey Club makes money from selling data, and they are not directly putting it into purses. But even then, with over $1 billion in purses per year, the net profit from the Jockey Club from this data revenue is a tiny percentage of that.

More importantly, however, is the simple fact that 'horses images' et al, don't drive any revenue. If it did, Frank Stronach would not be having to pay NBC to show the $12 million Pegasus Cup, NBC would be paying Frank.

We're back to the beginning in this strange, circular argument. It's - for it seems the umpteenth time -  some faction in racing wants money, from a place that generates no money.

In the racing press when someone yells for more money, it's often presented like it's some grave injustice being righted, and the stalls will be soon laden with 14 carat gold straw.  It's a fantasy. Revenue will grow - for the HBPA, purses, and others - when racing grows gross revenue. This nitpicking that someone gets more or less of a percentage of almost nothing, means exactly that -- almost nothing. It's a complete waste of time.


 

Horse Racing Winners and Losers of 2016

As (yet another) tumultuous year comes to a close in horse racing land, I thought we'd look at a few winners and losers from 2016, from my perspective.

Winner - The Big Tracks (minus California)

Handle and market share at the big tracks got bigger in 2016, as this trend from mid-year finished out the year strong. Florida tracks especially garnered more betting dollars, but NYRA tracks (despite no Triple Crown try this season) certainly held their own.  The downside is (as handle will show in a couple of weeks) the pie didn't really grow much. But for those who've been asking for the big signals to be front and center, you're a winner.

Loser - By Corollary, the Small Tracks

There's no two ways about it, many small tracks in 2016 were crushed. Fewer dates, fewer races were followed by smaller handles. It's tougher and tougher for smaller tracks to get noticed.

Winner - Jackpot Bets 

Overall handle didn't move much, but there was a "rise of the jackpots" in 2016.  These bets attract newbie money, and when the newbies are broke chasing them, the whales swoop in to take over positive expected value mandatory pools.  If racing was Daily Fantasy Sports, the New York Times would probably do a story. Although these bets probably do more harm than good for the customer ecosystem, track execs love them for the short-term bumps.

Loser - Fantasy Sites

Racing, in its never-ending quest to grab revenue from other people who think of cool stuff they didn't, came down hard on the fantasy sites in 2016. From reading the headlines, you'd think these trickles of revenue were shaking the foundations of racing. But, in my view, this is low hanging fruit and it doesn't take much heavy lifting.

Winner - Frank Stronach

While Churchill Downs, NYRA and California racing overall all have questions surrounding them public relations-wise, old Frank is teflon. Everyone knows Frank loves horse racing. Everyone knows Frank wants to create more interest in the sport (no matter how crazy some of his ideas are). The Pegasus World Cup - his latest foray into changing the sport - is slated to go this month. Adding to the Frank-zeal, is the handle and market share performance of Gulfstream and Laurel. They both had big years.

Loser - Long Term Racetrack Economics

Canterbury Park lowered the juice this year and bucked the 2016 small-track downward handle trend pretty good, with a decent enough handle spike. You'd never have known it. Despite field size being  down, more rain in the region since 1890, and just about everything else, the story was "the percentage of decrease in takeout resulted in a net decrease in revenues". Nevermind the 100+ years of takeout hikes that didn't destroy the betting handle immediately, pay no heed that Amazon.com was incorporated in 1994 and incurred losses until 2004. Don't worry that when tracks have slots, they can use them as a buffer to experiment with proper pricing mechanisms. Short-term revenue was down, so this was a loser.

 Winner - Exchange Wagering

Betfair's exchange started for New Jersey residents this year. Yep, the volume is lower than expected (with them operating with half the Internet tied behind their backs), but it's there. There is no doubt about it, this is a huge win.

Loser - Rabbits

This year's Sword Dancer brought the practice out in an in-your-face way, and the fans didn't seem to like it much. For those who support rabbits, many used the "it's the way it's done in Europe for a hundred years" defense. But, with Brexit and Trump in 2016, that whole pro-Europe-globalization argument seemed to go over about as well as an Ebola epidemic.

From the comments from the high foreheads at NYRA after Sworddancergate, it seems we'll be seeing a different handling of the rabbit thing if it crops up again. So that, by definition, means it's a loser.

Winner - Big Days

Unless we've been living under a rock (I go there sometimes on twitter when my touts run badly) we all see Big Days keep getting bigger. More marketing is being placed into Big Days, and they seem to be growing with population growth and inflation, aka, like other businesses grow. Even Hong Kong has been getting into the act to juice up their big days. It's been a huge winner.

Loser - The Horseplayer

If you're a guy or gal betting $40k a year and treading water with 0.95 ROI or so, your chances of reaching the mountain top are growing thinner, because it's more difficult to find better pricing. Small ADW's who offer you better pricing are shut off from some top signals. The top signal guys have created their own ADW's where only $1M+ players get good pricing. ADW's are being shut out of California as we speak. In 2016 it's been harder and harder for racing customers in the mushy middle.

Winner - Kentucky Downs

2016's meet was another huge one for the little track that could. At KD, alternative gaming money is placed into both purses and lower takeout, making for a compelling exacta for horsemen, bettors and fans. The sky is the limit for this small, soon to be bigger, signal.


Loser - Medication Reform

This feels stalled to me, and it was in 2016, when the brakes were applied. I am not sure why, or how it happened, but at the end of 2016 here we are talking about steroids - something supposedly purged from racing a long time ago - not real reform.

It's hard for me to find blame in this. It just seems racing - where getting people together for a common goal is tantamount to finding fifty random people who all like Nickelback - is in its usual spot, stuck in the horse latitudes. 

That's my list. I am sure I have forgotten many items (I did the post at lunch, off the top of the head) so feel free to share yours on the social media machine, or in the comments section.

Have a great Thursday.


** Exclusive ** : A Christmas Chat With Cub Reporter

Cub Reporter, File Photo
Y'know, a day doesn't go by when someone doesn't ask me, "Pocket, can we see more posts about betting economics Cub Reporter on your blog? We want to know who he is, where he came from, what he likes to eat, or watch on television; what tracks he enjoys. We want to know where Maria Borell is hiding, and who the drunk guy who runs the photo finish camera at Santa Anita is."

For those who read the blog - especially those who enjoy breaking news - you've certainly come to know "Cub Reporter". Cub (not his real name) has graciously offered me stories to publish here that he cannot publish anywhere else; those that will get him kicked out of the turf club, or banished to covering one of those tracks in Chile where the horses all race like six miles. He knows very few people read my blog. I offer a cloak of safety.

I often let Cub know (through secret backchannels) that he has a following. People are interested in him. Finally, this Holiday season, he agreed to a sit down. I share this exclusive interview with you now.

PTP: I guess the big question on everyone's mind this week was the positive and brouhaha surrounding the Ellis test for the Breeders' Cup. Why haven't you touched this story?

Leading charity fundraiser, loves dogs
CR: I did. I meticulously researched the story and wrote a 2,000 word article. I thought it was comprehensive. It detailed the situation, with quotes from the connections, and the decision to run a horse who might test positive. I then contacted people in Hong Kong about their zero tolerance policy for steroids, and its efficacy. I quoted an actuarial scientist who has written several peer reviewed articles on the cost/benefit analysis of banning athletes with trace elements of sometimes therapeutic drugs in their systems. It was a good article.

PTP: Why didn't we see it?

CR: I submitted it for review but no one wanted it. One editor told me the press were saying picograms were no big deal and the trainer in question loves baby kittens. Keeping the industry narrative and editing out everything else made my article only 200 words, so I buried it. Plus, I have no idea if he likes or dislikes baby kittens.

PTP: In general, what do you think the state of racing journalism is?

Frank
CR: It's tough out there, and I don't really hold the industry or the writers responsible. I blame sites like Vox and Buzzfeed. It's clicks. It's listicles. It's advertising. For example, I lined up an interview with Frank Stronach a couple of months ago. I arrived at Gulfstream and the PR department handed me a pre-written story called "A Dozen Ways Frank Starts His Morning" they wanted me to use. On the sheet was a picture of a 12-pack of Frank's Energy Drink. Seriously, I like the drink as much as the next person - it makes me yodel - but I can't file that.

PTP: Do people in this industry like you, or because you are writing hard-hitting stories, you are shunned?

CR: Good question. Sometimes I am liked, sometimes not. I wrote a story awhile back on a CHRB meeting and it was - I thought - fair and incisive, but maybe not everyone thought so. I got home one evening, showered, and was getting ready for some shut eye. I drew the covers and found a Bob Baffert bobblehead in my bed. I have no evidence who sent it, but even if there's a small chance the CHRB went Godfather Part I on me, it shakes you.

PTP: Frightening. And signs you are liked?

CR: Well, last week I received a nice Christmas card from horse sex expert Sid Fernando. It was a form-card that he sends out to everyone, but to me it showed he likes my stuff, and I appreciated him sending it. I sent a note back telling him I felt for him when he lost all of his Kentucky twitter followers during the recent federal election.

PTP: Any others?

CR: Sure, Brad Cummings still sends his best wishes, and the fellow who took over his site after he left doesn't seem like a bad guy. Caroline Betts is a nice fact checker when the CHRB uses all those fancy equations I don't understand when they're making a betting economics decision. Sometimes Todd Pletcher invites me to tag along when he goes shopping for ties, or gets a haircut. We shot the breeze recently about him lobbying Daruty to extend Gulfstream's stakes meet to 365 days a year. Calder used to try to take me to strip clubs, so I guess they liked me. Even some old sources keep in contact. After the recent Winstrol positive in California, Richard Dutrow sent me an email that read "HAHAHAHAHAHAHAHAHAHA".

Richard Dutrow - racingfallguys.com

PTP: So, you have no trouble getting sources?

Churchill Downs CEO- Artist Likeness
CR: No, not really. When I was writing a piece about the switch to dirt at Keeneland, the PR department was happy to send me links to industry stories about how dirt will keep the Blue Grass a Grade I. When I write handle stories about a meet, the tracks send me numbers on whatever metric is up. If betting is down they send me quotes about a nearby Star Trek festival, junior women's snowboarding competition, or the release of a new movie that hurt their handle. If I need something from Churchill Downs - say if I am researching a story where they are planning to shutter a track or fire a lot of people - they send me a link to their share price.

PTP:You don't twitter. How about a New Year's resolution that you'll join the twitter? There are lots of journalists there.

CR: I am on twitter, but I keep my account quiet and have never tweeted. I guess you could call me a lurker, like that PETA person who exposed Scott Blasi for swearing a lot. I follow a lot of people and keep track of what they're eating, who is on the ABR Party Bus, and who won a Beemie Award. I follow my DRF friends like Hersh, Hogan, other H people. Some of the horse accounts crack me up. Remember Palace Malice? Whoa, tighten that tongue tie pardner.

PTP: Do you follow any horseplayers?

CR: For meat and potatoes I follow Ed DeRosa. He posts this weird excel sheet with tons of horses he likes. Some of them come in sometimes. I follow that Inside the Pylons person. He's best friends with Ed. Racetrackandy keeps trying to lobby me to investigate various people in California so I keep tabs on him. I follow Adam Hickman to see which jocks are riding cold. I used to follow Andy Serling, but he blocked me.
Julien Leparoux (l) Meets Adam Hickman (r) for the first time

PTP: Have you received any horse-themed Christmas gifts in the past? Anything horse-related you send to your friends in the industry?

CR: Last week I received a "bet a hundred get a hundred" deal from TVG for Christmas, which was personalized in an email to me. It's gotten a lot better for customers, because when I covered a TOC meeting in California many years ago as Junior Cub Reporter, they were debating offering a 'bet a hundred thousand get a toaster' promotion. I actually think that one is still running for California residents who use Xpressbet.
TVG's Todd Schrupp

On the giving side, I'll probably re-gift that Baffert bobblehead I found in my bed. Maybe I'll give it to Sid Fernando since he sent me that nice card.

PTP: Any parting thoughts this Holiday season?

CR: Horse racing is a wonderful game, and even more so during the holiday season. I am lucky to write about it, follow it, bet it, and read about it. We're all very lucky, despite all the problems.

PTP: Merry Christmas Cub.

CR: Merry Christmas Pull.

________________________________________________________________________________

For those of you celebrating, from my family to yours, have a very Merry Christmas.

Horse Racing (Somewhere Else) Quietly Invests Millions -- in the Customer

If you say the words 'more investment' to racing folks it usually means one thing -- increasing a purse. CHRB meetings, horsemen meetings, committee A, R and R42, are generally about finding ways to increase a purse. In some cases, like at the CHRB meeting last week with ADW margins, or the takeout hike in 2010, the money comes directly from the customer.

That's the broad definition of "investment" to the industry in North America. And we're not telling any tales out of school.

On this blog (and some other places) we often speak about investing in the customer. We do this for a few reasons:

i) Purses come (for the most part) from customers' betting of the races.
ii) Horse racing's gambling competitors are investing in customers. Some over 20% of revenues, or in hard times, like Atlantic City casinos, up to 40% of revenues (pdf).
iii) UI's, product offerings, betting instruments and delivery are all rapidly changing in a rapidly changing world.

Interestingly enough, other racing jurisdictions agree.

The New Zealand Racing Board's strategy is something that's eye-opening. They have the same problems as anywhere - fewer customers, falling purses, a bad calendar/scheduling of racing for consumption, etc - but to fix them here is the plan for 2017-2019:


This is a $60-$75M investment in customer initiatives, because, "quite simply, in order to grow Net Profit, we need to drive even greater customer growth. The onus is on us to remain relevant with our customers in a rapidly changing, highly competitive international market.".

NZ Racing brings in $150M per year. This investment represents 17% of total industry revenue. This is tantamount to racing in California announcing at a CHRB meeting that they're investing $331 million over three years in customers (2015 figures). Cue the oooh's and ahhh's.

Today, New Zealand has begun implement one plank today, with the announcement of a new fixed odd betting platform.

Cost/benefit analysis shows that NZHR hopes to recoup the investment within four years, which is a fair to good payback rate for capital investment, and seems more likely than not.

"Multiple reports, some going back decades, have identified the systemic issues in the industry. Long-term under-investment, both in NZRB and the wider industry, has been a key cause of these challenges. We are now faced with systems and infrastructure so outdated, and sometimes even redundant, that our ability to operate in a competitive, vibrant industry is severely hamstrung," the report says.

Racing has the same issues here (think Equibase's lack of modernization for a changing customer base for one example), but it would rather up a purse from $30,000 to $32,000 for a short-term band-aid than investing in fixing them. It's probably the biggest strategic problem horse racing faces in North America, and I don't see it shifting anytime soon.


The Law of the Vital Few; the Wants of the Many

I scanned a UK study (pdf) commissioned by the gambling industry a couple of years ago. I didn't learn a whole lot (other than what I already did - modelling modern gambling demand and supply, etc, is hard), but once again this little gem popped up:

This is racing, of course.

The first group is betting a lot of money, contributing to pools, and frequent rebate sites. They take advantage of every carryover, every promotion, buy workout reports, subscribe to all the services; everything that can give them even a tiny edge. They abhor Twinspires and TVG, bet peanuts at Santa Anita in 5 horse fields, and couldn't care less about a jockey or trainer colony, or what on-track promotions there are today.  Outside of racing, these are the 'line shoppers' who search for -210 versus a -200 line, because it can mean the difference between winning and losing over 500 plays.

The second group is the target for Twinspires and TVG. They respond to free PP's if they make a bet. They want good video, for free, and want to bet races with higher quality horses, jockeys and trainers. They like to visit the track when they can, as much as they can.

Racing's (like online gambling's) goal is often about capturing new customers (customer B). This is done with promotions (bet $100 get $100) and advertising. The second part of the goal is to keep a customer (free PP's, ongoing promotions).

That's where I feel racing does fairly well (infinitely better from a dozen years ago, when offering promotions was considered killing "our profits").  Twinspires, TVG, BetAmerica are all doing great work in this regard, in my opinion. (note -- this retention and investment spend is a reason ADW's need at least decent margins, no matter what the braintrust in California tells you).

Where racing does very, very poorly, in my view, is funneling the second customer to the first. This is a function of two things: not understanding the gambler and specious industry regulation with regards to pricing - e.g. the in-state retention cap in California.

If racing works harder and invests in understanding how to move players from point B to point A, it would be in much better shape. The ADW's know more than anyone in this regard, yet oftentimes they're handcuffed by an industry devoid of such knowledge.


California Racing at its Short-Sighted Best

The Bloodhorse had a summary story up on yesterday's CHRB meeting regarding advance deposit wagering.  If you are a wagering and gambling aficionado, read it at your own risk. It's extremely difficult to get through.

"There are concerns—with respect to charities, with respect to the board, with respect to other aspects of the industry—what are the ADWs prepared to (do)?" CHRB chairman Chuck Winner said at the Wednesday meeting. "Rather than us dictate what we think you ought to do within your licenses, it would be better if you made some recommendations to us, without telling us why you can't do those things."

It's essentially the same story from way back in 2010 when takeout was raised -- we need a bigger slice to survive, because we have costs. In a nutshell, in its simplest terms - this time they're after the ADW's for more money.

Many of the items that are being talked about today --  revenue for charity, etc -- are taken directly from takeout; that is, these things receive money directly from margin, and the revenue is solely based on how much is wagered (the handle). This is backwards from almost every business (revenue is maximized, profits are maximized and then the money is spent).

Many industry watchers in 2010 cautioned at that time, as wagering fell from a takeout hike, there would be less money for all these nooks and crannies from the margin. And that California would be back, cap in hand, looking for more money from somewhere to make up for it.

They are doing exactly that. And this time they are after the ADW's for more money.

The problem is, as accurately and eloquently stated by Twinspires and BetAmerica -- margins for them are already tight in California. So much so that taking a bet is almost revenue neutral for them.

"California puts (ADWs) at a disadvantage by strapping us with so many costs and not enough money to really do what we're able to do. ... If we were just operating in California, we could not justify that cost. California benefits from the costs we're incurring and we're having to make that up in other places," Blackwell said.

California racing has truly reached its zenith when it comes to grabbing what they can out of the shrinking pie. Bettors have now had more taken from them that they ever have (20.84% blended takeout); source market fees are high, TV fees and other fees have the resellers on razor thin margins.



There's no one left with any money in their pockets to shake down.

I realize they're desperate, but what they are doing (and have done, over and over) doesn't work. It can never work. The only thing that will work, in my view, is more handle. What they are doing doesn't promote that, it does the opposite.

That's why, in 2016, California handle - which just seven short years ago was the highest of any state in the nation - will fall to 3rd, behind New York and Florida.


I am not here to offer a solution, because I don't have one. But I am sure of one thing: Shaking down ADW's (your needed resellers in a connected world) will not help the situation. In fact, it will cause that blue line above to continue to fall. And as history has proven again and again, that doesn't do anyone any good.



Some New Stakes Sponsorships Are Head Scratchers

Turfway's Spiral Stakes gets a new name, blasts a DRF headline yesterday. The Spiral's name was changed to the Horseshoe Cincinnati Casino Stakes awhile back, and now it's being called the Jack Cincinnati Casino Stakes.

Thank goodness for that, because people leaving the Spiral might've headed to the wrong casino on the way home. 

This represents a trend in horse racing, and as revenues from betting fall, we at the PTP Blog expect to see more and more of it. Racetracks need more money, and this is a way to do it, and it is not going to change.

What might we expect to happen to stakes race names in the coming years?

"We will see some name changes that defy logic," Cub Reporter tells the PTP blog. "I've heard from several insiders and have a list that I can share with you, but only if you don't post it on your blog," s/he added.

I post them for you below.

"The Belmont will be named the Andrew M. Cuomo Stakes," notes Cub. "NYRA braintrust realizes that even if he gets voted out, he'll still hold sway over the organization. This move is purely political."

"Yum brands has been outbid so the Kentucky Derby will be renamed the Kim Jong Un Kentucky Derby North Korean Classic," says Cub.

"Churchill thought about the bad PR of this move, but the dude gave them a big check so they said 'welcome to the Derby Mr. Kim!'"

"When this is released and the stock goes up it's 'mission accomplished', my source told me".

"I have it on strong authority that the Breeders' Cup Classic is to be renamed "The Breeders' Cup Day Prep for the Kegasus at Gulfstream brought to you by Frank Stronach," says Cub. "It's not catchy, but it gets the point across."

"Stars and Stripes Day will be renamed Chris Kay Day," says Cub. "They feel they need to honor Chris, because he has the finger on the pulse of everything racing," says Cub's source. "Dignitaries like Daughtry will be on hand to sign stuff for fans," added Cub.

"The Zenyatta Stakes will be changed to the Thoroughbred Owners of California Stakes", notes Cub. "The TOC wants recognition for taking a larger piece of a shrinking betting pie for purses. Without them raising prices - my source tells me - California racing would be broke."
 
"The Arlington Million's name will be changed to the Arlington Quarter Million brought to you by Pete's Tire and Radiator," Cub says. "Arlington purses have fallen on hard times, so the purse is reduced, and this Pete guy contributed $20k, as the highest bidder."

"The Toyota Blue Grass Stakes will be changed to The Chrysler Blue Grass Stakes," says Cub. "My source tells me that since rural Kentucky went something like 98.2% for Trump they don't want to be associated with one of them foreign car company things."

"The Sword Dancer is now brought to you by Juddmonte," notes Cub. "This is on condition they don't run another rabbit. Strategic play by Kay," added the intrepid reporter. 

"Although there will be no official name changes, my source tells me that all stakes at Parx in 2017 and beyond will be now sponsored by Clenbuterol," says Cub.

"The Sunshine Millions at Calder will be now named Sunshine Millions Girls Girls Girls Exxxotic Stakes," said Cub. When I told him that's already the case, he said sorry, he did not know that.

Have a nice Thursday everyone!

Why Do Trainers Cheat?

Well, 

"According to an agreed statement of facts read in court, Chris Haskell, 39, was filmed using a syringe to give horse He’soneinamillion a tracheal and “intramuscular” injection during an OPP horse doping investigation in October 2010.

"A search of his person revealed six “loaded syringes” full of performance-enhancing drugs which police alleged he intended to use to give his horses Enzo Seelster and Ideal Gift a boost."

He was (after a plea deal) convicted of fraud.

His punishment, 6 years after the fact -- "a $2,500 fine for the fraud (injecting a horse) and $1,250 for attempted fraud (being caught with drug-filled syringes)."

That's a purse check for winning a $7,500 horse race.

Why do trainers cheat? Probably because even if you're caught and convicted for fraud via a provincial police investigation, it's worth it.

h/t to @righthind


Derivative Betting Instruments Work ..... If You're Growing

I remember back in the 1990's I got a "hot tip" in the markets. Apple was going to be bought by Microsoft. This was not the craziest thing I had ever heard, because Apple was not doing so well, and Gates and crew would certainly be interested in it.

Apple was trading at $17 a share, and I had a choice - buy the underlying equity, or look at derivatives. The $25 calls, a few months out, were trading at a buck or two with plenty of liquidity, so I leveraged using those.

Options and futures markets work for many reasons, but the biggest one, is that the markets don't trade 100 million shares a day like the old days, they trade billions. The markets are all growing, and when they have, derivatives grow, as well.

In Vegas, US Fantasy is a new offering
It’s just like betting the horses. Instead of races, there are props. For instance, Prop No. 1 for Sunday’s NFL action was a group of 12 quarterbacks. You could have bet, say, Tom Brady to win, place or show.
There are daily doubles, pick threes, exactas, trifectas and superfectas available. There’s even a chance to win as much as $1 million on a $1 bet for correctly selecting the winner of seven different props.
The scoring systems are quite simple. Only yards and touchdowns count for football while points, ­assists and rebounds are used in basketball.
As with horse racing’s pari-mutuel system, payouts are determined by the total pool of money that’s bet on that particular prop, minus a 10-12 percent takeout (compared to 18-20 percent, if not more, with horses).
Knee-jerk reaction to this derivative of sports betting is that players will always choose to buy the underlying equity (if you think Tom Brady is going to have a great game, bet the Patriots). But I am not sure I lean this way.

Yes this might be a longshot to catch on, but derivative instruments like this do have a chance, because sports betting is growing, and it's bringing in more and more new users. DFS has surged, despite the levelling off of the last year or two. Fantasy players with strong opinions are in the millions. Fantasy geeks might not want to bet the Pats, but they might like the odds on Julian Edelman this week.

Horse racing (even today) tends to add more derivatives to the win place show pools, and when wagering was growing it made perfect sense. Adding more now does not. However, for the growing sports betting markets, I think we'll see a lot more of it. The obvious blue sky is that while horse racing can be bet in 43 states or so, this type of wagering is only offered in one. That is sure to change.

Have a great Tuesday everyone.



Retail Markets & Betting Markets Have Big Differences

Yesterday on the twitter I posted this (at left) screenshot from a book. It's about LEGO, who was falling on hard times in the early 2000's, and they commissioned "big data" to tell them what was wrong with their product.

The global data said that the digital generation (born post 1980) had "short attention spans", needed "instant gratification", and big, difficult, time-consuming puzzles were not going to fly in the new world.

Luckily for them, due to smaller, anecdotal data, the company took the opposite approach and made their product even tougher, and more time-consuming to use. This strategy worked, because by 2015 LEGO passed Mattel as the world's biggest toy maker.

Ain't that a kick in the pants.

For us in horse racing who believe this is similar to what racing experiences, it's refreshing to read. The LEGO experience is a polytrack race with 14 horses, versus a five horse field where the speed horse sprints and staggers home at 3-5.

The spawned a short discussion. One tweet caught my eye about using customer data.
In retail getting the customer to spend more in gross dollars is the goal. Always has been the goal. In fact, it's not only in retail. As noted in this marketing piece last week, the Trump team spent their marketing money in large fraction to get their voters to do more, too.

From my experience, racing thinks the exact same thing - get people to spend more. Of course, this is fine if we're talking churn. But their 'bet more' mantra is all about retail.

It's a jackpot bet, fractional betting, a guarantee, a post drag. It's tweets about an event. It's the Kentucky Derby shoehorning more people into the place. It's hats n' Miss Cougar II, n' stuff. It's all about one disparate entity getting a customer to spend more on their entity, venue or bet.

What many in racing miss, in my view, is that they can crunch numbers until the cows come home, but if their goal is to squeeze the customer for more, without tempering that with considerations of their customers' betting ROI, they're toast.

This is not a challenge for a lot of companies who depend on similar for growth (think Google), but racing has a great deal of trouble with this. Corporate entities compete, and if a jackpot bet breaks a betting base and hurts the sales funnel for all of racing, so be it. You can run down bankroll degradation examples, you know them all by now.

It's funny because, oh, about 15 years ago now I had a track executive tell me about something they found in their data, in an almost giddy-like way -- "It's amazing how much and how often customers bet when they're winning!"

A few years later his track raised takeout. In present day, their marketing team promotes their jackpot bet.

Have a great Monday everyone.


Numbers Are Our Friend

Everything's numbers. Well, not everything.

Churchill Downs today announced a $37 million capital expenditure for luxury suites. People-be -going, wow, $37 million spending for a racetrack, and they'd be right. It is a big amount of money in this business. But, the numbers probably show it's the right thing to do, because Churchill isn't dumb, and they own the Kentucky Derby.

At $1,000 a person (this is likely higher) for the Derby only, we're talking $2M in revenue for one day. If Oaks day is added, at say half that revenue, we have another $1M. With simple payback time as a measure, it's a shade over ten years. This ignores the other days of the year where they will generate some revenue, and discount rates, NPV etc.

It's nothing new. The Dallas Cowboys built an entire stadium for suites -- 300 in all - which bring in a couple of hundred million for 8 games (plus, I am assuming some other events). The new stadium in San Francisco sold $140 million in suites before turning over sod.

It's not going to work at Mountaineer and Penn, but I am sure the numbers show it will work for Churchill.

What's curious to me about the Derby and CDI itself is not its popularity, but when will the lemon be squeezed too much. With increases in general admission prices this week, plus more boxes at high rates, at what point will demand fall? I am sure the numbers will tell them, and they will adjust, but to me it's been an interesting question.

Fanduel and Draftkings ran some numbers of their own and merged this morning. They have protection in states which passed regulation to (ironically) protect consumers. Merging should allow them to raise prices more, and stifling competition will help. That, in my view, is a win for the two companies, a loss for their customers.

On the "let's not use numbers for the most part" front, we have racetrack marketing tactics, as described in HRU this morning. Marketing is about numbers in this day and age because almost everything can be measured. Spending $37 million is an exercise in projecting and discounting cash flows, developing IRR numbers and running formulas.  Today's marketing in racing should be able to answer "if we spend $500,000 marketing X, what type of return will we get?" But it is unable to.

Last up, if you are going to pass a new rule on geo-targeting or shutting off betting for customers, should you not be able to (at least in a rudimentary way) have some numbers to look at before making a decision? O_crunk looked at this phenomenon today at his blog, with regards to yesterday's CHRB meeting.

Have a great Friday everyone.



Horseplayers Don't Delete

It's been pretty wild to watch the last week. Tweets like this are being screen-shotted, rehashed, propagandized, and, yes, deleted.


I know I don't speak for horseplayers, but I am one. And as a horseplayer, I profess:

Don't hit delete. And for everyone promoting this so-called grand "wrongness", don't be a goof.

Why? Because it happens to us all the time.

Someone once said, "Zenyatta is a surface specialist".

Someone once said, "American Pharoah is a lock in the Travers."

Someone says, almost daily, "this horse has no chance to lose."

Those proclamations were wrong. Those horses all lost.

And Horseplayers don't delete.

Horseplaying (and training and owning and being a fan of these animals, too) is humbling. Not only do most of us only hit one of every four of our bets (if you're good and you're looking for a sweet spot in the odds), we oftentimes make some of the worst, boneheaded, stupid, awful, incredibly wrong predictions.

We don't delete, because it's a truth in any gambling game. We will - sooner or later and more than once - have egg on our face.

Our horses come up sore, and sick, and get bad rides, and don't like the weather, and ship poorly and have a fever; have a cough and have allergies. They get bodychecked and stopped right in front of.

They kick themselves in the trailer on the way over to the track.

They see a shadow at the half mile pole, and it messes them right up. A bird flies in the infield, and despite a massive hood with full cups, the horse sees it.

A horse sees a grey pony when loading into the gate and it scares them, throwing them off their game. We bet a horse yesterday who was lone speed, but they get ridden into the ground by another horse, because that grey horse spooked the other horse first.

The Donald had a small chance to win Michigan a month ago. Via the polls, if a couple of people out of 100 changed their minds -  or if a polling methodolgy about turnout was off a smidgen -  he'd win the state.

It's not worth deleting a tweet, or hiding a prediction, because that grey horse can be anywhere - at Mountaineer or Monmouth, Gulfstream or Golden Gate. Or in Michigan.

For us it's old hat, for them, not so much. But they sure could learn something by going to the track more often.


Election Betting Recap

Election betting - especially a close election - is an interesting exercise. In this day and age, gamblers and forecasters lean on models and ratings for horse racing, sports betting and otherwise that are tested and retested empirically. An election is sometimes like that, but oftentimes not. Last night was clearly the latter.

Here are some thoughts on the wagering, and data.

In preparing for wagering, the traditional polls, plus exits are informative. In this case, the exits confirmed the polls, which is usually good news. Pre-betting, I had a Clinton plus 3, 308 electoral vote projection. That, at the time, looked sound.

There were two clues I uncovered in the exits though, which I filed away. Trump was doing much better (than comprehensive polls from Wapo-ABC and others which I dug up suggested) with college educated whites, and the working class voter numbers were also quite good for him. The union vote was coming out for him, which most did not have pegged. There's a chance the plus 3 projection was high.

That data, to me, said Iowa looked like a lock. Taking 2-5 odds there seemed wise. Longshot fliers in Wisconsin, Michigan and Minnesota with these numbers seemed unlikely, but value.

At 6PM only parts of Indiana and Kentucky close and these micro-votes (that the networks tell you not to look at) questioned my pre-results bias, further.

Viggo county in Indiana was solid Trump and it should not have been.

Elliott County (well known to my friends in Kentucky) was not only a solid Obama country the last election, it has been a solid blue county for 136 years. After two polls, he was up 69-29.

Trump, a half hour after these early states, was 8-1 to win the election, and in hindsight, there were signs he should be half that, if not less. I, at that point, mentioned to my betting partner that maybe the polls were wrong and he was going to have a good night.

Why election betting can continually give us edges -- and in my view it's one of the only betting mediums left that can allow monster edges -- is because things are confusing. Throwing a wrench into the plans was the early vote. This year's was a record, so when cities came in Hillary was doing very well with that data dump. Was this data a trend, or simply her edge on the early vote and Viggo and Elliot counties were the real story?

The last issue that was needed to be factored, was inner city turnout. If it was much lower, you could feel good being long Trump, if it was in 2012 numbers, you'd go the other way. We had very little of that data at around 7PM.

We all have biases in betting, and mine was to be cautious, because it was confusing. I also had an internal bias  -- I apologize to my Trump friends reading this; I was not a fan, so picturing him winning was difficult.

Later on, this bias slipped away. Counties in Virginia were coming more like 2012, not like the 2016 polls suggested. She looked like she'd win Virginia (and I took a couple of positions) but she was running very soft.

At that point, Trump was still a strong underdog to win, and he should not have been. There was the value, at over +300.

North Carolina represented a true swing market, and again, it was confusing. Around Raleigh she was overperforming him - widely and above President Obama in 2012 - but there's that early vote phenomenon again. Regardless, we took some positions at about 4-1 on Trump (mainly because of the Virginia data and trends), which was a good trade.

Finally in Florida -- which I lost severely in 2012 because of Broward County numbers that came in late, and well above what anyone projected they'd be --  we had our answer about the inner city vote. It was not there. I still think - just like 2012 - taking HRC positions near the end (when she was over 10-1) was smart. It was close, and there was a shot (just like the late numbers came in, in MI)

Election betting - despite the craziness of the race, which at times for me was impossible to follow -  once again proved a challenging mental exercise. And if we dug far enough, and stuck with convictions of what we were seeing, (not what others told us we should be seeing) there was some money to be made. 


The Post Breeders' Cup Pop Quiz

We saw, we came, Arrogate conquered.

Test your memory of the happenings on the weekend with the 9th Annual Post-Breeders' Cup Pop Quiz!

The attendance numbers at the Breeders Cup were tabulated by:

a) Paid attendance numbers
b) Paid attendance numbers + an error variable for fence jumpers
c) Hot dogs sold extrapolation formulas
d) Finding the estimate of how many showed up to the Cubs World Series parade, and doubling it

English jockey Ryan Moore walked the Santa Anita turf course on Thursday and had trouble finding:

a) The best path
b) A good angle to take for the apex for the first turn
c) A single blade of grass

The Beholder-Songbird photo was taken by:

a) The Santa Anita photo computer, accurate to one one trillionth of a millimetre
b) A high speed canon, with frame speed used to photograph Usain Bolt.
c) A barn cat


Arrogate's top-shelf Classic run is being compared to:

a) Sunday Silence's takedown of Easy Goer
b) Alysheba-Ferdinand
c) Zenyatta's thrilling 2009 Classic win
d) Allison Janney's Academy Award winning performance in Seabiscuit

This is a photo of the press:

a) Watching the Olympics
b) In the New York Times lunchroom, cheering the new Hillary polls
c) Seeing the free donut man come up the stairs
d) None of the above. If you are writing about horse racing, you like horse racing
The new turf maintenance man at Santa Anita came over from:

a) Belmont
b) Laurel
c) Kentucky Downs
d) Sam's Billiards

The saddest news to come out of the Classic was:

a) Chrome lost
b) The handle was down from last year
c) Keen Ice ruined many people's trifectas
d) Arrogate has been retired to stud because "he's done enough"

The Turf course was so hard that:

a) Other hard objects orbited around it
b) Donald Trump called it soft, but actually issued a press release saying he was wrong
c) Andy Asaro protested because there's apparently another synthetic surface in California
d) Highland Reel went 2:23

Frank Stronach called the Classic:

a) One of the best races he's ever seen
b) Better than the Kentucky Derby
c) A world class event Santa Anita should be proud of
d) Not bad, considering it has half the purse of the Pegasus World Cup

Steve Coburn's prediction that California Chrome was a lock were made :

a) in haste
b) in homage to the great horse he once owned
c) by his imposter that Charlie Davis found



Enjoy your Monday everyone!

When Does Existing Pain Become Too Much? That's the Purchase Decision

There's been a lot of crazy stuff happen this election cycle in the US, and frankly, I have never seen similar in my lifetime. Because there's been so much craziness, nonsense, and sometimes horror, the race has become on the surface, very muddy.

But, as I scan things this morning, the polls are where they were three months ago; pretty close.

For all the retweets and tweets, stories about how bad someone is, or was, or will be, I have believed from the start, the race is a perfect example of behavioral economics and a simple buying or not buying decision.

"How bad off am I where I will choose to cast a vote for someone who I know is a flawed candidate?"

This is the same decision most people make when they purchase.
  • Pointing out what a buyer stands to potentially gain from buying your product requires a leap of imagination on their part – they have to picture themselves in a new and better place by having bought from you. This type of imaginative and creative leap isn’t always easy to take, and can be tenuous.
    However, claiming that they will no longer suffer the existing pains that they currently do is much more grounded in reality, based on the very human notion of fleeing losses. They already have this very real pain point, something they live with on a day-to-day basis. Once they have the conviction that you relate to and understand this pain point, and that you have the power to remove it, they will be much more convinced.
I'm certainly no expert on what people outside of my immediate sphere think, but with 70% in polls saying the system is not working for them (or despise the status quo), you probably have a good idea why things are close. This pain point shifts in a maybe 8% range, and Bob's your uncle.

Yesterday we looked at exactly the same thing with horse racing. Pain points.

Another item cropped up that illustrated this point yesterday -- The marketing deal which blocks TVG from showing any races on the Breeders' Cup undercard.

The comments are pretty scary. Both fans and horseplayers are slowly having enough of this.

This is why, in my view, horse racing is very tough to sell, to both new people and existing customers, and it explains why existing customers, like Lenny Moon recently, simply get up and leave.

If you leave you "will no longer suffer the existing pains that you currently do" - no more high juice, marketing deals, having five accounts to bet all tracks, post drags and all the rest.

That's been trumping (no pun intended) the positive aspects of the sport.  It's enhanced because (for regular customers) it's a 300 day a year vocation. It's not a twice a month restaurant, or a vote in an election.

During this election cycle, most people are tweeting and retweeting and facebooking their choice on in a sometimes agonizing, cathartic exercise. Horse racing customers go through similar feelings each day, but they don't do that; they just quietly leave.


Post Drags Eventually Wear You Out, But the Racing Can't Fix Itself

The NFL is going through some pretty amazing machinations this year. Viewership is down, as is betting.

Sally Jenkins reported today on the phenomenon, and one area she looked at was the time it takes to enjoy a game on television.
I have surmised here before about this -- it gets incredibly frustrating to watch a score, a commercial, a kickoff, another commercial, a quick turnover and another commercial. Games which used to start at 1PM and end at 3:49 so you could get ready for the 4PM game haven't been around for awhile.

I've likened this to takeout increases in horse racing. It's not one increase and you leave, it's a drip, drip drip then leave. It took years to turn off viewers, it took years for bettors to say "I have no chance to beat this game".

Racing has the same issue with post drags, though. They are excruciating. Cards get longer, and feel longer, because half the time it's tantamount to watching commercials after seemingly every play during an NFL game. It wears on you.

NFL games have gotten longer because there is revenue attached to adding more commercial time. The more commercials sold equals more money for TV rights; until the house of cards comes crashing down, that is, which might be happening.

I suspect the NFL will probably address this issue. It's fixable, even if it means slightly less revenue.

Disparate tracks notice the same correlation with post drags and revenue (handle). If Pompano Park post drags, they, like the NFL make more money. So does Gulfstream and Santa Anita. But if everyone post drags, the sport suffers, because more and more people get frustrated and leave. This, like a takeout increase, often doesn't show up this week, month, year or couple of years.

Racing, unlike the NFL, can't address this because it can't fix itself.

This tragedy of the commons issue is a plague on the sport in many ways, and this is another example. Tracks are incentivized to post drag because post dragging helps them, but the industry as a whole, like the NFL is seeing, gets hurt.  The fractured nature of racing works for its good in some ways (more points of sale, more consumer choice, etc), but overall it's a real drag on long-term revenues, no pun intended.


Romney was Right

It's been a decent election cycle for Mitt Romney.

He called out the Donald personally very early for what he saw was not a good person, when a lot would not touch it, earning him praise. And of course, he was laughed at and mocked incessantly from the mainstream about his Russia comments in 2012, and now everyone concedes he was correct.

That's a pretty good run for a guy who is not even running for dog catcher in 2016. 

Meanwhile, I had a dabble into some old horse racing policy last week and came across this little gem from Massachusetts in 2003.

This was a plan that 13 years on looks pretty damn good, too.

Blocking money ended up being paid to racing from Atlantic City in Jersey, but that was intrastate, not interstate.

Currently, racinos tend to only benefit the horse racing inside the states themselves, while neighboring ones either move for more market share by passing more casinos, like New York, or pretty much cut out horse racing altogether, like Massachusetts, or are running on fumes, like present day New Jersey.

Those two strategies are counterproductive.

In Ontario, racinos were scrapped but the public didn't want any more casinos. The appetite for them are growing smaller and smaller. Not in my backyard is alive and well. Good luck getting a racino built now. 

Even if you do get one passed, the casino arms race has hurt revenues appreciably. Gross revenue might be higher, but the future looks bleaker and bleaker with government interference, and saturation is the current buzzword.

Years ago, New York would've paid Jersey (they don't want one near Manhattan) racing for a non-compete. So would Pennsylvania, at least Pocono. Casinos in Connecticut and elsewhere in New England would've paid similar to Massachusetts.

Those deals would be alive today and would've likely allowed Suffolk, the Meadowlands and Monmouth to be in pretty decent shape. There'd be no referendum in North Jersey, no issues about Suffolk getting a casino for horse racing. Why bother, they already have the money.

Horse Racing's Grumblin', Bumblin', Stumblin'

Average handle fell at the last Meadowlands meet. Handle was $1.07 million per card, down from last year's $1.24 million.

As MH's article notes, they jockeyed around racedates, and field size was off by a horse, and both were detrimental. But, more broadly, this continues the mid-Atlantic carnage we've seen of late (outside Laurel Park).

Now, the meet was not ugly, per se, and in 2014 the Big M thoroughbred meet did $1.03M per card, and in 2013, only $988,000 per card. So, last year's meet did stick out, and this meet was up from those two most recent years.  But because this coincided with a takeout change, there's some rumblin' and grumblin'.
  • While racetrack executives rarely speak out in support of raising or maintaining takeout levels due to fears of public backlash, many privately grumble that supporters of takeout cuts consistently overstate the positive impacts while ignoring the negative effects on a racetrack’s revenue streams.
Oh please.

The Meadowlands meet, way back in 2004 did about $2.5 million per card. In other years, around $2M per card with only $180k or so for purses. In 2016 dollars, this is pushing $3 million per card.

In other words, the business has been circling the drain for a long time. In real terms, handle at the M is down 70%, gross, the last 14 years.

If there's anyone ignoring "the negative effects on a racetrack’s revenue streams" the line is long, and it certainly formed long before anyone was talking about the juice.

Working racetrack pricing is not magic ball that spits out free money. If it was, I'd start PTP Downs, charge 1% takeout and make more dough than Mark Zuckerberg.

It took dozens and dozens of years to destroy customers' betting bankrolls with high juice and lower and lower churn rates. Finding the right price where revenue can increase maybe will never happen, but it sure as hell won't happen overnight. And trying something is a lot better than standing around watching the customer base continue to circle the drain, while waiting for someone to buy the track and turn it into a shopping mall.



Racing and "I Don't Know"


Why is it that when you ask a question to someone formulating and implementing racing policy, the answer is more often than not, "I Don't Know".

We need geotargeting.

Why?

People are betting on their ADW accounts at the track.

How much?

I don't know.

Are we losing revenue?

Yes.

How do you know?

I don't know.

If we inconvenience customers for a slightly higher margin, will those playing on ADW's bet the same amount when on track at the windows, or will some stay home and play, hurting attendance?

I don't know.

That's one example. But you can ask the same questions about how much Derby Wars is "hurting" Magna, or how much revenue will be lost or gained from a takeout change. The answer, invariably, is "I don't know". 

You'd think with hundreds of billions of dollars of handle over the last 100 years, racing would be able to use data to change policy like a real business: Forecast, model, project, look at the cost-benefits, and then decide.

Instead, it's not like that. It's "I don't know."


Building and Distributing Modern Data. Who Cares?

Crunk had a nice post about data today. It's not sexy like drugs, or stewards, or who is going to start in the Pegasus World Cup, and it's not exactly click bait. But it's a really good piece everyone should, in my view, read.

Disruption is a word often used wrongly, and almost always used in some derogatory fashion.  It's like a Bond villain, who is up to no good. He's loosening double-oh-seven's ski boots, so he'll ski to a horrible death, or other such things (which to me seems odd, because most villains have guns and could just shoot him, but I digress).

Regardless, disruption is not a bad thing. It usually ends up being a good thing. For consumers, and the future of a business.

Innovation and disruption was first spoken about by a smart Harvard fella, who wrote a book called the "Innovator's Dilemma". There are innovations that are soft (he called them "sustainable" innovations). These tweak the current landscape, and look for incremental improvements of a product. "StatsLens" by Equibase, as Crunk notes, is this type of innovation. There are others which are disruptive, which can open new markets, and use them to your advantage.

Modernizing horse racing data -  creating a seamless pipeline of inputs and working to sell, or distribute, those outputs - is a chance to open new markets, and sell to them.

People lament that horse racing is old, that you need to sit for hours to find a bet, reading a paper racing form your grandfather great-grandfather used. A lot of people, in fact, love to do that. But what if horse racing data was more like Stats LLC, or MLBAM, which has data that tracks player movements and launch angles and just about everything else?

Me or you might use this data to model stride length, speed, wind and other factors to create better speed figures. We could use that to model energy distribution. There's no doubt we could do some amazing stuff with that.

Now, with these stats, let's say we find out that they can predict winners, while the race is being run. We are not the only ones. Some whiz kids somewhere found out similar. Now, what if demand for in-running wagering increases exponentially because of this data?

Well, this data was just thrown out into the landscape. It was inert. It wasn't created to service an existing product.

What if, in 25 years, this data spawns a new way to play the Derby or other races. What if millions are bet on the Derby yes, but hundreds of millions are traded during the race itself? That's a whole new market and a new revenue stream for horse racing, created simply by making new, cutting edge data available.

This inert data - the data not created to service an existing product - actually created a new product

The above is just an example, that probably will never happen, nor work, but the point I am trying to make is, good ideas, growth for an industry, new markets, and new products, rarely come from the business itself, or what we know in the here and now. This is probably exacerbated in horse racing, because so many are monopolies or duopolies.

New ideas, new products and new innovations occur because a table is set for the marketplace to innovate and find new markets and products.

Modernizing horse racing data might seem like nothing to some - especially those who like to sit outside on a sunny day reading the racing form. But it means a lot. It can find, create and exploit new markets, no matter how old your business or betting game is.


Newspapers Might be Finished, But Racing's Strategic Options Make the Big Tracks a "Strong Buy"

There's a really interesting article I dove through at lunch today by Jack Shafer at Politico.  He looks at a new study from University of Texas researchers who propose that newspapers blew it by moving forward online the way in which they have, and they should retreat to do what they do best - sell print newspapers.

"Buttressed by copious mounds of data and a rigorous, sustained argument, the paper cracks open the watchworks of the newspaper industry to make a convincing case that the tech-heavy Web strategy pursued by most papers has been a bust. The key to the newspaper future might reside in its past and not in smartphones, iPads and VR. “Digital first,” the authors claim, has been a losing proposition for most newspapers."

That smacks a little of what we hear from some out there in horse racing, where retreating to "getting people out to the track" (where margins are higher) is a workable strategy. No doubt the knee-jerk reaction from those in this sport may be,  "see, we have to do the same thing".

I think that's not correct. The quagmire with newspapers is a classic life cycle question.

In the University research, the authors contend (although they don't say it) the industry needs to begin a retrenchment business strategy. This strategy (doing what you do best, and diverting revenue to it) is one of three major business strategies for mature businesses who are at the tail end of the life cycle - the other two are harvesting and consolidation.

I am not remotely sold it will work, but the authors believe it's where the business is. And that is super-important. A lot of business have no idea what strategy is right when declining.

As for horse racing, it cannot retrench. Why? Because, frankly, it does nothing best.

For horse racing at slots tracks, harvesting (milking the cow) seems to rule the roost, as sad as that may be. I think these small tracks know exactly where they are, and that's exactly what they do. If 1% of revenues go into something other than purses and profits, I sure haven't seen it.

 For larger entities and the big tracks that rule the roost, they are certainly not going to retrench, or harvest. Neither of those strategies are remotely optimal.

I think they are going to consolidate. And I say that for more reasons than it's the only choice left that we learn in business school.

A consolidation strategy allows big dogs in an industry to hunker down, and let the competition kill itself off. In the end, the hope is that they will have a stronger position in a weaker industry, but with the industry less competitive, they can grow, and revenues (and margins) can improve.

In real life, a loose example of this would be a NYRA surviving with its three tracks, while Finger Lakes, Batavia, Vernon and other harness tracks fold. Their slot revenue - probably regulated and governed through a department of Agribusiness - would then go to NYRA.

This strategy is often serendipitous, unplanned and in no way normative. I think we're seeing that right now (although, perhaps, a case can be made this is what CDI has been doing for awhile, while divesting from racing).
  • Larger tracks are charging more for signals, and importing signals at lower and lower rates. Small tracks need them more than they need small tracks.
  • Handle has been trending upwards at large tracks, while small tracks are getting absolutely killed.
I think we are seeing a consolidation at the top, and Florida and NYRA tracks are positioning themselves to take advantage of it, whether they know it or not. As for another big dog -  California - I honestly don't know what they're doing.

Newspapers, I think, are dead. Retrenchment won't work, and neither will harvesting. The big dogs will probably survive online and off, so there might be a consolidation strategy at play, but in no way is that consolidation worth as much as it is to horse racing.

If the big tracks in horse racing were an equity, I think they'd be a "strong buy", whether they know it or not.  For fans, owners, trainers and customers, I believe we best get used to it.

Have a nice Tuesday everyone.



Stronach's Willingness to Take Shots Is Racing's Vanguard

Good morning everyone!

The big news yesterday that filtered twitter had to do with the announced ticket prices of the Pegasus World Cup, to be held at Gulfstream in January.

$100 to $765 sounds a bit steep to most, and I think that's true, but with a smaller venue, and  corporate sponsorship buying the seats, who knows. Plus, I hail from Toronto, where people pay $400 on a Saturday evening to watch the Toronto Maple Leafs. A couple hundred to watch the "world's best racehorses" might not be that bad at all.

Regardless, Frank Stronach makes us think and he makes us wonder. It looks like he is going to pull this off.  And in another 'who knows', one wonders if this could change horse racing.

This past week saw a couple of items in the news. Exaggerator was retired early, as we see so often in the sport, ho hum. And, the Thoroughbred Commentary piece on American Pharoah raised some eyebrows too.

From the piece, who is better, American Pharoah or California Chrome was broached, from an inside baseball, dirty laundry perspective. Whatever you may think, no one really knows, because, like Exaggerator, the cash in the breeding barn is too powerful to ever find out.

Most stud deals are not of the sweetheart variety like American Pharoah, however. But racing to breed beats racing to race, 10 times out of 10.

This is why what Frank is doing peaks my interest.

We now have $12 million for the Pegasus World Cup in January.

We have $10 million for the Dubai World Cup in March.

I wonder, if, say NYRA (after looking at the JCGC field this past week, and in past years where the race has simply lost its edge) follows suit and offers something out in May for the "World's Best Racehorses"

This made for TV 'Triple Crown' of greenbacks could (yes, I am projecting) total upwards of $30 million in purses over a six month period.

And, if a horse wins these races (or even one of three), not only do his connections earn some massive purse money, his stud value is sure to rise many millions, as well.

Would you retire a top three year old for $30 million in the fall, if you have a shot to race for $30 million at 4 before next May? Especially where your $30 million stud deal could be worth $40 or $50 million if you win a leg or two against top horses?

Most sports evolve and get better through trail and error. The playoffs are changed to include divisional series, and TV ratings and revenue are examined. Rule changes - a lot of times coming from fans -  are tried and tried again, and perfected. Horse racing can't do much of that because it's stuck in a strange, regulatory, alphabet and fiefdom bog that we all know well.

Horse racing changes, or experiments, only when there is someone there to take a shot.

Is Frank Stronach - one of the few willing to take shots - changing the game more than he thinks, with this crazy, wild, $100 to $765 a seat, $12 million dollar race? Time will tell.

But as Frank often does, he is sure making us wonder.


Trust But Verify, Horse of the Year Chatter

Good day everyone!

Crunk and I had a twitter chat awhile back about the connections of top horses, and their thoughts when comparing horse A to horse B, where one (or even both of them) are their horses. In effect, we proclaimed we put little faith in these thoughts, and look towards speed figures, head to head match-ups, tops, bottoms and comparing performances to other historical horses to judge.

Generally, in cases like that, it comes down to trust but verify, because trusting alone sometimes involves some serious astroturfing.

Today, Bob Ehalt wrote the ultimate sausage making article about American Pharoah's big Triple Crown year. It is (in my view) one of the best articles you'll ever read about the inside-out's of the business.

In one part, we learn quite a bit about when a jock (driver) talks about a horse being better than another, or the best ever:
  • “Victor tells people I didn’t give him breeding rights. Why should I? It’s not standard at all,” Zayat said. “Now I hear talk he has a deal to get breeding rights to California Chrome and he goes around saying California Chrome is better than American Pharoah. 
Chrome might very well be better than American Pharoah, or he might not. For that we have figures, and comparisons and our handicapping judgement. But that's where, in my view, the analysis should probably end.

Our favorite sweater wearing Syracuse alum Justin Horowitz asked a question on the twitter today:

This year is harder than most.

Marion Marauder is up against it, despite winning the Triple Crown, through no fault of his own, really. Glidemaster won the Triple and Horse of the Year in 2006, because the cupboard wasn't really stuffed (horses like Total Truth and Darlin's Delight were not generational). His main foe, who had every bit as much talent, did not win enough of those big races against him either.

In 2004, Triple Crown winner Windsong's Legacy ended up losing Horse of the Year for a pretty good reason - Rainbow Blue. I remember lobbying hard for the mare that year, because, well, she was pretty special.

This year is much like 2004 but you have have not one, but two horses who are pretty darn fast - Miki and Wiggle It.

When both have similar resumes (Wiggle's numbers could be padded with restricted 4YO stakes, so he raced more and won more money), in my view, you always have to lean to who was the faster horse, when both are firing on all cylinders.

Wiggle had some down weeks (he lost to Rockin' Ron twice) and Miki was softer, and less sharp in August, but when both were at the top of their games (the two weeks of the Franklin, for example), I think Miki proved he was the better horse. You don't make a half mile brush and crush, get rebuffed and still somehow win the race without being much better. That's a tell tale mile.

There are still some weeks left in the calendar, but right now, Miki is my choice.

Have a nice Wednesday everyone!

Speed Badges & Figs, and What's the Regulatory Crystal Ball Say?

Good morning peeps!

Earlier this year in New South Wales, greyhound racing was chopped, primarily due to animal welfare issues. Too many dogs were being euthanized after their racing career, or not able to race in the first place (an industry practice called "wastage", due to overbreeding), and live-baiting - a training technique that didn't sit well in today's culture - was exposed.

This week, after intense lobbying, the government allowed the industry to continue. But there are some major-league strings attached.
  • Capping breeding to 2,000
  • Reducing the number of tracks
  • Reducing the number of race events
  • Whole-of-life dog cycle management
  • $1,500 bond for every dog bred
All of the above will not be funded by the government, the industry itself has to pay for it.

I would offer that - perhaps in a couple of decades - something not dissimilar will be the regulatory framework imposed on harness racing, to be followed by the Thoroughbreds. As revenues dry up, so does forced contraction, and with more and more power to the anti-Seaworld lobbies (which in my view is inevitable), life-cycle management and "401k's for horses" (previously proposed to racing by economist Caroline Betts) would be very likely in some form.

Unless something drastically changes, I think ceilings on foal crops are not too far-fetched either.

h/t to Jennifer for tweeting the piece.

On Sunday at the Red Mile, pacer Always B Miki did what everyone knew he was capable of doing - pace a faster mile than the 146.4 race record. His 146 mile will probably stand for some time - if for no other reason that the circumstances have to be right to go this kind of speed, and it's rare to find them.

What was interesting about this mile for me, in contrast to the last assault at the world record by Somebeachsomewhere, was that two other horses beat the old record too, in Shamballa and All Bets Off. There was very little separation, and it shows just how fast horses are today. In fact, the field was devoid of two other stalwarts (harness racing's big three) who would've likely went faster than 146.4, as well.

If we're looking at speed figures per se, I believe Somebeachsomewhere ran the better fig because of conditions (and the fact it was him against the clock). Horses that have partners to race with go faster, as Miki had, or Nihilator had with Falcon Seelster 30 years ago. This is the same in thoroughbred racing, but at times I feel handicappers (and some figure makers) do not pay nearly enough attention to this pack animal tendency.

If we're talking performance figures, I still think Always B Miki owns that badge, but not for Sunday, because of his no-man's land journey in the Meadowlands Pace. That mile was stunning and I can't think of any horse who could pace 1:47 off that journey. To me, that race is legend, and signaled that we were looking at something pretty special, if not other-worldly.

Congratulations to Miki and the connections, as well as Dr. Hogan who helped put him back together. Sometimes we forget he had two operations which would've sidelined almost every thoroughbred in existence, and even some standardbreds, too. Miki is some kind of powerful horse with a massive constitution. He represents the sport of harness racing really well, and deserves to be known as this sports' fastest horse.

Have a nice Tuesday everyone.




Detention Barn Follies Continue

As y'all know, Little Brown Jug week was a rather interesting one. From the inside baseball side of things, the story that won't go away involved the capturing of the Jug winning trainer's phone, and related text messages, two of which were:

“Where is the (stuff) for betting line?”

“Anytime between 830-1030 range when its clear to saftly (sic) get his treatments into him.”

The result was protested by a few trainers, because the detention barn is a place where, I personally as a horse owner, tried to bring in a can of diet coke once, and it was like I was carrying an uzi into a baby shower. You don't bring anything into the D barn. If you do, you're up the creek.

Although most thought the fireworks ended Jug day, it hasn't. Legal teams are now involved.

I am not a legal dude, but it seems trainer Coleman, who (according to the story) did admit to wanting to bring in a syringe (for yogurt, mind you), might end up having her words, not the texts, be the issue in this defacto appeal. Syringes in a D barn are worse than diet coke, no doubt, and even yogurt is a no-no, as Susie Kerwood at Woodbine can tell you. 'Wanting' and 'doing' are two separate issues, though, I suppose. We'll let the legal types figure that out.

Regardless, this will be an interesting story to follow.

Notes:

Story on Event Marketing and Racing today in the TDN. Chrome and Zenyatta are two of very few horses in Thoroughbred racing who capture the imagination of most everyone, over time. They're outliers, and the fact that racing places so much hope on horses like this coming around every year or so is not wise, in my view. Even current darlings like Tepin, or past ones like Wise Dan are a notch below the outliers. Because of the state of affairs and the structure of the sport, events > great horses, and I think it has to be that way. 

Pricci talks about a rider not riding a horse out and getting a $500 fine. I think those who find this odd have a point. In Hong Kong he'd have probably been escorted to the tarmac and put on a plane.

Enjoy your Thursday everyone.


Messing Up a Monopoly

I have heard from dozens inside racing for a lot of years that "we wish we were like racing in France." Everything is sunshine and lollipops in France, apparently.

France, of course, has a monopoly on pari-mutuel betting, which probably makes an argument about how we wish we were them a fairy tale.

But, even with a monopoly, racing is racing, whether it's in France or anywhere else.  And, when some simple laws are applied, it's no different than any other business: When there are product substitutes, and the monopoly does not use its edge to take advantage of its position, it's sub-optimal, and it can break down.

Breaking down is what we've seen for some time now in the land of sunshine and lollipops. The PMU has been losing revenue and market share, as talked about in "Where Does France Go From Here", in today's Thoroughbred Commentary.

The 'solutions' listed in the article seem fine, but they miss one main point, and it's the elephant in the room.

The PMU, last season, took 26.3 cents out of every dollar of betting pools. In the free world, this is the lowest payout rate in any major racing jurisdiction.

Ironically, the article states that they took over the German tote to try and fix that country's racing problems. The German tote, once one of the better places to bet in Europe, now takes 30.3 cents out of every dollar of wagering. No wonder they needed help.

Interestingly enough, even quasi-monopolies, or duopolies around the racing world take a different appraoch. Hong Kong's hold on wagers last year was 16.1%, Australia's came in at 10.4% (Intl Federation of Racing, 2015 Fact Book). Both of these jurisdictions are growing, even in the face of new competition; Australia's turnover from about AUS$12B in 2000 to AUS$28B in 2015, Hong Kong's handle has about doubled since 2007.

Monopolies are wonderful things (certainly if you are one), but sooner or later $2 per minute long distances charges sees the proverbial chickens come home to roost, and if your business is not demand-led, you're in serious trouble. For racing, and the PMU, you can't take that red box in the graph and not deliver along side of it a competitive gambling product and succeed. The world is too big, too connected, and there are too many other things for people to do, and spend their discretionary income on.

Have a nice Friday everyone.


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