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.
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