Carryovers Provide Big Reach and an Immediate Return

Sinking marketing money directly into the horseplayer by seeding pools is effective, in both theory and practice

In Ontario and elsewhere, we’ve heard a lot of talk about marketing over the last several years. The discussion is certainly a valid one. According to a 2016 CMO Survey, US companies spend between 5% and 20% of general revenues on marketing. In the gambling space, casinos, bingos and lottery companies can spend as much as 25% of total revenue on marketing alone.

However, when the sport explores a marketing plan, it often involves spending money like a Barnes and Noble or Molson Breweries does; with commercials, giveaways, or event marketing. Most of these tactics have been tried, and although they have encouraged fans to visit Ontario racetracks, turning those visitors into long-term betting customers has been elusive.  

Perhaps this should not be surprising. In today’s world, marketing is less about the sizzle and more about the steak. Jeff Bezos, the CEO of Amazon.com, told PBS’s Charlie Rose this in November:

"Before, if you were making a product, the right business strategy was to put 70% of your attention, energy, and dollars into shouting about a product, and 30% into making a great product.  The balance of power is shifting toward consumers and away from companies, the individual is empowered. If I build a great product or service, my customers will tell each other."

The theme that – in this new world – your product is your marketing was put a little more brusquely by venture capitalist Fred Wilson, who recently said, “marketing is for sucky products.”

You may be thinking that if the product truly is the marketing, then harness racing is a hard sell in the modern world. But if we look beyond the on-track sport and concentrate on the gambling product, there is some evidence that harness racing’s revenues can be improved, using something that can sell itself.

Enter the carryover.

Most everyone knows that a carryover is added money to a betting pool. But understanding how and why they work is a little more complex. Basically, there are two reasons carryovers are effective, and using a little simple betting math we’ll explore them. 

First, carryovers lower the takeout on a wager.

If a pick 4 pool has a 20% takeout and $10,000 is wagered, $2,000 is withheld by the industry for purses and profits, and $8,000 is returned to bettors. This happens each day, and we’re all very familiar with these bets. Now, let’s change the mix and add a $5,000 carryover to that same pick 4 pool. For simplicity we’ll hold constant the $10,000 the bet usually attracts.

With a simple formula (where we divide the money distributed to bettors by the total pool) we land on an effective takeout rate. In our example - with the new money added - the takeout is no longer 20%, but negative 30%. This means there’s 30 cents of extra value for each dollar wagered. In gambling parlance this is called a positive expectation pool and it’s the holy grail for wagering customers (for any game, not just horse racing).

When a carryover is offered, time and time again we see handle increases as bettors chase this value. 

Although carryovers and their efficacy is a relatively new concept here in North America, overseas they’ve been around for awhile. In Australia, for example, it was mandated by law that blended takeout rates could not exceed 16%, and any revenue over that level had to be returned to customers. To return the surplus betting cash they created a 0% takeout pick 4 called a “Fat Quaddie”. Australian pick 4 handle - usually in the $200,000 range – vaulted to well over $2 million in some Fat Quaddie pools. Australia is a more mature gambling market than North America’s, so taking advantage of positive expectation pools was old hat for customers.   

The reason the industry sees such massive inflows of betting capital with carryovers, but much lower volumes with guaranteed pools and jackpot carryovers, is precisely for this reason. Guarantees are often set below what a pool usually brings in, and jackpot bets (on non-mandatory payout days) have high takeout. In other words, carryovers have pool value, guaranteed pools and jackpot wagers do not.  

The second reason carryovers have cache in the horseplayer world has particular relevance to harness racing: carryovers increase pool size.

It’s no secret that unlike many Thoroughbred tracks, harness racing pools are smaller and less viable to bet into. It’s a problem talked about over and over again at conferences or in track boardrooms across North America. Why small pool size is an issue is, again, illustrated with a little bit of betting math.

Let’s examine a pick 3 pool at a medium sized harness track; one with a pool size of $4,000 ($3,000 after a 25% takeout). If you want three 20-1 longshots on your ticket, the parlay payoff for that $1 bet is $9,261. If you bet into a pick 3 pool with your three 20-1 shots - and are lucky enough to hit it as a single ticket - you are paid only $3,000. This is a ridiculous wager for anyone to make, and dedicated gamblers will not enter the fray.

What happens if we add a modest $2,500 carryover to this pick 3 pool? As this chart below shows, the bet or don’t bet decision changes.

Any carryover pool should at the very least attract money to the 0% takeout level. In this case, that’s $10,000. Now the bettor’s 20-1 three horse parlay can pay 10,000-1, and he or she may choose to pull the trigger. Pool size and carryovers work together, and feed off themselves through this synergy.

At this point perhaps you’re saying, “that’s theory, but show me reality. Is handle being increased? Do carryovers work in Canada and the US for harness racing?”

With carryovers occurring with some frequency, we do have some data.

In February at the Meadowlands, a $25,000 pick 5 carryover brought in $171,000 of new money. A week later, over $200,000 in new money was bet into a $38,000 pick 5 carryover. Pick 5’s of this size are on par with what many large Thoroughbred tracks achieve.  

No doubt everyone in the harness racing industry is well aware of the super high five mandatory payout pools Woodbine has offered a few times a year. An almost $550,000 carryover produced over $1.4 million in new money, just last month.

Because Canadian harness racing houses several smaller tracks with modest handles (and they’re not going to have $30,000 carryovers, or $500,000 mandatory payouts), Pompano Park is probably a worthwhile empirical example.

This past January, a $3,400 carryover in Pompano’s 12% takeout pick 4 pool brought in $35,000 of new money. 

In February, a very small $1,500 carryover enticed a total betting pool of over $19,000 for a super high five wager.

In March, another super high five pool’s $3,900 carryover attracted over $32,000 in new money.

Overall, carryover amounts have averaged approximately $4,200 at Pompano this winter, and they’ve spurred an approximate $25,000 average pool size. This pool size is about 400% higher than their average in non-carryover pools.

“Regular customers know that carryover pools can create great value. We have experimented with our wagering menu the last few years, and some of our bets have produced carryovers. When we offer added money there’s a real action and buzz surrounding the card – both on social media and in the grandstand - and our customers respond with their dollars,” noted Gabe Prewitt, Pompano Park’s Director of Racing.

Pompano has been on a bit of a run of late. Handle has grown from $29 million to $61 million since 2014.  

“Our carryover pools have definitely been a part of our handle growth. We’re on more horseplayer’s radar,” Gabe added.

Beyond the obvious handle increase, there are additional accretive benefits to carryover pools. A study by Jeff Platt of the Horseplayers Association of North America recently looked at the benefits surrounding the promotion of the California Players Pick 5 at Santa Anita, with 14% takeout. Although not specifically carryover related, Jeff examined the races which comprised the pick 5 and noticed that with more eyeballs on that one value bet, all pools increased. At the now defunct Balmoral Park, they too noticed this phenomenon when they lowered takeout on their pick 4 pools.

In addition to attracting new money and adding handle across the races that make up the carryover pool, there are other positive benefits.

Ed DeRosa, Director of Marketing for Brisnet.com, notices strong interest across his company’s handicapping product division when a carryover is announced.

“Non-jackpot Carryovers are a marketers best friend. As someone who works for both racing information and wagering websites, I can attest that telling our customers about carryovers gets them to buy more information and wager more with it,” Ed noted via email.

Having more people involved and interested in all facets of the product is what marketing is supposed to do, isn’t it?

By now you may agree that carryovers can be a good marketing avenue, but how is one manufactured; they just happen sporadically, right? That’s true, carryovers do take some serendipity to occur, but they can be easily created, by seeding a pool.

Seeding pools – tried before with some success in Southern California – work exactly the same way as a carryover. A track, not the customer, supplies the $3,000 or $5,000 for the carryover and places it directly into the starting pool – whichever pool the track chooses. This creates an ‘instant carryover’.

Once the seed amount and pool are chosen (and this step is very important) this information then needs to be filtered through the usual carryover channels. For an added boost, the bet may be advertised via Woodbine’s HPI Bets hub, and through some American mediums, frequented by customers.

You now have a carryover. You have a viable betting product to promote.

This system will clearly take planning and foresight, a budget, and some testing. Without that, seeding can work sub-optimally, and without a doubt Grand River is not going to seed $1,000 in their pick 4 tomorrow and have it fly off the virtual betting shelves. The track, race, day of the week, seed size amount and pool will all need to be experimented with to see what works best. Field tests have to occur and all hands need to be on deck in a professional way. Success, if achieved, will likely take some time, but both the theory and empirical results are sound.

Perhaps the most exciting characteristic of this marketing spend for the industry itself is that it’s measurable and supplies an immediate return. As the chart below shows, for a $5,000 seed, revenue to bet takers and the track is break-even at the $25,000 inflection point. For the track alone, the break-even handle amount is higher ($62,500), but with benchmark setting and testing, this is probably attainable. 

We hear a great deal about marketing harness racing. Often times this involves thousands of dollars in giveaways, free parking, or radio and TV ads. Instead, why not create a pool of marketing money and use it to invest directly into customers. If the goal of marketing is expanding reach, getting more eyeballs on the Canadian harness racing product, encouraging the download of handicapping materials, and increasing handle (that provides a measurable return), seeding pools seems like an interesting and viable option. 

This article originally appeared in the Industry Issue of Trot Magazine via Standardbred Canada. 

NA Cup & Assorted Sunday Stuff

Happy Sunday!

Last night's North America Cup was a pretty neat affair, with Captain Crunch getting the job done in a super-fast 147.2. The strapping son of Captain T was the best horse on this night and he paid 7-2 after last week's shadow jump. We don't see that very often.

Although the tarmac didn't look crowded and the weather was not the best - as we've seen almost all year in the Northeast - bettors slammed $3.8 million through the windows. That's a good number.

On the curious side, Woodbine (as I understand it) pays TSN a few dollars a year to show some of their major stakes, including the Cup. At the scheduled time, the coverage was preempted by the CFL game going over (the race was joined after the post parade). What flummoxed me was TSN has five channels, and had the CFL game on three of them. I'm no TV exec, but it seems to me one of the channels could've shown the whole show? It feels like someone dropped the ball.

Woodbine (and Ontario) implemented some pretty draconian whip rules on June 3rd and it was bad for the chicken littles. No, handle didn't tank (it was up), no the horses didn't go slower (147.2 was a track record), and no, no one complained. Although the drivers probably have some work to do with the "wrist action", last night went off without a hitch.

There's a lonely place in horse racing - those of us who are mostly agnostic on the lasix debate.  Although I think looking at things in a more fatalistic manner like this often often opens up the forest and the trees, it's difficult to share this more opaque opinion. In all my years of writing I have only been (more or less) questioned for an opinion piece twice - once because I was too middling on the lasix topic because I focused on the positive arguments from each side. I don't think that's the way it should work. In the end, I doubt anyone comes to a meeting of the minds on this issue, but one thing I do know - whatever happens, horses will race and the game will go on.

I'm watching the U.S. Open this weekend, and I'm trying to figure out if my lack of interest in it is because most of my bets have sucked badly, or it's something else. I'm leaning to something else.

Branding means a lot for an event, or business, and the Open's branding is a brutal golf course with a score near par. Maybe that's unrealistic, and it does often result in some pretty goofy stuff, but it is on brand. This year the players love the set up - I hope so, the leader is at 11 under and the cut was +2 - but the rank and file fans are restless. When you are conditioned to see something and it doesn't happen, it sticks out.

In horse racing parlance it's kind of like half of the sport's reaction to the Derby DQ. You expect to not see a DQ in the Derby, and when you do you're gonna hear about it.

Have a nice Sunday everyone.

With Horses, We Can't Play Horse

Last evening the Toronto Raptors won the NBA Championship. This run has amazed me like no other, because the entire country has had basketball fever. Last night there were 59 "Jurassic Park" viewing parties from the tip of Newfoundland to Vancouver Island. This included one in my small northern hometown, where my high school roundball team could muster but 9 players, and we'd have to juggle hockey and basketball in the winter (and you know what came in second place).

When Vince Carter came to the Big Smoke it was a seminal moment for basketball. With his (and the teams') success, kids started playing more, and a dozen or so years later more and more NBA players were being drafted from Canada. This win feels similar. More and more kids will take up the sport, it will be marketable, and it's a real sea change. It's how a sport grows.

We saw this in a similar way with Mike Weir. There are four or five Canadians on tour, and most of those kids picked up a club because of his Masters' win. In fact, in today's U.S. Open, probably the entire rest of the field under the age of 25 picked up the game because of Tiger Woods.

This is what, I feel, many believed might happen if 'horse racing had a Triple Crown winner.' The column inches around such an event would be the catalyst for the sport to be more watched, expand, and grow.

We all know now that didn't happen.

When we're dealing with horses, sports marketing is different. They're animals, and the public is smart enough to know animals are winning the races, not the Kawhi Leonard or Kyle Lowery, doing the training or riding. We can't speak to horses, we can't be horses, and the sport can not resonate in any stretch the same way.

This game is a different, pardon the pun, animal. As much pushback we get for saying it - it's not really a sport. Racing is, as my friend Erik Poteck calls it, gambletainment.

Horse racing should not try to be like other human sports and hope for some sort of renaissance moment - a moment when an entire country stands up to take notice, changing it forever. It simply needs to try and improve incrementally, like a business does.

It needs to increase attendance by being a good business; improve the bet by doing things that increase the bet, not lower it, as is so prevalent the last dozen or so years. It needs to pay attention to the changing public view of animal welfare. It needs to dot its i's and cross its t's when it comes to governments.

Horse racing focusing on itself as an entertainment business first should always be the priority. There's simply no other way to exist.

Triple Crown Handle Thoughts

As reported by Matt, the handle for the three Triple Crown races this year was once again solid. The Belmont card was down precipitiously, but with no Triple Crown on the line that's expected. It was up around 9% from 2017, under similar circumstances.

We've spoken a lot about the handle on the bigger more promoted cards over the last decade. It's a topic that I find never uninteresting.

Population growth has assured there's a bigger pool of eyeballs on big events, and certainly horse racing has felt that. The attendance for the "party" might not be of current Jurassic Park levels (seriously, they were camping out yesterday to get in), but it's formidable.

In addition, with shorter fields, fewer good betting races and a contraction overall of the sport, the big days take on new meaning for bettors. Despite Saturday's Belmont card which I found kind of horrible to wager, it's better than your average Saturday. People are simply drawn to bigger pools and more potential value to make money on an opinion.

On the PR side, the big days are, I feel, important because politicians and others watch them closely. If you can shoot a cannon down the tarmac while giving away millions of dollars it resonates.

Having said that, I do wonder about just *how* good it's going when compared to a baseline.

First, the sport has added outlets over recent years. TSG is very aggressive with their product and overseas markets, I assume Twinspires and others are similar. Racetracks are exporting a signal like never before. A common metric for retail is same store sales. Without an increase in outlets, what's the handle?

Second, Twinspires and Xpressbet have been growing, but they do sink a ton of money into promoting their ADW's (as they should) during the season. The ROI on this spend is likely not fantastic. Is the sport spending a ton more to get handle for these days, where the marginal cost of the handle is too high?

Last up, more choice. I hate using the cheese analogy, but it fits so well. General Foods repackaged their cheese and presto, they sold more cheese. The tracks have added more bets (futures, cross day pick 6's, doubles, etc) and this brings in more money (to a point, of course).

I don't doubt that bigger days are bringing in more handle, and that handle is ROI positive for the entities. However, like with any number, it pays to dig deeper. What of the increase is due to an increase in the popularity of the Triple Crown races versus some of the items I've outlined above? It's something we will probably never know.

Have a nice Monday everyone.