If You Don't Screw it Up, Handle Can Explode

I remember back many years ago when the Paulick Report was in its infancy; an article was written from the horseman's perspective about internet wagering and ADW's. It was the usual - they don't pay enough, there should only be one ADW controlled by horsemen, etc - and it spawned a response from horseplayers.

Paulick, never shy from using some interesting imagery, displayed a ram fighting another ram with the headline, "Horseplayers Lock Horns With Horsemen Groups", and printed the response from horseplayers .

The article talked about a few things, many of which you have seen typed here since 2008. Mainly, monopoly markets for internet wagering will not work, and high ADW taxes won't work. They inhibit competition, which stifles innovation, reduces player rewards, reduces advertising and customer growth spend, and sends players offshore.

That article didn't do much to sway opinion, of course.  Racing in North America has Virginia ADW taxes and fees (ironically done in 2009 to save live racing, which there isn't any longer in Virginia), Pennsylvania and New York ADW taxes and fees, and, of course, no exchanges, source market fees and all the rest. A lot of the big tracks refuse to sell their signals to smaller, customer-centric ADW's, too (one of the more under reported problems in this business)

These policies go on today, with impunity. You can barely go a month without seeing that exact same article from a horsemen's perspective written about somewhere.

In some other parts of the world these same polices are tried, but with a central organization that's held accountable, it's a whole lot different.  Things aren't swept under the rug.

The PMU in France, in 2010, imposed high fees, turnover taxes, and didn't allow any firm to offer gross takeout lower than 15%. While participants cheered, the customers and business didn't.

The results were what we might expect:

Advertising in the marketplace dropped 58%. Most of it by dropping player rewards.

Handle in year one was down by 24%.

Competitors, unable to turn a profit, left the marketplace. 

Since 2011, despite realizing some of their failures in this policy and trying to correct them, the PMU has lost turnover for three consecutive years in a row.

This is much different than other parts of the world.

Around 2007. Australia opened up their market to give consumers choice; better odds, lower takeout, new ways to bet and better rewards. They, like the horseplayers on the Paulick Report, locked horns with the status-quo, too, but a different result occurred.

Since 2008, players playing offshore (where they do not contribute to purses) have moved more money onshore; hundreds of millions of dollars. Handle on racing in traditional areas is up 4.8% per year, while internet betting has soared by double digits.

Total handle in 2015 for Thoroughbred racing reached an all time high (15.9B versus $8.9B in 2000).

This all occurred while ushering in new competition in the form of sports betting. Handle on sports has grown from virtually nothing 15 years ago, to upwards of $6B today.

All is not perfect and there have been mistakes made (mostly trying to go back and tax turnover more, which also failed) but they have made some progress in modernizing their betting system, while increasing purses.

Several years ago, and to this day, the North American horsemen, owners groups and some tracks are fearful of changing the market. Exchanges, player rewards, lower takeout, more competition in the betting landscape, are all something to be blocked. They're all something to be feared.

This fear paralyzes racing from moving forward. Bettors leave, funds move offshore, new money does not come into the system to replace it. The world is different today and the sport of horse racing realizes it, but it clings to the past because the past is its safety blanket. The past is all it knows.

I mentioned on twitter yesterday that I thought racing could do $50B in yearly handle in a decade if it's done right. I know that sounds silly and many told me just how silly. But it's policies like the above that occur as a matter of course in horse racing and are never corrected. I truly feel North American horse racing is leaving billions and billions of dollars a year of handle on the table.

Have a nice weekend everyone.