Budweiser Knows, Big Changes are Boo-Scary, and Weekend Racing Notes

It's Super Bowl week and we all know what Super Bowl week brings - commercials!

Over the past few years I personally have enjoyed the Bud commercials most. Call me a softee, but I absolutely love them. Lost puppies, baby horses, little animals? Are you freaking kidding me, I get misty just thinking about these great commercials.

This year though, Bud is changing it up, because well, puppies don't drink beer.

Anheuser-Busch has announced that the 2016 Budweiser commercial will not feature yet another adorable puppy. Why? It’s simple – as beloved as they are, the ads don’t sell beer.

Budweiser is an old, blue collar, after shift, dirt under your fingernails, hard working American beer and it always has been. Marketing is most effective when your product matches the message and your message matches the market; knowing who you are and being who you are is an immutable law. Budweiser isn't puppies.

So they've switched it up, primarily with a message like below:

That probably fits better with who they are.

Although I like puppies and beer, and spent some time doing blue collar work where we ended shift with a Bud, this is a racing blog, so let's analyze a pretty simple parallel.

Racing marketing is generally about pretty people and big days and booze, and parties and Johnny Weir. I like all those things (especially Johnny, he kills me), but with 40,000 races in this country a year, about 39,943 of them have absolutely nothing to do with any of those things.

Have you ever been to Mountaineer on a Tuesday night in February? What about that racing, the one that pays the bills 360 or so days a year?

I think there's a place for some new 'marketing' ideas in the sport; namely, understanding who we as racing fans and bettors are, and adjusting accordingly. Budweiser is figuring it out, racing should, too.

Notes: 

In harness racing update, EPO positive at the Meadowlands, Jeff Gural gives his fair odds line on everything harness racing (takeout reduction supporters, you're SOL), and changes that have been made by a defacto central body in Australia. Can they be ever done here?

"We often hear that harness racing needs to change. It needs to try new things, be innovative, be more customer-centric, spend money on promotion and marketing. It needs to be more than horses running around in a circle; like they were when Dan Patch was a star. When suggestions like the above are forwarded to improve the sport, all we tend to hear in response is, “yes, I want change, but I didn’t mean that change.”

Well, congratulations to a good fella - Paul Matties - for winning the NHC and grabbing a nice $800,000 check. The NHC sure throws hot water on the criticism it's a crap shoot, because the final table had some great handicappers of all forms and from all walks of life. There needs to be so many games in a series, or holes in a golf tournament so that the best team or player is uncovered. This grueling three days appears to find the best horseplayers.

Congrats to @dinkinc for putting a $20 spot on Paul, too. That's a nice cash, but not as good as Paul's, Dink. Paul has been a regular guest on Dink's Vegas radio show several times when they talk horse racing.

Our pal Charlie Davis came third, and I give my personal congrats to him. Charlie didn't know a lot about horse racing ten years ago, immersed himself in it, and found himself cashing a nice check. Charlie has donated hundreds of hours of his free time for horseplayer advocacy, and despite being hammered at times (tracks, horseplayers who want something done yesterday that doesn't get done, the media, regulators etc that wish adovocacy would go away), he has always taken the high road.

What a scene for the Prix d'Amerique. 36,000 people, $40 million in handle and a great day. Bold Eagle is an absolute superstar. 

The PMU in France has a monopoly of sorts, so it's hard to compare France to Canada or the US, but they do tend to try pretty hard; which, by definition is the opposite of what monopolies do. It seems the whole town knows the race is going, and there is some buzz. That's difficult to do in horse racing, especially in a heavy urban setting like Paris.

Enjoy your day everyone.

Engagement

We speak often of engagement here on the blog, but it's done because in this world it's a big reason something succeeds or fails.

Bob Marks wrote a fantastic article about a typical Friday evening race night in 1979, where harness tracks alone showed amazing attendance. Sportsman's Park in Chicago 16,000, Yonkers 13,500, Blue Bonnets in Montreal, 9,500. In all $42 million in today's dollars were bet.

Those were some engaged people in harness racing.

Today monopoly is only a board game, not the racing business. But there's much more to it. There are thousands of things to spend time on, hundreds of sports or games to be a fan of, and there are still only twenty four hours in a day. Grabbing a slice of that time is what every business or game or league is grasping for.

One way Thoroughbred racing engages is through the Triple Crown, and although most outlets do a good job at it, I think they could do even more. If you're going to throw money at marketing, it's this type, in my opinion, where it works.

I'll elaborate. 

Today in the newly released Horseplayer Monthly magazine (free here), the lead story from Melissa Nolan is about under the radar Derby contenders. She picks a few horses based on the Sheets that are worth watching. It's a fun article, give it a read.

Melissa, and others - maybe newbies who read it - add those horses to a stable mail, watch a replay, or look at the running lines. The next prep the horse races in, is watched. If there's something horseplayers (or anyone for that matter with movies, music, hot draft picks etc) like doing is finding a horse few are looking at.

That one little thing, that one little article and others like it, can keep people engaged in a three or four month Derby season, culminating, of course, with the Derby itself.

Other sports do this as a matter of course. You follow your team to the Stanley Cup, you pick a longshot of 64 teams in the NCAA's and follow them to the end, you play fantasy football keeping engaged right through to your championship. Horse racing, as a rule, does not work like that, and as Dana noted here, it's not the be all and end all. However, having it for the Triple Crown is a different animal, especially for getting new people hooked and keeping them watching. For many people the Triple Crown is horse racing.

There will be hundreds of tweets and stories and articles on Derby preps from here until the first Saturday in May. For some who handicap the week before the Derby they can be referred to as silly season. For others, they mean a lot, and for those racing wants to reach - to keep engaged in the product - they're an important part of the racing ecosystem.

Notes:

An 18 horse field of trotters are set for the Prix d'Amerique. Over here 18 horse fields would probably be boycotted. Our horsemen and drivers like those about as much as having an appendectomy.

“The abuse of medication and the perpetual search for a supplement that has the same effect as a potent doping agent, but is somehow legal, is a problem for all sporting codes,”

Barry Meadow is a successful gambler and his words are always well worth the read. His article in this month's Horseplayer Monthly is no exception. Every bet, every type of bet, all has to be looked at through an edge lens. If not, beating 20% juice is impossible.

Racing Needs to Work With Its Betting Partners. They're Not the Enemy.

In the summer of 2012, Australian racing (in this case Racing Victoria) had the bright idea to raise fees on exchanges (I wrote about it here on the blog when it happened). They began charging an obtuse and horribly short-sighted "turnover tax", which made backing and laying on an exchange a thing of the past, for the most part. Those who still tried to trade the horse betting markets this way were subjected to a "premium fee", which pretty much wiped them out.

This replaced the "gross profit" model that had been working; Betfair had been paying 10% of bettors profits to racing. 

Bettors responded by doing what they do when they have no shot to make money - they curtailed their handle on horse racing. 

Without giving figures, my turnover with them dropped by 90% on the punting side, and I used the Fair for laying only which was NOT subject to the tax. RV got nothing, and the Fair lost out on the commission I was paying on the punting side, which was substantial even though I was on a low rate.

Since that time, the racing commissions did some learning. In effect, Racing Victoria was not making more money, they were making less money, because fewer people were betting.

They did what's not often seen by horse racing. In 2013 - only one year later - they decided to take less money and let betfair revert to the old system. The customer got reduced fees, and handle went up in Victoria.

Since 2013, they did even more learning. At the Warnambool Carnival, with betfair having full access to the meet, pari-mutuel, non-exchange handle was up 17% and 15% year over year on the two days they were running. On the third day, Betfair had a power outage and could not offer their races. Total handle among the other operators was down 6%.

In response to this value-added proposition, Racing Victoria changed the fee structure again, and punters are receiving even more money back to bet. The fee charged by betfair on a bet dropped from 6.5% to 6%.

It should astound and amaze us - ok, maybe it should not - that here across the pond the exact opposite tactic is happily in practice.

A few examples:

i) Signal fees keep going up, taking money from resellers, who pass that on to customers. As handle falls, the response is not to correct things, but to raise them even more.

ii) ADW taxes on resellers, which were first implemented in Virginia (I think racing is defunct there now) were broadened to other states. This tax is passed on to customers.

iii) Takeout hikes.

iv) Resellers like Derby Wars are something to be sued and crushed, not worked with.

The above is all done with hundreds and hundreds of millions of slot subsidies, and in a jurisdiction that takes the most per bet for purses than any major one in the world.

In North America, if you asked Magna or the HBPA or the TOC or Chris Kay to raise signal fees on resellers to 100% of revenue, giving them and punters nothing back, they'll gladly take the money. If you ask someone to sue a website where there's evidence that it - like betfair at the carnival above - is driving eyeballs and helping your handle, they'll say sure, "they're stealing". Takeout hikes to "raise purses", sign me up, it's a great idea. Take that evil reseller Twinspires behind the woodshed, like they tried with betfair in 2013? Grand, can o' corn.

It's bad enough these policies are encouraged and happening, but when they don't work there is no one to say "whoa, we made a mistake, let's revert back" like they did in Victoria.

No one is saying racing has to give away their product; give everything to a reseller, or bettor. That's ridiculous. What I am saying is that racing here in North America has to work with their resellers, and through them take care of their customers, encouraging them to grow the bet, and in turn, to grow the sport. Resellers are your partners, not your enemy.

Hong Kong is More than a World Away

As we've discussed here, and if you follow Sid Fernando on twitter (I think everyone follows him except maybe Adele and President Obama, so you likely do), you've noticed chats about Hong Kong.

Generally, we, as horse racing bettors and fans, look at the success they've had and say "we need to be like that!" But, because of myriad hoops and roadblocks, partly caused by fiefdoms, governments, regulatory overreach, commissions and all the rest, it really is a pretty high bar. No, as Sid likes to profess, horse racing here will never be like it is in Hong Kong.

However, there are major differences in the two jurisdictions that aren't based on the above roadblocks. A lot of it, in my view, has to do with philosophy.

Yesterday across the pond:

HKJC CEO says racing is chock full of insiders who tend to only look inside for solutions and that is a continued path to disaster

— Pat Cummings (@PatCummingsHK) January 26, 2016

That's one we have to let sink in, isn't it?

He isn't saying anything radical as far as Hong Kong racing goes (he's the CEO for goodness sakes), but in North America, what he said is completely, one hundred and eighty degrees, crazy-talk-radical.

Here horse racing looks inside ten of ten times. Maybe worse, it goes full spinal tap and does it eleven of ten times.

The CEO went further in his talk:

Paraphrasing: If you're passionate bout racing, & love it, many of those types think you have to sell that same experience, but it's wrong

— Pat Cummings (@PatCummingsHK) January 26, 2016

He, in that one sentence, is telling North America that their current strategy of having people in charge of promotion telling everyone else to like what they like about racing, for the same reasons, is all wrong.

Those are some pretty astounding thoughts.

It, to me, is not even debatable that racing over here can be like racing over there. It can't. However, philosophically, horse racing here can learn a lot about horse racing from Hong Kong. Horse racing grows when you turn outsiders into insiders for your brand. It has a chance when you create products for your customers that they want, not pushing them products that insiders want them to want.

This is not an easy thing to do, because when everyone has lived with this dysfunction for such a long time, defending the dysfunction becomes paramount. We see this often and it is particularly dangerous. Insiders make a policy change, say a takeout hike. It fails, but other insiders cover for the insiders. That makes change extra-elusive because bad policy is never allowed to be seen as bad policy. It is not only not corrected, sometimes it's copied.

Regardless, I fervently agree with Mr. Engelbrecht-Bresges, and I am glad he stood up and said what he did. 

Fear is Paralyzing, and the Good Ship Racing Can't Break Free

In Washington state there is a law currently being forwarded that would make operating or advertising a fantasy sports site a felony. The bill is being sold in many ways, some of which, well, are let me say, curious. Speaking to ESPN, the author of the bill, said this about these websites:

“This is no different than El Chapo down in Mexico advertising heroin or methamphetamine on our airways a thousand times a day to get kids to try it.”

Despite the obvious - that's insanely funny - it's interesting that in Washington state, ads and companies advertising to young people with "free booze, come to casinos and get rich" and powerball "you can be a billionaire" messages, are just fine. Maybe even encouraged.

Stoking fear, in this case the ultimate horror of fielding a team for $3 at a website, is not uncommon. It happens a lot.

They haven't had to resort to elk racing

Back almost a decade now, Betfair was being licensed in Australia. In the betting mecca that is Down Under, there were government officials who stoked the fear mightily, one going as far to say this betting business was "a front for Al Qaeda to launder money."

Not long after, Aussie racing itself really got into the act. Even a couple of years after the punter friendly changes (low takeout fix odds, exchanges etc) began, this threat was real and growing, and bad; really bad. So bad, in fact, that the whole industry could come crashing down. The head of Aussie racing:

"70 per cent of our income comes from wagering, so if that money is being pilfered out -- and we are not getting paid to put the show on, it means that all our 50,000 participants in the end will lose."

A leading breeder, not to be outdone, went full beastmode:

 "If they are successful, there's no racing, it's as simple as that, and they know that. It will all go back to picnic races. So it's just total destruction of the racing industry as we know it."

The "pay to put on the show" line - which seems to be able to travel across oceans without jumping on Qantas - and "destruction" hyperbole has about as much relevance here than there; it's not about fact, it's just about fear.

In the end "they"  -the bad guys - were successful. With more bettor choice and giving customers what they want handle on Thoroughbred racing moved up from about $12.0 billion in 06/07 to over $15 billion last year (a wagering record). Purses moved up to record levels, as well.

 Things are not all candy and nuts down there. Sports betting is clawing into the market, and foal crops - although better than here in North America - are not growing. The 'industry' is not unlike here, and asking for more money from everyone, too.

However, it's nice to see owners are not racing for Wal-Mart gift cards and horse blankets donated by Bill's Plumbing and Heating. 50,000 participants have not had to look for work. And yes, there's no sign of Al Qaeda laundering money on the third at Flemington.

Fear was conquered in Australia, even if the industry had to dragged kicking and screaming to confront it.

In North America it's different. Here fear in racing truly does paralyze, and when you are paralyzed by it, you can't move forward. 

As Louisa May Alcott once wrote, "I'm not afraid of storms, because I am learning how to sail my ship."

For a business like racing, learning what works and doesn't work by sailing into potentially choppy waters (and honing that policy through what you learn) is as important and just about anything.

What would Aussie-style 6 or 8% win takeout across all channels do with a long term test? What would polytrack do in cancellation-prone northern locales in winter, say at Aqueduct? What would 14 horse fields do in harness racing? What would any other big change of the day do?

No one knows. It's too scary. Plus, we need to pay to put on the show. 

In North America the good ship racing doesn't sail, it drifts. That drifting, caused by often times irrational fear and the assorted fear mongering, doesn't do anyone any good. Unfortunately the industry knows no other way.

Things to Do During a Blizzard

Hello everyone!

If there's something we know about in Canada, it's maple syrup, back bacon, high taxes, beer, hockey, waiting six months for an MRI, snow. For those of you in horse racing land, here are some ideas for you to spend your time fruitfully during a blizzard.


With Chrome landing in Dubai yesterday, it's a perfect time to fire up a new #bringhomechrome facebook page. With the storm you have time to do this, so there's absolutely no excuse. Let's get the big fella home.

Crash a Chris Christie storm press conference and ask him what he thinks of Jeff Gural.

Write an essay for your RTIP racing class answering the philosophical question - If you did not have power and had nothing to burn to stay warm, would Equibase still charge you for print past performances?

If you're really bored, pop over to a horse racing thread on facebook and ask "Hey guys, what
y'all think about lasix?"

If you are in Brooklyn, walk over (don't drive for cripes sake) to Sid Fernando's house and watch horse sex videos.

Search google (if you have power) for all the takeout studies done since 1945. Email the 12,984 of them that say takeout is too high to racing execs, and count the responses you get back that say "we have to pay for the show". For extra fun, set an over/under and bet on it with your family.

If you're a Russian, Norwegian, or Canadian racetrack, make fun of US racetracks.

Follow Peter Berry on twitter and see if he follows you back. Then unfollow him and refollow him to see his next move.

Work in teams of six, watch all the harness racing replays of the last week and count the kicking violations that the judges missed. Make sure the team leader of each group is well-versed in excel - pivot tables, macros, etc - and has experience with big data.

Compare the New England Patriots to Richard Dutrow on twitter, sit back, and watch the fun.

Try to hack the DRF paywall.

Watch every Zenyatta replay and come to the conclusion that "hey, maybe she wasn't a surface specialist."

Watch TVG and count the number of $24 pick 6 tickets that have no hope in hell of hitting.

Email Chris Kay and ask him what's worse for handle, weather cancellations or the college football playoffs.

Scan Louisville police scanners to see if there are any reports of Churchill Downs execs turning away freezing little people from their giant, climate controlled, oil burning compounds.

Otherwise, just do what I do as a winter storm veteran Canadian - hole up, eat doritos and bet some races, right through Australia track "A".

Have a nice day peeps. Don't shovel heavy snow, unless you're a personal trainer or something. And for gawd's sake, stay away from jackpot bets.

Making Sense of the Senseless Regarding Pay to Play PP's

Probably one of the most frustrating parts of the horse racing business is paying for past performances. I know what you're saying, oh boy, another article on paying for past performances. But, well, read on if you are interested.

First off, the capricious nature of the whole pay big for past performance phenomenon flummoxes. If you are at an ADW and bet $250,000 a year in 2014, you get free unlimited PP's. This makes some sense, of course, because $250,000 results in over $50,000 of revenue, and if someone is handing your restaurant $50,000 in revenue, you better damn well not charge him or her for a menu or water refills. Then, say in 2015, you bet $150,000. Well, that's $30,000 in revenue -- still quite good -- but then you charge that person for PP's.

Why would you give a customer free menus when they spend $250k on steak, but annoy them by charging them for a menu when they spend $150k on steak? Who makes this rule, and why is there some arbitrary cut off? If the laws of economics had a head, it would be shaking.

Second up, marginal cost equals price. This is an odd concept to learn in economics class, but there it is. The cost to supply a customer, like the one above - someone who bets with you often - is not much at all; it's pretty much the cost of a pdf - pennies. Why on the margins do they charge average cost for a file or a piece of paper? It's a mystery. Someone call Matlock.

Third, selling a core product and giving away a product that encourages the use of said product (or vice versa) is a concept not lost on the business community. When I asked my dad and mom for an Atari in 1984 because it was "on sale for $199", the response was "the games cost $100, son, so no, not this year." My mom and dad never even took business at Yale. In racing, this rudimentary concept is more elusive than finding Atlantis.

Last up, lifetime value. For subscription services - racing is the ultimate subscription service, because it thrives only on players playing every day and reupping at regular intervals - the lifetime value of a customer is everything to its cost and revenue functions. Everything. This is why Direct TV can give you a free six months, cell phone carriers pay for you to switch, online gambling cost per acquisitions can be $400, when they only see $200 in revenue in the short term. To keep you betting, a free past performance PDF (at pennies at the margins remember) are not even a part of the lifetime value per customer equation. Sure, this guy or gal could be here for five years, giving us money over and over and over and over again, but let's chase her away because we want $3 for her to play.

I think it's clear - to me anyway - that the above makes almost no sense at all. I think to most people outside racing it makes no sense at all.

Like a lot of things in racing, we need to make sense of the senseless.

Remember when Jim Gagliano and the Jockey Club were talking a lot about uniform rules and some racing commissions were poo-pooing such initiatives? That's because a fiefdom - their racing commission - was threatened. If there are a set of rules used by everyone, what use are they? Using the above as common sense, and fixing it, requires another fiefdom -data - to be threatened.

Yes, it makes sense for each track to upload charts to a master database, have past performances  generated from a master database, and all tracks can supply their customers with PP's on the interweb. Bingo bango bingo. Bob's your uncle. That helps eliminate points one through four above, and it will help the industry overall by putting it on footing with most of the rest of the world. It's simple and cost effective - and in a world where we'll soon have a man on Mars - not exactly difficult.

But, no, it can't happen.

You, me, business schools, and just about everyone else can gripe and point out inefficiencies and ways to change the racing business for the better. But they don't matter, because even when you make sense of the senseless, the senseless side has too much entrenched power to ever lose the argument.

Daily Fantasy 2015 Numbers - Growth. Handle and Margins

The Superlobby website scoured the Daily Fantasy contests in 2015, and came up with some numbers.

• There were 342 million entries in "GPP's" - guaranteed prize pools (different than head to head, or 50/50 games)
• With these games, $1.8 billion was generated
• The effective takeout for all sports, and all games, was just over 9%. 

Although global industry numbers are hard to come by, we do know that in 2014, FanDuel realized $621 million in (all) entry fees, and DraftKings about $304 million. In 2013, FanDuel generated about $150 million in fees.

The top line growth was, once again, pretty staggering.

Clearly the story of the year was not rake, top-line growth or business interests, but political risk (or more apt, political risk on steroids). As Mark Cuban (a gambling and fantasy sports supporter) put it this week, the industry is dealing with more than racing dealt with for years during its nascent state - just tax hungry politicians:

"Seeing politicians just do something for skins on the wall, to try to make a name for themselves, that pisses me off, as much as anything,”

It's a tough row to hoe, because the industry is battling forces which will likely see them having to increase prices, water down their product, or in some states (where protecting state run lottery and gaming interests is paramount) are not allowed to exist. Sound familiar horse racing?

Who knows where this goes next. I sure don't.

Over to racing, top line growth was realized in a small way in 2015. Effective takeout is stuck in the 21.5% range, and not coming down. In fact, I heard from more than one executive in 2015 that "we have to get signal fees up now, so that in the future takeout can come down." That's a mind-bend, yes, and the opposite of what we would expect if takeout really was coming down. But I don't understand the industry at the very top. I don't think I ever will.

Daily fantasy sports is in a state of flux, but it is growing rapidly; despite the New York Times, some AG's, politicians, and many others telling everyone how bad it is. They, like any successful online business, are growing eyeballs, and hoping the ground swell helps them with the regulatory bodies (it's tough to ban booze when everyone is drinking a beer after work), and that those eyeballs can be monetized over time.

Horse racing, a mature business who has been through this before, is where it is - looking for marginal improvements, or more accurately, trying to stem the handle trend of the last ten years. I don't see anything in 2016 that can move the needle much either way.

Mayne, Irwin and Assorted Reactions, Same Stuff, Different Day

On Saturday, ESPN's Kenny Mayne called a race at Santa Anita. Y'know, one of those celebrity race calls (although I would expect Kenny would cringe being called a celebrity), where the sport gets a little free press on a nondescript field of claimers, or maiden claimers.

What followed, in some quarters, was a hand-wringing exercise. How does this really help the sport!? It's a mockery! This glosses over real problems! Racing needs to concentrate on fixing racing, not on stunts!

I think a Kenny Mayne race call is fun, and nothing harmful in any way. I mean, how could it be? But, I don't blame people for being so inflamed by things like it, because this is a symptom of something that doesn't have anything to do with a Kenny Mayne race call.

Case in point: Barry Irwin.

Barry, in the Paulick Report today, wrote:

And, in retrospect, I guess it shouldn't have surprised me, as last year I was told by a highly placed and nationally respected racing official from one of the leading racing jurisdictions in North America that no appetite to stop cheating with drugs existed at any level in his locale. I have known this official since I first came into racing and know him as a man of integrity and action, so when he uttered his pronouncement, I guess I should have taken it at face value.

Last week, I came to the irrefutable conclusion that even if I had been successful in my private quest to point out to racing officials which horsemen were cheating, what they were cheating with, when they were treating their horses, where they acquired their illegal drugs from—the whole ball of wax laid in their laps—that absolutely nothing was going to happen.

Barry is telling you, me and the thousands of fenceposts that read the Paulick Report, that he has no faith in racing's current leadership. That he has no hope they will ever do, or maybe more apt, can do the right thing. He wants change.

What both camps are saying: Whether it's about pricing,  or lasix, or drugs, on-track promotions, or something as inconsequential and silly as a celebrity race call --- it has to be a bad decision, because the people leading the sport aren't really leading the sport.  And there is no hope they will ever have the leadership to fix the problems.

In a sport losing market share, with foal crop declines, handle declines and the ever-present dependence on alternative gaming to keep it floating, that kind of argument resonates, and it rears its head in many places.

Selfies at a track are a waste of money, while tailgate parties selfies are great, Dennis Miller in a Monday Night Football booth is worth a try, Kenny Mayne calling a race is sacrilege. If racing was big and growing, and the NFL was losing market share rapidly, those would be flipped on their ear.

Racing does have a leadership problem, and it possesses systemic difficulties that make even the best leadership look feckless. But every decision the sport makes is not necessarily wrong. Each idea or policy has to be looked at on merit, not on confirmation bias based on the current state of the sport.

Notes:

The Big M has been trying some new things this meet, and they were looked at in HRU, page 3 (pdf). 

People know "the guy who is always at the track" because, well, there's a  guy who is always at the track. 

Massachusetts state lottery had handle go up again in 2014 while lowering juice. Ya, but those are lottery players, not horse racing bettors! Whoops, the argument is usually used the other way around. Tres obv - look at the guy above, when he cashes $42 instead of $34 on an exacta, he's coming back tomorrow and betting the extra eight bucks.

Trainers banned for cobalt use for years in Australia. In the US it's tied up in court for years.

The fax machine and the internet helped productivity and changed the way the world did business. Twitter on the other hand, didn't, but when things got you down, it helps.

Have a nice day everyone.

The Horse Racing Anti-Change Culture is Impenetrable

In those best selling corporate books, speeches from good leaders, and in a lot of every day places, you will often hear about "changing a culture". It's probably overused, but for people who have changed a culture in a sport, business or even family, they stand behind the concept vehemently.

The NFL has a real problem with violence on the field. Today the players are bigger, stronger and can inflict tremendous damage to opposing players. The NFL, a few years ago now, started to demand more from the coaches, players and rule makers to address several issues, like leading with a helmet, late hits, hits over the middle, 'defenseless' players; anything that is deemed far too violent has been looked at.

Early on, the players hated the changes, as did the fans. Several years later, it's changed.

A few weeks ago, Broncos tight end Owen Daniels was nailed by the Bengals' Reggie Nelson.

Nelson played that exactly by the rules, turning his head, not wanting to hurt Daniels. Daniels appreciated it and tweeted out this:

“The more I thought about the play,” Daniels said, “the more I appreciated what Reggie did. People like big hits. It’s one of the reasons football’s so popular. Reggie could have really done some damage to me. I just wanted to point out after this huge hit that I appreciated what a clean play it was. I just gave a shoutout to a guy who played the game the right way.”

Nelson: "The other thing that goes through your mind is what we have been taught here. Hit the body. We’ve had to adjust. If you don’t, they’re gonna keep fining and flagging you. You’ll be out of the league.”

"Most definitely the league has changed the game dramatically. It took me a while to learn, because I love to hit. But I think it’s better for us. We have to take care of ourselves out there."

What strikes me most about this change of culture is how quickly it has come about. It's almost like a sea-change. This change is filtered down to coaches, from pro, to college, to little league. It's big.

What is not so obvious is the return on investment of such moves, and let's face it, sports leagues like money, and money, and more money. They ain't charities. If players don't like it and the NFLPA is whining, and the fans don't like it, and the fans are whining, why bother, right? It's causing trouble and it's much easier to just back off. That didn't happen.

The NFL is looking longer term, after ignoring issues like this for so long; ROI be damned.

Culture changes in racing seem to follow a path that's similar, right up to the end game.

If the NFL wants to protect players and sees it as a long term gain, what about protecting the horses? Polytrack, vet inspections, etc, are all a part of that.

The NFL wants the pipeline filled - parents signing their kids up for football, better demographics watching the sport etc, so the way it's presented (as 'non-violent' as possible) is important. In horse racing this is excess whipping, kicking, buzzers, penalties and just about everything else along those lines.

It's very true that changing a racetrack might not cure ills, but the blow back ensured we'd never really know. Off track vet inspections, vet record keeping, Hong Kong type vet reporting to customers, well, it's "not your horse".  Shuddup.

Reggie Nelson said, "We’ve had to adjust. If you don’t, they’re gonna keep fining and flagging you. You’ll be out of the league."

In racing we have guys who have had 50 kicking fines, costing them a Starbucks coffee and a little bit of inconvenience. There's no adjustment needed, just keep doing what you're doing. "You'll be out of the league". Laughable.

The NFL is dealing with the qualitative, yet they had enough juice to begin to change a culture, even without being able to hold up cost-benefit analysis, or profit and loss statements at the end of the day. The jury is still out of course, but it's been pretty clear the changes have done what they're supposed to have done.

In racing, that's darn near impossible. Even if you are holding up analysis that shows a change is working, it's ignored, simply because the anti-change culture in this sport is impenetrable.

Eclipse Award Recap

Singing, dancing, we all love the Eclipse Awards

Well the Eclipse Awards are over for another year! The show was grand, and at times, shocking, but these are never not fun. For those of you who missed the show because you didn't have TVG, HRTV, Free TV Austria, an internet connection, here's a recap!

First up, the winner of the Best Jockey Who Appeared on Dancing With the Stars Award presented by Adam Hickman ® - went to Victor Espinoza. That wasn't the whole story however, as told by Peter Rotondo to TMZ. "Backstage, Irad Ortiz let Victor know about some critical tweets from Adam and all hell broke loose." The Awards were delayed for ten minutes, which prompted Frank Stronach to say, "just like one of our post drags." Everyone had a belly laugh.

Next up, The Trainer Firing of the Year Eclipse ® went to Mattress Mack. Because Mack wanted to thank each and every trainer who ever worked for him, his speech went too long. When ESPN's Jeanine Edwards tried to get him off the stage, Mack demanded she be replaced with Laura Wohlers.

The Legal Move of the Year Award ®, presented by Shwartz and Davis, personal injury attorney (where no accident is ever really an accident ™)  went to Scott Daruty. By suing a reseller, he sent a signal to all potential horse racing partners who want to promote the racing product they better not invest time or money in the sport. Hold it, that's bad right? Whatev's, he goes home with the hardware.

Trainer of the Year ® is a mystery. The Equibase boys were on hand to present, but they asked the crowd for $8 to see the winner. No one ponied up (a bit of a clever play on words there, I know, but I am a professional blogger) and we never found out who won. Most thought it was Baffert, but the DRF's Marcus Hersh thought it was a slam dunk for Karl Broberg.

Ray Paulick

Moment of the Year ® was the big shocker this year. With a Triple Crown winner, everyone expected it to be the Belmont, but the award was picked and presented by Pete from Brooklyn. Pete chose the 4th at Turfway in February, where he hit a superfecta that paid $454.40 for a dime. "Big score", said Pete, as he walked off with his own award, leaving the audience speechless.

At this point there was a break in the show for an auction to benefit horse rescue. Someone dropped the ball and didn't have anything to auction off, so the crowd was scoured for anything auctionable. The sales topper was a Todd Pletcher tie that went for $250 to Chad Brown. Pletcher told Chad he got a good deal because that's half off retail.

Donation of the Year Award ® was next presented. $150,000 was given to NYRA's Chris Kay by Nick Saban on behalf of the college football playoffs, for restitution for lost Belmont handle. Kay thanked the legendary coach and told him the money will go to executive bonuses.

Next up, the Executive of the Year ® was presented to the Jockey Club's Jim Gagliano. What's an awards show without politics, eh, and that's what the crowd got. Jim accepted the award fine, but then threw off his coat, injected himself with lasix, and began running around the room in his winged tips, while over again saying "look.... not tired...... performance enhancer." To this observer, it was way more powerful than any Sean Penn save the rainforest speech.

The Entertainer of the Year Award ® presented by Andy Asaro went to the California Horse Racing Board. "I didn't know the meetings were entertainment" said one board member, but he happily accepted it and promised to do the same thing they've been doing for the last half century at meetings.

There was then a short commercial break. Sid Fernando showed a video of a whole bunch of horses having sex. Everyone seemed strangely entertained, especially the breeders. Jim Gagliano was still running.

I took a short break from bussing tables and presented the Race of the Year ® next. The envelope said it was the King's Bishop, but I said screw it and told the crowd it was the Runhappy maiden win.

Last up was the Horse of the Year ® award. It was American Pharoah! The crowd went wild. In his acceptance speech, majority owner Mr. Zayat said it was a joy to race him for the fans, because there was no scenario they ever would've raced him unless it was for the fans. None, not even one.

At that point the show was over. 15 minutes later Jim Gagliano hit the showers and not even a mouse was left in the room. I hope y'all had a good a time as I did.

Horse Racing Does the Wagering Economics Thing, Kinda Sorta

The Powerball was won! For those of you who took an 8-27-A-A-A wheel because the 8 had the top pace figure and the 27 was sneaky good the last couple, you played the wrong game, but congrats.

The Powerball lottery we saw over the last couple of weeks should be studied with a grain of salt when it comes to gambling behavior, of course; but there are concepts that explain why we had a case where an impossible to hit bet had otherwise fairly rational people standing in line for hours, wanting to give the state their money.

In general, gamblers trade off the expected return of a game for skewness. If it's 1 in one trillion to hit something, but the payoff is some obscure amount, like $1 billion or more, hey, you take a shot. This convex function is shaped differently because of the the size of the payout.

For horse racing, this also helps explain the lottery bet attitude. Why do people bet 52% takeouts for a twenty cent bet they won't hit, with that terrible expected return? It's simple skewness; a mini-powerball.

Horse racing is much different than a lottery however - it needs its customers betting more frequently, can't bust them, and has to offer sound, rational bets. The higher the probability of a bet, the less skewness and the more rational the behavior is. For example, a person on twitter who just took a Rainbow Six ticket with no hope in hell might tweet about a win bet in leg one, "3-2 is too low, if he goes up to to 2-1 I am betting." That's the difference between a 40% probability of cashing to 33%, and it completely changes behavior.

Carryovers provide an excellent example of the best of both worlds.

There are irrational bettors betting into a pick 4 carryover, with say an expected $500,000 pool, because the pool is $500,000. The chances of one ticket paying $500,000 is like getting hit by lightning three times in one day, but that doesn't matter to this user. He or she bets because of this hope (and then wonders why they got so excited when their spread ticket paid $54).

Meanwhile, me and you are betting  five or ten times what we'd normally bet into this pool, because with a $50,000 carryover we are getting negative takeout. We are acting like any rational bettor would. The money carryovers take is not a mystery.

Powerball maximizes their skewness well, as we all saw. But horse racing doesn't maximize it skewness very well at all.

Win takeouts, where the probability of hitting a bet is in the 35% range should have 5% or 6% juice to take advantage of the same skewness. Two horse exotics should not be a heck of a lot higher. Generally, as the hit rate goes down, the rake can go up, where with super high fives, or pick 6's, 25% juice can be just fine. If a lottery component is added, even over 30% takeout is workable.

Horse racing, unlike Powerball, is big tent, with open arms to many people who wager. It's really a tremendous asset. That the sport tends to shoehorn everyone into one system, with pricing and promotion, is one of its most frustrating failings.

In Sports, the Stars Do Have Coattails

Tiger Woods was injected into the sport of golf in 1996 and was the most talked about golfer of our era. He created buzz.

In 1995, the year before he turned pro, Greg Norman was the top money winner, earning $1.6 million. Last year, Jordan Spieth was the top earning golfer, with $23.3 million in purses. In 1996, the leading money winner in golf earned about what the Major League Baseball average player did. Since that time purses for golfers (on just the PGA Tour, not counting the other tours) have quadrupled.

In terms of sponsorships, Woods changed that, too. Mark Steinberg told Golf Magazine this month that "the number of non-endemic industries grew, and the endemics took a whole new view of the sport." Think Nike creating an entire golf division.

In 2015, sponsors like Red Bull and Under Armor are footing the bill, and new companies show up to sponsor tournaments. Good, but not top tour pros like Jimmy Walker and Graeme McDowell make upwards of $4 million alone in sponsorships. Top Woods era pros like Mickelson still command $50 million a year or more.

They should all have Tiger Woods posters on their wall.

There was a time when in racing many thought a Triple Crown winner could do similar for horse racing. Those days are gone now, but it does provide us all, in my view, a good lesson: Horse racing is not a sport like golf, or others.

As I noted in yesterday's post, "stars" do not have the same coattails, and using scarce marketing money to promote, or use them to try and increase handle, or an audience, will have a pretty low return on ad spend. There will be no quadruple of purses, no Red Bull, no big TV deals. Racing is simply not built that way. It's not dealing with athletes like Woods, it's dealing with purchases that are used for entertainment purposes, or the thrill of owning a champ.

I believe our star horses, in harness and Thoroughbred (even great ones like American Pharoah) have value, but the value lies in their worth in promoting bloodstock purchases. Hey, you can own a Triple Crown winner and be on the Today Show. Hey, you can buy Foiled Again for $12,000 and he will be the leading money winner in history. Let me show you how. If this business wants to build a strategy around that with the star horses, I am all for it, as we all should be. It's good for the business, and everyone wants to bet deeper fields with many barns, instead of some Pletcher or Burke four horse entry going for $200 large. 

Anything else, however, as we noted yesterday here on the blog, seems pie in the sky. You can't apply the marketing and revenue generation rules of a sport like golf, or football or baseball to racing, because it is not a sport like golf, football or baseball. This is a niche sport, that leans on wagering to survive.

Choosing the Hardest Path to Victory

Company A is in the widget business, they make a really good niche widget, and are a leader in the space. On its income statement, $700 million is realized from widget sales, and $10 million is realized from sales of accessories for their widgets. There are accessory for widgets companies that do some really good stuff, and widget company A doesn't do that part near as well.

Strategy A: Spend capital and time to increase widget sales to a global market that is much bigger than the $700 million you sell.

Strategy B: Spend capital and time creating new products and gain market share for the $10 million, against market leaders you probably have little hope in competing with.

Strategy A, because it's easier as a leader to grow, and because of pure math, seems to make the most sense. A 10% increase in revenue yields $70 million. You could double the 'other' part of your income statement and only realize $10 million.

Racing, which yields about $700 million for purses a year from wagering, runs on wagering. The money it does gain from television, for example the Triple Crown, is small. Most of the racing you see on TV is paid for by the sport, not the other way around. To increase the $700 million, it needs to attract more money through various means, most of them (Equilottery, exchanges, fixed odds, lower juice, new bets, exporting a signal) not tried in earnest. To increase the $10 million, they have to compete and defeat NFL Football, dozens of other sports, gain sponsorship against hundreds of other sports, and a lot more super-tough stuff.

Why do people want to spend limited capital, time, effort, on trying to grow the 'other' part of the income statement? I think most of it is explained from insiders wanting a market it wishes it had, instead of the one it does have. We all love racing and we want it on cereal boxes, talked about on Sports Center and on Dancing With the Stars, even in non-Triple Crown winner years. We want to tap people on the shoulder and say 'look at us, we're fun and this is a great sport', and anyone who has an idea how to do this - even if it's silly - is listened to.

The bottom line is that in North America the path of least resistance for racing's core growth lies in two areas: i) more slots and ii) more handle. Wishing it wasn't doesn't make it so; it only provides a not-needed distraction. 

The Fixers Doing the Fixing, Notes

Good day racing fans!

From the Kentucky Thoroughbred Association's panel yesterday, with regards to getting more customers to bet more money and improve handles:

"Flanery said racing needs to present a product of competitive, full fields attractive to handicappers and to figure out a way to be relevant to the changing fan base."

That's a quote from the President of a company who raised takeout, making it worse for handicappers, and scaring away a price-sensitive fan base.

'Panels' in horse racing frustrate customers. The folks who are asked for suggestions to fix it are the ones creating the policy that needs fixing. It's like going to the doctors with a cold, having him break your leg, with a promise that if you come back in a week he'll make it feel better.

"California Chrome Powerful in Return". I would call it useful more than powerful. In fact, it was probably a similar performance he had last season in his debut where he seemed soft at the end. That carried to Dubai, where he might have been described as soft at the end, too. Regardless, it was nice to see him back because the horse has a tremendous following and brings people out to watch the sport, or tune in via simulcast. It's impossible not to wish him well, unless you're some sort of #antichromie.

Brandon Valvo commented he saw a piece that said harness racing handles were greater than $1B in 1940. In today's money that would be north of $20 billion. In reading Ainslie's book as a kid I remember him talking about harness racing being North America's number one spectator "sport".  Sometimes we get a little jaded when talking about this, however. If a New York AG (not naming names) banned everything but Italian food in Brooklyn in 2016, and the law was rescinded in 2116, Italian food sales would show a big drop off by 2216. Monopolies really screw up historical projections and study. It's why they have all sorts of different curves that we don't remember from economics class.

The NFL's foresight as a league has been pretty decent in a lot of business ways, obviously. However it amazes me that Super Bowl I's broadcast was never 'taped'. I understand why a first Kentucky Derby might not be, but the Super Bowl? Someone had to have dropped the ball on that.

Harness Racing Update is back again, with Dave Briggs running the show. Dave is good at what he does.

Bob Marks and Eric Cherry are launching Harness Racing Forum. Bob involved is a good thing.

The Big M has been running marathon long cards of late. I see the handle was just short of $3M on Saturday and the card, in my view, was pretty good. There's a drop off in handle with longer cards, even though by definition the longer you keep the broadcast going, the more will obviously be bet. It's a fine line, but one thing I am pretty certain about - 5.5 hour cards with 14 or 15 races is not optimal.

Have a great Monday everyone.

"MegaCast" Helps Draw More Eyeballs By Adding Choice

Last year for the College Football National Championship, ESPN and their related channels sliced and diced the audience with the so-called "MegaCast". The megacast involved different audio feeds (each school's radio teams), different perspectives (a living room type atmosphere on one of their channels with sports figures watching the game), a "command center" with continuous replays, different camera angles, feeds and (and this is bigger and bigger now), fantasy stats and advanced analytics in real time.

Last season, 34 million people watched the "MegaCast" in some way, shape or form.

This year ESPN has added a few new wrinkles to try; including the "replay booth". When a replay is called the main network will go to a commercial, but another will have NCAA officials onhand dissecting the replay film, under the hood, so to speak. For fans this is pretty interesting.

Complete details are here. 

ESPN clearly believes that harnessing technology, and everything it has to offer can enhance the viewer experience. It's not cannibalization of the main network feed, if you engage more users to watch (via various means) and give them a reason to stick around a lot longer than they might have, while entertaining them.

Horse racing has taken the opposite stance with their production. An ABC telecast in 1970 of the Belmont Stakes looks very similar as it does today. Despite some bells and whistles it's ostensibly the same product.

Moving to advanced analytics and stats..... well, what advanced analytics and stats? For a game that is built for a statistical environment, it's like those statistics are a secret, or at the very least something we expect viewers to mail order for $10.99.

Watching a football game is not rocket science. There are downs and plays, and more downs and plays. But by broadening the viewership tent by showing that the game is more than just downs and plays - it's coaching decisions, and commentary and stats and probabilities, you can attract people who are interested in those aspects. Maybe they are drafting a fantasy team next year, betting a few dollars in Vegas, joining a football pool.

It's foolhardy to compare racing to something as big as a College Bowl or a Super Bowl; those sports are massive, depend on viewership to exist and have budgets to spend. However, it strikes me while they improve and experiment and try to offer more, racing sticks in the same bog of showing brown horses run around in a circle, all the while wondering why more people don't want to watch brown horses running around in a circle.

"Counterbalance" Is Gambling Life

I read with interest - more like the interest I might have watching a high speed chase on KTLA - the New York Times article on betting, out today. I say betting, because the subject matter in it can refer to any pari-mutuel game.

The column, like most churned out by the Times and others, speaks to the inherent losses occurring in a pari-mutuel game; the larger players feasting on smaller ones, the 'inequities' of such games. In general, these articles state : unless you are good, have a nice bankroll or have special skills, you're a sucker, and the companies know it. They usually feature buzzwords like "preying" and "innocent newbies".

"Big players" making money from smaller ones happen in games like racing and DFS, not because of some grand conspiracy, but because that's the way the games are built.

"Large players" are not big by choice, Because they are better than average (or average plus ten points) and have generated a bankroll which grows, they make themselves into large players. They, because of rational economic behavior, bet on a curve until their ROI approaches zero. At that point it's optimal, which is why they are in so many games. This is the marginal cost equals price curve for a single bettor, and this is a staple of any pari-mutuel game.

Asking this rational behavior to stop is like asking the New York Times not to get big and feast on readership of smaller papers, by improving their internet offerings to crush competition, by hiring more staff, better writers, reinvesting profits. The New York Times works on marginal cost equals price, and an act of Congress won't change that.  Neither will rules and regulations of a pari-mutuel game.

Racing and DFS offer customers a market, and that market will be exploited by the best players in the game. The best players in racing - like DFS - work on razor thin margins, where their ROI approaches zero, but at that ROI the money isn't gone out of the system. The New York Times and others say with such voracity this fixes the game against the new player, but that's untrue, it only makes it harder. New players do and have won million dollar tournaments at FanDuel, have and do win "Jackpot super high fives" on a $20 ticket at Woodbine, have a do win games with their friends at DraftKings or Derby Wars, have and do hit a pick 6 against the sharks.

A lot of these players play for fun, for a chance at a winner like that (as we see with Rainbow Sixes), and that makes up their marginal utility. It's also why you see so many casual players so up in arms about DFS being legislated out of existence. Sure most lose to #maxdalury or a big racing player, but they and their -50% ROI are happily fielding a few teams, or watching a workout at Santa Anita, trying to make a score today. Maximizing these people's utilities is not a macro-legislative issue, it's a micro customer retention issue.

To somehow suggest that there's a smooth curve where 50% will win and 50% will lose like most of these publications and articles suggest in this Utopian vision, shows a lack of understanding of the course material. If you want that, try selling a game of coin flip on the internet and see how you do. Nothing will change the fact that while betting "amongst ourselves" the most profitable players will play the most money, and they will win the most money. Without this counterbalance, you won't have a marketable gambling game in the first place.