Why Do Rebates Work?

I remember back in my mid-twenties, an associate and I had a good idea (well, more accurately we thought it was a good idea) during the dot com phase. We brought this amazing idea to a finance person at a brokerage where we learned pretty quickly we lacked a big, big part of this good idea being good - scale. It just could not scale. We naturally (and rightly) didn't get any money.

Most big businesses, certainly national ones, need scale. It enables the small to grow, the medium to grow large, and the largest to stay on top. 

If you consider you and your betting a side business, it needs it too. 

I sent over a few of my wagering numbers to a betting friend recently. The stats showed high volume, less than 1.00 ROI, but a total profit after rebate. He replied, "you should cash more tickets." 

That's really not bad advice at all, on the surface at least, right? In fact, it's advice many businesses use with those kinds of numbers. When the margin gets thin you trim the fat to grow. You spend less on marketing, labor costs and business investment. You descale. 

Similarly, how does one cash more tickets? By being more selective; by reducing your track array; by plucking low hanging fruit; by studying and handicapping more; by betting less. 

Rebates - and let's just call it what it is, lower takeout on your wagers - work because they allow us to bet more. They allow us to scale. They enable us to look at that small harness track we'd never play; to wager on the Santa Anita pick 5, expand our menu, get better at our craft. This is why when they were first implemented, handle exploded. 

Racing demands we -  almost daily with rebates less available to average Joes and Janes and things like the Woodbine Winners Tax - do the opposite nowadays. They demand we bet less; that we descale. 

What we're left with are players who are being selective, trying to pluck ROI like finding an elusive prize, along with a general public playing on weekends or bigger days, while being lured with sports betting and other pursuits. 

Rebates and lower takeout are not a panacea, a fix for everything, some pot of gold at the end of a rainbow. But they do allow players to scale, and when players are scaling they're betting more; they're more engaged. And that's vital to every national business, which racing is. 

Have a nice Wednesday everyone. 

Sports Betting's Investment Trajectory (and How it Hasn't Looked Like Racing's)

 Legal Sports Report detailed the $3 billion betting month in October, highlighting state by state growth. As more distribution is added - just like a retail chain building new storefronts - handle follows. 

Of particular note in the article was the state of Colorado, which began in earnest in October. In its first month of operation, $211M was taken in, with a hold of about 8%. The resulting revenue was eye opening for one big reported reason: the Promo spend. 

Colorado is allowed to deduct promotional and marketing spending from revenue, and that promotional spend totaled $7.2M or 41% of total revenue. 

So, they added new distribution, and they allowed the businesses who bring the end product to the user to spend (at their discretion) almost half of total revenue to capturing new customers. 

As we wrote about recently, this has not and is not the experience with ADW companies, or  the sport of racing itself. In it, the distributors are often asked to pay more to purses, as their margins shrink, and they have been since day one. I won't even mention how with sports betting, increased "stores" as points of sale are welcomed, whereas in horse racing they pretty much aren't. 

Sports betting has done quite a bit right since being approved. They've priced the product well, (mostly) avoiding the pitfalls of -130 lines or other such nonsense; they've opened "stores" and governments have allowed the market to thrive through free enterprise; the sports betting entities themselves are sinking as much as half of their revenues back in the business, to attract customers. 

It should be no surprise that even at this nascent stage they're jamming through $3B a month. 

On the flip side, despite a granted monopoly on online wagering since about 2006 (along with billions of slot revenues), racing never invested with the customer in mind in the same way. 41% of of revenues into growing the top line customer base.... this sport it's likely less than 1/20th that number. When you don't invest in the customer, one day you wake up and find you don't have any.