Finding Value in Racing is Tough, but it's There

I found Chris's latest pod with Dennycaps interesting for a number of reasons; one of which was the dive into what pools at what track might be more valuable to look at. 

Last night at Mohawk the pick 5 pool in race was stout, approaching $100k. For most of the betting, including using the exotics, there were two contenders in leg one, the four and the six. Implied odds suggested the four would be around 7-5 and the six around 2-1. 

At the gate, the six was 9-2 and the four was 4-5. Expecting things to correct, the overlay on the 6 appeared not real. 

But it was - in the win pool at least. He won and paid $11.90. 

Just how much of an overlay was that in the win pool? The horse took about 25% of the pick 5 money (suggesting about 2-1 odds in multis). And get this, this $12 winner kicked off a daily double with the winner of the second race that paid $8.90. 

On bad field nights at Woodbine the overbets can be really overbet, and the underbets underbet. 

This pick 5 had a mix of both. A $12 winner onto a $3 winner onto a $3 winner onto a $13 winner onto an $18 winner only paid $440. It could've - on other nights - paid three or four times that. 

According to multi leg wagers the first race winner was a massive overlay. The 4th and 5th race winners were, too. $20 to win on each of those got you back $430. Spending $60 on pick fives and locking them up gets you back $264 if you hit it for 60 cents. 

With the late odds usually highly correlated to multi-leg wager payoffs we might've expected these horses to pay much less. So it's still really hard game. And yes, the pools are fairly efficient. But as Denny noted in the pod, they are not perfectly efficient. Last night at Mohawk sure proved that. 

Have a great weekend everyone.

Where's the Nuance in the Public-Private Horse Racing Space?

I've been reading the narrative on twitter (from some thoughtful observers) that the space has gone from one end to the other. Namely, several years ago you would be flamed or doxxed for saying something negative about wokeness even if it was not the least bit controversial; now if you state an opinion that's even remotely positive about a slice of DEI (or what have you), you receive the same vitriol from the other team. 

That's social media and not the real world you may say, and I suppose you're right. But when it comes to horse racing, I think the same exact thing is alive and well. 

How does a track go from flush with slots money, living the high life, to "decoupled" like Pompano Park?

How does Arlington go from a jewel of horse racing and million dollar races to a parking lot, with nothing to replace it?

How is it, as we appear to see now at Gulfstream, that the track goes from running a bazillion races a year, supporting an entire industry in a state, to what seems to be nothing?

There's no either/or - it's flourish, or deader than a doornail. 

I don't particularly understand the Gulfstream issue. As you see in the Bacon Report and in other places, the supply side of the sport in Florida is strong, and thousands of people are employed in the business (and the track does handle). Why are we either/or here? Where's the nuance to protect that industry in at least some form?

I'm not a big corporate welfare fan, but transitioning money is important for any industry when the rug gets pulled out from under it (whether than be for real estate money or slot money).  Where's that plan? 

Some jurisdictions have done things with nuance. 

Ontario for example went from high on the hog to having the slots at racetracks program cancelled, and that completely could've killed an entire industry. Because the government and racetracks worked together, a plan was consummated. The King's Plate and North America Cup and breeding programs across the province were saved with an influx of capital. In return, several tracks were shuttered, or remained slots parlors, adding to the government's coffers. 

This program was signed-on for the long term, so owners, breeders and trainers and jocks were able to have some sort of certainty. 

We often complain that the industry didn't do enough with its good fortune when they had good fortune, and that's very true. California might've had the nation's biggest and best betting platform when exchanges were given as a monopoly to them. Kentucky Downs is flush with cash and raises takeout for some god awful reason. Pennsylvania slots cash came into the billions and they still had 30% juice. The list is endless. 

But when the good fortune gets pulled, most industries are granted some grace. Horse racing, through its dearth of leadership, lack of foresight or whatever, doesn't seem to live under that same policy.  Like we've seen on twitter the last five years, it's one side thriving or dying. There's no in between. 

Does Racing's Revenue Response Ignore the "Little Things"?

I read a story on Dave's Hot Chicken recently, and it more than just made me hungry (I've never heard of Dave's Hot Chicken before). 

The brand was started by four friends in LA, and a quarter of their 270 stores reside in the Golden State. As many of you likely know, California raised their minimum wage to $20/hr, and Dave's and other fast food brands had some choices to make. 

They set up emergency calls with all franchisees and went to work almost immediately. They had to cut costs, and find ways for customers to spend more money (because they had to raise prices, and higher prices mean lower sales).

Here's what they came up with, in almost real time, with all of these changes implemented within months.

On the cost side:

• They invested in automatic dishwashers instead of cleaning dishes by hand
• They contracted out cleaning work
• They shifted prep to contractors
• They installed grease systems that were automated and were able to reuse grease

On the revenue side they did increase prices (8%; to counter an $8M labor cost increase), but they did quite a bit more than that:

• They implemented self serve kiosks, and found out customers ordered more when ordering for themselves, upping spend per order (in betting parlance, churn). 
• They created "Hot Boxes" and new packaging to increase order size, and gross sales
• They created low-cost menu items like single chicken orders for $7. 
• They added new products

The CFO said "there's a lot of little things"; the CEO added, "We can't just raise prices, we have to get better."

All of those "little things" (absent price hiking) has increased the bottom line per store by about $200,000 per year (guesstimating here based on my knowledge of that vertical, that's about 5% of gross sales). And it happened with lightning speed. 

Over in racing, the response to falling revenue has been primarily twofold:

• For the vast majority of players margins are increased (from 6% in 1905, to 21% now; ironically, CAW's are the only ones getting 1905 margins). 
• More alternative gaming is asked for

Some racetracks, like the Meadowlands which relies on handle, have cut costs the best they can. They run two nights a week for a reason. 

On the revenue side, as noted in part in HRU this weekend, has the sport even tried to increase in-store sales by maximizing the track feed? We still see races raced over top of each other, why? Where are the coupons and discounts to every day customers to encourage wagering and wagering stickiness? 

If Dave's Hot Chicken can spend money on kiosks, letting customers choose their meals, why can't customers get access to better tools to allow them to bet better or bet late like CAW's can? Hell, can we get a system to the point where a customer knows what the final price is? Where's the single wallet? 

Jim Collins' seminal work - Good to Great - noted how companies flywheel to grow. They do a whole lot of little things. 

Dave's Hot Chicken received an $8M kick in the ass that could put them out of business and in response immediately did those "little things". Our sport seems to get hit over the head with a plank on a yearly basis, and I don't get same vibe. 

Have a nice Tuesday everyone.