Buying Customers Can Be Risk On or Risk Off

 I saw this tweet today:

JUST IN: Penn has completed its 100% acquisition of Barstool.

THREE years ago, they bought 36% for $163 million, acquires rest for $388 million.

To buy Barstool for $551 million is a ridiculous steal, though Penn's strategy of converting by advertising less hasn't proved out.

— Darren Rovell (@darrenrovell) February 17, 2023

$551M, according to this tweet, is not a whole lot of money, and in the practice of buying potential customers it really isn't. With low interest rates and inflationary markets, return on investment for this kind of purchase can be positive in the space. 

But what does $551M buy you? Access to a pool of customers that might wager with you (or might not). None of it is remotely a given.  

Flipping the layers of the onion back to around 2008, there was much discussion regarding betting and exchange giant Betfair. This company, at the time, reportedly had $3B on account - not for Barstool shenanigans but on account, being bet and churned. Not only did racing entities not even approach them, they resisted even speaking with them when they advanced ideas for partnerships. 

Some in the business began to see strategic partnerships over time. I remember presenting at a gambling conference in 2010 with a Betfair founder, and after the session some were discussing presumably exactly that. But from what I heard, it never went anywhere and just withered on a vine. 

Customer acquisition techniques are sometimes completely boneheaded. Overpaying for customers, especially in a new market sorting itself out can be a feature not a bug. But racing groups tend to never even partake in discussing them. Customer acquisition for thee and not for me? One thing for sure with that strategy - you'll end up with fewer customers. 

Notes:

The time you've been waiting for starts tonight - well for CJ and his lovely wife and maybe four others of you - the Women's Curling Championship! The field is stacked and I could see some betting value happening in this nascent betting market. Remember, prices are priced before last rock is awarded. In the women's game, hammer first end wins at about a 64% clip, not appreciably lower than tied with the hammer in the last end (69%). Curling is fun!

The NFL coaching carousel tends to make me chuckle at the end of the season. The staff from teams who win are always sought after, while great coaches on teams that overachieve (or who won last year or the year before) aren't even talked about. The NFL wants Chad Brown to coach their team because Chad won at 25% with stock who should win at 25%. When we pick trainers we are looking for those guys or gals who do more with less, or in mathy talk, win over expected. 

I have not watched the Derby trail closely (and to be honest, I rarely look at it near as deep as most). However, I think sports betting has played a role in this for me. I wager football, and now with the Masters around the corner I have begun to look at a little golf. I know most people will be ready for the NCAA's next month (I don't wager that), so there's lots to play now. Has horse racing lost market share? Probably, but handle is still decent. It's resilient that's for sure. 

Have a nice weekend everyone. 

Horse Racing Judges > NFL Officials

In the Breeders Cup Classic the chalk is leading, and sweeping from mid-pack comes the main contender. During the big move, a 42-1 shot is a bit in the way, and it gets close, where the jockey jerks the fading equine's head. Then we witness what we came for - an Alydar, Affirmed IV, and we're not disappointed. It's a tooth and nail fight to the finish between these two great horses. It's a race we'll always remember. 

What doesn't happen after the finish? An inquiry sign, despite a "foul being a foul", and yes, technically in the rule book it probably was a foul. 

Meanwhile, in Super Bowl 57 one of the best season finales is happening right before our eyes, and the judges, well, don't do that. 

In case you missed it (how could you, the game is kind of popular, but I know Marcus Hersh probably did because he doesn't like the football), an Eagles defender tugged on a sweater, which is a foul. But it really had absolutely had nothing to do with the play. It wasn't a quick slant where a tug or spin can be everything; it was an out and up, and Patrick Mahomes overthrew the ball by like sevcn yards. It was a big nothingburger. 

Despite that, out came a flag and not just any flag. Defensive holding comes with an automatic first down, which effectively ended the game. A guy with a part time job in the offseason arguably decided a Super Bowl. 

Leaving aside these tugs happen a lot during a game and aren't called. Leaving aside there was offensive holding on exactly the same play that the ref didn't (rightly) call in that situation (or any situation all game for that matter), because the edge rusher wasn't going to sack Mahomes either way. The ref called interference on a slight bump to a 42-1 shot backing through the field, because he decided to be capriciously technical. 

We lament and complain about horse racing judges a lot.  But they have what NFL officials do not have - some common sense. If a horse is not materially affected by interference - interference that that would not change the outcome of the race - they generally let it slide. That's a good thing not a bad thing, and the NFL could learn something from them. 

Have a nice Monday everyone.  

$16 Billion in Super Bowl Wagering Suggests Churchill Downs' Derby Model is All Wrong

The U.S. Gaming Association says they expect this Sunday's Super Bowl to result in $16B in handle in the United States alone. This wouldn't include handle from a place like Pinnacle, where early this week they were accepting six figure side bets already (during the regular season these higher limits are much closer to game time). 

This is a huge number - higher than many would think only a few years ago when these estimates were harder to come by. But, with 99 million people in the US watching the big game, each person having a little money on it doesn't seem that surprising. 

How did they do it? Most of it is probably obvious, in my view. Sports betting has a hundred years or more of history in the US, and ten cent lines kept enough people active and enjoying the pursuit. Add casual fans now being able to get down a bet easily at say a FanDuel or Draftkings (and dozens of others) and we have a real humdinger. 

What sports betting has also done is expand offerings. Prop bet volume will likely be an all-time high again this year. As we know from business, when a soft drink or chip company adds new brands, gross sales go up. 

Meanwhile back at the ranch, or er barn, The Kentucky Derby has had some growth, and last year $179 million was bet on the Derby alone. That number is paltry compared to the Super Bowl you say, and surely it is. But it's horse racing, not arguably the most popular sport in the rich western world. Maybe racing should be satisfied with it. 

I think that's a bad mindset. 

15.8 million people watched the Derby last year, not including whacks of us watching the track feed at home or on-track or in simo-centers. Those 15.8 million people generated about $10 in handle each. The Super Bowl will generate about $160 per person. 

Churchill Downs, as most of racing, likes to protect their offering for a race like the Derby. It's not uncommon in any business who loves protectionism, but like any form of it, gross volume suffers. It's the quintessential larger piece of a small pie phenomenon. 

What if Churchill Downs finally opened this race up? What if they allowed everyone to offer different kinds of chips and soda, based on what customers respond to? What if Draftkings and Fanduel were allowed to offer futures (at their customer-driven price levels, not racing's which are top-down), and head to heads, and win betting, where their millions of customers could turn on NBC and make wagers simply and easily in real time like they do the Super Bowl? Would Churchill make even more money as these new customers bet the undercard, or take shots at a pick six?

What if they took this page out of sports betting. Could in five years or ten years Kentucky Derby handle be $1 billion? Would the other Triple Crown races follow, along with television ratings? Would the sport have more of a chance to grow as people are introduced to the betting side? With $1 billion in handle, would the sport be more popular? 

Maybe it would. But with the current Churchill model of protect and exclude and harvest, I doubt we'll know the answer to this question. Expand and conquer doesn't seem to be in the horse racing playbook. 

Have a nice weekend everyone.