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.