Understanding

I stumbled upon a letter to the editor recently while looking for something else. It was in response to a TDN article, where the splits between ADW's, host tracks with other live venues, and OTBs were explained. The explanation was looked at from the demand (customer and handle growth, and determinants of handle growth) side, which tends to be rare in the horse racing industry press.

It looks self-serving to share it here, but alas, I think it shows something really important, so I do.

I often use the example that I don't know how to change a piece of equipment on a horse, I don't know when my colt needs Gastrogard, or Legend, I don't know what to do with a presumed bone chip, how to train the horse back, or what to do with a new feed on the market. That's what we, as owners, pay people for. We should never expect those people - those with a specific skillset - to understand Lifetime Value functions, churn variables, elasticities, return on ad spend, or seller-reseller dynamics.

The problem is, for horse racing, and betting on horse racing, that's who is in charge of understanding such things. They veto, or green light a Churchill Downs takeout hike, a California betting menu change, who gets and doesn't get a signal.

Jose's letter was something I found very interesting, and it made me smile. He, unlike some of the people who represent him and make decisions for him (in horsemen or owners groups) is saying "help me understand how we grow the bet, because I don't know."

Horse racing, and its growth or continued decline, will probably be based on policy change that is focused on demand factors. When those - owners, trainers; people a part of the IHA - have a better understanding of the issues, at least the sport has some sort of shot.

The next time you see a horseman say "I want to raise takeout to increase purses", or "we should charge 25% for a signal" remember, it's not their failing. It's the failings of a system.

Hambo vs. Haskell. Two Strategies, Only One of them Sustainable

This weekend, the Hambletonian is being contested, as part of a big stakes weekend at the Meadowlands. This is hot on the heels of another big Jersey weekend, where American Pharoah won the Haskell.

The Hambletonian, as a stand-alone event (much like say a Derby) will have a huge attendance and decent handle no matter what. If the field was comprised of claimers, the card was mediocre, there would still be a handle floor. Just send a couple of press releases out about the horses, and that's that. Most bettors would say this is exactly the method of operation in horse racing, and it has been for some time.

This year the Big M's first major press release didn't mention a horse. Or a driver. Or a Triple Crown winner, human interest story, or who won the race in 1935. It was about the bet.

"Great Betting Opportunities" was the title, and it talked about:

"Friday night kicks off the racing for the weekend and it begins with a bang, a carryover in the $.50 cent pick five of $29,460.76, covering races one through five on the program. Historically, a pick five carryover of this amount has resulted in well over $100,000 in "new money" into the pool which equates to a negative takeout on the bet."

As for the Super High Five mandatory:

"This pool will be offered at a takeout rate of just 8-percent (8%). This guarantees a negative-takeout on the wager on Saturday. For example, if $1 Million of new money were wagered into the pool, the 8-percent takeout would leave a net pool of $920,000 added to the carryover of $231,403.14, yielding a total pool of $1,151,403 despite only $1 Million of new money being wagered into the pool.
The scenario results in a net takeout of negative 15-percent (-15%). Historically, a carryover pool of this size in harness racing has resulted in anywhere from $1 Million to $3 Million in new money wagered on the day of the mandatory payout."

After years of tracks doing little of the sort, doing little about thinking of the bettors on big days (in fact, likely doing the opposite, as signal fees and other takeout rates have been hiked for "big days") more and more (smart) tracks are leaning towards thinking of customers. And trying to talk to them about the value in playing on that "big day", not just coming to get the kids' faces painted.

Hambletonian Day and weekend will set a wagering record, with little doubt.

Last weekend at the Haskell we saw things a little different. There was no carryover, or mandatory payout. But they had American Pharoah. Handle was up, as expected - a Derby winner drives good handle and a Triple Crown winner, on National TV sure should - and attendance was too. But that reported attendance of close to 61,000 (that may be fudged) resulted in an on-track handle of only $48 per capita, down from $70 last year.

Which method of handle generation is more sustainable? Which one might get someone interested to support the sport on a weekly or bi-weekly basis? The one where a newbie says they saw a Triple Crown winner and they'll come back to see another big race if it happens, or the one where a newbie says "explain to me this negative takeout thing. It seems like a good deal. Show me how to take a proper ticket."

There's always been a prevailing thought in the annals of racing: It needs a Triple Crown winner, it needs to be on TV, it needs to be in newspapers or on the cover of Time magazine. If only that happens, people will come to the track, come back, and the business will grow. Well, converting those people has been (and will likely end up being) cost ineffective, and small in number. It's like asking someone to enjoy the biathlon in the Olympics on TV and then start learning how to shoot and ski. It's hard.

What's not as hard is promoting what you are - a betting game. Give newbies value - attack the mindset that racing is for suckers and keep your money in your wallet - give them something to get interested in. The ones who enjoy mental pursuits, maybe bet before but got out because they never win, or have a general interest in numbers might just give the game a look.

This stuff doesn't need to happen every 37 years. It can happen every day if the industry is willing. 

Have a nice Wednesday everyone.

The Serendipitous American Pharoah Experience

By now you know, (unless you are on the blog by accident searching for pulled pork recipes, or were vacationing on Mars) American Pharoah won the Haskell on Sunday.

Before the race, some who called the race a slam dunk for the Triple Crown winner probably missed the fact that Keen Ice (he who raced sneaky good in the Derby and was moving well wide in the Belmont closing to be a good third), Upstart (an early Beyer sensation and quality animal) and Competitive Edge (the hot wise-guy horse for the Preakness that some thought would beat Pharoah at Pimlico if entered) were all in the race. Or maybe they just knew something. If you've seen a more impressive performance in a $1 million, $1.75 million race let me know.

After the Triple Crown, the narrative that AP would be retired to preserve his stud value - then, likely at its zenith - was making the rounds. It was not based on a deep dislike from fans for horses retiring early, it was reality. Fans are pawns for the breeding game and have been forever. But that didn't happen, due to an interestingly written stud deal where the majority owner of the horse for racing purposes benefits when the horse races. The breeding farm, who ended up getting a good deal, takes most of the risk.

This potential economic risk for Coolmore (Pharoah racing poorly, as happens so often in this game, reducing or holding his stud value) didn't happen on Sunday. Remarkably, that performance, so dominant, so impressive, so other worldly, so magical, probably enhanced his stud fee by ten, twenty, thirty or forty thousand. The value of the horse went up, by racing him in the Haskell.

Because of the stud deal, coupled with the soundness and durability of this glorious animal, it looks like he will race in potentially the Travers (where, as talked about by Sid Fernando, via the SI piece, it makes the most hard dollar sense for the owner), and the Breeders' Cup Classic.

This whole experience has been extremely unique, and very serendipitous for fans, and the sport itself.  It's one thing to have a horse win a Triple Crown, which is obviously extremely hard to do. But then, you have a horse who goes through that grind and comes out the other end good enough, sound enough and sharp enough to race again. Then, the stud deal was written in such a way that racing the animal makes the most hard money sense for the majority owner who controls his schedule. It's like knocking down three bowling pins at the State Fair that were nailed down. The above just should not have ever happened.

Horse racing has always been defined by having faith. Faith that somehow a yearling becomes a Champion. Faith that your horse will have the luck, that serendipity works its mystical magic for you, with the sports' fans along for the ride. This horse has had that perfect storm, and the sport - the column inches, the attendance figures, the buzz, the general enjoyment people have from watching great animals bred to race, not bred to breed - is being touched by it right before our eyes.

For fans, the owner, the connections, the stud farm and just about everyone else associated with American Pharoah, it's been a superfluous superfecta of good fortune. Let's all hope it continues.

Enjoy your Tuesday everyone.