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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'…

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&quo…

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

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…

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.

Int…

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. The…

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 …

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 …

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…

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 a…

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 suit…

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 pr…

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 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 Class…

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 is…

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.
According to this excellent analysis, there is abt 11 mins of action in a 4-hour #NFL telecast. Wearing out viewers. https://t.co/uj743Xe9xZ — Sally Jenkins (@sallyjenx) November 1, 2016 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 i…

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 a…

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 M…

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, …

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 i…

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 s…

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 Chro…

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 …

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 2,000Reducing the number of tracksReducing the number of race eventsWhole-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 co…

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 …

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 eleph…