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Racing's Unhealthy Obsession With Cannibalization

In racing we often hear about cannibalization. This "refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer."

Horse racing contests, more exotics, Derby futures wagering, exchanges, internet wagering, fixed odds -- they're all things to fear in some way, because they 'detract from the core betting pools'.

Daily Fantasy Sports should be doing similar, one would think, to sports betting. In fact, a big slice DFS players see it as a substitute to sports betting.

 But, if sports betting were legal across all 50 states:


This helps explain why since 2010 or so, when the proliferation of DFS sites occurred, sports betting revenue marched on, in tandem. In Vegas, sports betting volume has moved from under $3.0B to over $4.5B the last few years alone. DFS has added about $2.0B in "wagers" per year.

In mergers and acquisition economics you'll often hear the word "accretive". An investment, or merger, is accretive if it brings in more revenue (or earnings per share) than the cost of the investment, usually over time.

Adding a new offering, like DFS, is accretive for the sports wagering business. And more importantly, it's good for the underlying equity - in this case, the sports themselves.

Racing, which to this day seems to play whack-a-mole with any new offering, doesn't see things like that. Everything that's offered is "cannibalizing the wagering pools", rather than examined in the context of what said product can do for the total pie.

In the present day (in the gambling business) racing is in a tremendous position. It has a ready-made market, a willing audience with hundreds of millions on account, and leverage through the UIGEA that others do not. With that kind of edge it doesn't have to be scared of eating itself, it should be focusing on taking the necessary steps that will allow it to eat into its competition.


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