Racing's Skin in the Game

Good morning everyone. I hope 2021 is treating you better than 2020 did, and since 2020 was bonkers, maybe there's a good chance it's happening. 2021 is probably treating me better because I was finally able to get a procedure done that I had been long waiting for. It was fairly easy peasy, so that was good. 

But, one part of it made me acronymically SMH. You see, there are fees on most things medical up here in the tundra, and this one was no different; I owed $260, and my bill showed up in the mail. I have no problem paying the $260 of course, so I opened the invoice and looked for a way to pay. It doesn't mention online banking where we can pay just about everything, so I log into my bank and look for this payee. It's nowhere. 

Lo and behold you can't pay this online; in fact you can't pay by phone, or even by carrier pigeon. You have to put a check in an envelope and mail it out. 

The medical treatment was pretty good, but we're apparently still in the bloodletting phase of invoicing. 

How could this happen, considering so many have to pay for services? I suspect it's because the health services organizations get billions from governments and happily work those budgets; this $260 is a smaller part of it. Where a private company needs that revenue to pay salaries, and has to ensure they have an easy pipeline to get this revenue (i.e. letting you pay online), the government does not. Without my (and others') timely $260, everyone from the docs to the nurses to the hospital administrators still gets paid. There's no downside, there's no penalty. 

There's no skin in the game

In horse racing we've lamented similar over the years. 

You've often read this blog where we've postulated how much better the industry would be funded if it wasn't priced by margin, but by net profits. Online sports wagering as new states come on board - where we see TV commercials every six minutes it seems - has exploded as private companies chase profits, not margin. When you let companies chase profit, the consumer wins because they get the best products at the best prices, the company wins because they get to enact policies that help them - they have the skin in the game. And finally, the licensee (the state, or in racing's case the racetrack) wins, because they get more money. 

Perhaps the best example and more apt to my outside racing problem above is clearly slots. When you are going to get $1B per year for doing absolutely nothing, where you have no skin in the game at all, you sit and collect the $1B, and let everything else (like handle) go to hell. There's no downside when you have no skin in the game; there's no penalty; no one is getting fired. You're asking users to lick an envelope and send you a check and no one cares. 

Racing's system is entrenched. Uniquely so. And until it gets unstuck, until it thinks of new paradigms to fund itself based on incentives to grow handle and in-turn grow purses, it seems we'll all be licking stamps for some time.  

Have a nice Thursday everyone. 

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. 

Election Betting's Wild Ride & Notes

 Another year and another election is (almost) in the books. Like the previous two, I'll jot down a few of my thoughts for those interested (which this year seems more than usual).  As is custom, a disclaimer this is my opinion, and as we see with percentages changing two days later, opinion is all we have. 

I wrote in 2016 how confusing things are in modern U.S. election betting, and 2020 (as we'd expect 2020 to be) was even more so. It's vital for us - who are using the same data as a decision desk - to be able to portend what we're seeing in real time. That is, what happens in Viggo County IN or Jessamine KY, will likely tell us a lot, and we can extrapolate and model as other results come in. That, this year, was almost impossible; there were clues Trump was going to do better than estimated but they were just clues that were difficult to act on. You simply could not use this like you could in 2016. 

The Florida Domino

The big tell of the evening, that likely cost a lot of people a lot of money, was Florida. It's the first state that really doesn't have its head up its ass in reporting results. And those results were good for Trump. If we knew on Monday that Trump was going to run ahead of 2016 in Florida, we'd portend Georgia would be a 5 point or more win (and hammer at -180), we'd surmise he should be chalk, and we'd bet accordingly. That's exactly what the market did and it acted perfectly rationally. 

When the numbers that followed in the midwest - Ohio looking near exactly the same as 2016 (if you lost money on the fake-out with early results showing a 10 point Biden lead you surely will remember for next time), and Iowa looking +9 - the markets in Michigan and Pennsylvania followed. Again, as perfectly expected. When Wisconsin, which counts fast, showed the same results as last time, it was another arrow in the -400 Trump quiver. 

This election was looking like 2016, and because of recency bias, the markets probably overreacted, but to say they were 'wrong' is missing the big picture on what we do each election. 

Perhaps we can point to softer vote in Arizona as a big red flag, but think about it, if NV came in faster than AZ, Trump would've been even lower. Georgia, which *looked* softer than Florida, maybe was another caution point. I was losing confidence in some of the county data in the midwest (it was softer where Trump won razor thin margins) and acted accordingly (a good move), but it was not a big position. 

This year, Florida along with knowing what happened last time, drove the bus. 

The Case of no 100%'s

The phenomenon of this election was the case of no 100%'s. Early voting (that comes in late in some states, with the results in others, or early in others) generally assured we'd get no 100% reported counties and that was pretty deadly. Even decision desks and needles, which can be no help at all but built real time models with a team for many months, had trouble with modeling turnout, and what's left in said county from where. I was checking Indianapolis and area at 9:30 for clues to bet MI and WI and PA, but it wasn't even 70% in. 100's are our best friends, and with mail-in voting and otherwise, we were toast. 

Biden Value

For everything presented above, the value this time was with Biden, no question. Not because we were sure he'd win but because in 2016 the markets were anchored to the polls and this time they were anchored to Florida (and to a lesser extent Ohio and later Wisconsin, where Trump in the RCP average was down 7%, and it looked even). This, truth be told, was again pretty difficult to act on. Gennessee County in MI showed Trump overperformance with most of the vote in. Kenosha in WI similar. You'd want to pull the trigger, but you'd get close to 100% data that threw you for a loop. 

In PA, where I tweeted out Trump felt softer, again it was tough, but with Trump at -250 your value was with Biden, in my view. It was the only bet you could make. But if you want to bet 4 figures on that, you have a stronger stomach than I. Good on ya, you made a nice bet. 



I read a bunch of books on the 2016 election. In each of them I was struck by how damn smart Jared Kushner was - with data, with fundraising via the web and with his polling. I think I tweeted it out once and got dive-bombed by the left wing luftwaffe, but it doesn't make it less of a fact. I had read a week or so ago that whispers about internal polling from him and his team showed Iowa Trump plus 9 and Ohio Trump plus 8. I didn't act on it as much as I should. But with those numbers, we could forsee a Trump win, so maybe it's good I didn't. 

I like most of you, relied on the polls from the smart people (OH Biden plus 2, Iowa about tied), and those smart people in many places did not do well. This was my anchor at times and because I bet 50X more as the vote comes in than in positions before the vote, it might've been much ado about nothing. But I can't believe I had a blind spot. I'm sitting here giving more weight to Quinnipiac who had been dreadful since forever with Trump, and don't give weight to a guy I know is smart with this stuff, who co-created Cadre at like age 27. 

More money was perhaps to be made in the Senate and House markets (Collins RCP average minus 7, she won by 4, for example), but anchoring to the polls this time, like last, was deadly for your brain, and bankroll. 

With a normal candidate with less of a broad coalition the polls will be better no doubt, but wow, in some areas they were complete trash. 

My other blind spot this election was the size of the city vote, and just how big Biden's lead was with mail-in. It was difficult to model, but there were clues early this would be bigger than usual. How do I not up positions in MI, or PA on that? I simply missed it. 

Is there Meat Left on the Bone?

What struck me most perhaps on this election, is the normalcy of US sports betting and the number of people betting the election this time, rather than last time. When I was posting thoughts in 2012 I think most people blocked me because they weren't betting and I was going on about some obscure county that looked good for Obama. This time, like everyone was betting, and they are some really, really smart people. I'm glad these people weren't around in 2004 or 08 or 12, because the chances for profit would be a lot smaller. 

Back in 2008 I was playing the Missouri Primary at Betfair between Hillary and Barack Obama. I had precinct level data via the Missouri gov website in some sort of ASCI format. The vote came in and it was massive for Clinton - but it was virtually all suburbs and rural, where we knew she was super strong. Some networks were assuming it a win for her with these big numbers. 

But St. Louis had not come in. With some back of the napkin calculations, it appeared to me Obama was at the very least a coin flip. Betfair had Clinton trading at 1.01, yes, people just unloading positions. I took all I could - which was pretty sizeable at that time. About an hour later Obama had won, by a not insignificant 12,000 votes. 

In 2020 - that never happens of course. People are smart, they're engaged, and like in any game of skill, the implied probability will be near actual, not farther away. 

Having said that, if this was your first big betting election, I can stress - it's not usually this hard. One would expect states to be more like Florida in their vote (much of what we see with flash-quick results in Canada), and we won't have COVID issues changing just about everything that comes in. I am fairly sure the data holes will be plugged, which will make it easier to pick a winner, but maybe with no change in lesser value. 

Thanks for reading everyone, and have a nice Thursday. 

Summary of my bets (probably on my twitter feed, but since I am not selling anything, it's not like I am searching for them):

Trump (pre-COVID) long, January and February -105 average (for too much freaking money, but seeing the results this was one of the better bets I probably have ever made)

Iowa Trump -250 and later in the night -300. 

Biden +180 in October in GA (looked like a loss, but maybe not)

Biden -800 election night NH after some city results reported

Biden WI small as results came in

Trump Arizona, fairly large at I think -150, when the FL hispanic numbers came in. 

Biden 26-27 states at I think +375 or something

There are probably a couple others, but I have not gone through them all yet. I'll wait until it's over. 

About those ADW Splits ...

There was a discussion - and yes, I realize this is like a Christopher Nolan movie - about ADW splits on the twitter yesterday. It was spawned by the venerable Pat Cummings tweeting the following:

 "More of a share" has been the mantra for fiefdoms in this sport since about forever, so this is nothing new. But one thing that bothers me (and I know most of you, too) is that when you're not building wealth, or growing, taking more of a share can end up degrading wealth creation and growth, and no analysis in this sport ever seems to take account of that. 

If an ADW makes $50,000, this analysis contends that if you take $40,000 of that $50,000 for purses, nothing will change. We're applying single variable conclusions to a multi-variate problem and it can be very maddening. 

In the ADW world, gross margin is made from the takeout minus the host fee (along with several other fees). For simplicity, let's say net margin for the Acme ADW is 5%; that means if $1M is bet, the ADW takes home $50,000 for their business. Of that $50,000, $30,000 might go back to you, the customer, to encourage you to play more and stay a customer of horse racing; a portion may go into marketing for customer outreach; a portion to promos. 

That money is reinvested to grow wagering. The $30,000 alone, with a modest churn rate of 7 means $210,000 of added handle to the sport (of which a fixed percentage is returned). As well, marketers and businessmen and women will often talk about Lifetime Value of a customer, and the LTV goes up when perks like this are added to the mix, when they are taken away, the LTV goes down. LTV is simply future revenues. 

This is not static. In our example, sure at this distinct point in time a set of purses have gone up by say $20,000, but a month or a year from now that $20,000 might not exist because the players' LTV has gone down by X times and they are not contributing near as much through handle. 

At a Capital One or Discover card meeting you won't hear about the elimination of 3% cash back, front of the line concert tickets, discounts on gift cards, or whatever to increase general revenues, with impunity. In racing - in some quarters, not all; certainly not CDI analysts or the O'Rorke's at NYRA of the world - this seems to make perfect sense. I haven't got it since it was brought up 20 years ago, and I don't get it now. 

Until the sport rows the boat and doesn't worry about what each paddle is doing I can't see handle increasing. I just can't see the sport growing. It's a pox on the sport, and in my view, it makes seeing a positive way forward very difficult. 

Have a nice Wednesday everyone. 

Note - I hope the post above wasn't read to be about Pat's article, rather than the simple fact racing tends to focus on the small items like this, rather than larger ones. Pat and the TIF, I believe, have always centered on growing pies not splitting them; trying to find the unbelievably elusive common ground that is (at times) unfortunately needed in a sport devoid of leadership. They have a difficult job and I don't want to add to the chorus. I support them, their hard work and their vision and wish them nothing but good luck. 

People Love Jackpot Bets, Maybe.

One of life's many mysteries on gambling twitter is the Jackpot Bet. 

Oftentimes people like @shottakingtime, echoed by others, will post a jackpot bet pool (not a mandatory) where $15,000 or $20,000 was bet into it. The resulting discussion revolves around the statement, "who the hell are these people."

I don't know, and I wonder if 'racing' knows who they are either. The data is sporadic, there are computer teams who are probably trying to game it with some sort of contrarian ticket, huge rebatees; or it could be Russian bots, many of whom frequent this website. 

If they don't know, and don't seem to care, shouldn't it worry everyone?

Back in the 1870's Thomas Edison created Menlo Park to do what he called, "the invention business". He assembled 200 scientists and craftspeople to, according to Matt Ridley, "find out what the world needed and work relentlessly to meet that need, not the other way around,"

It worked. In only four years the team had over 400 actionable patents, some stemming, like the Nickel-Iron battery, from 50,000 or more trail and error tests. 

An idea is broached that a market demands, the idea is studied, implemented, then data is analyzed and married to market concerns. Sounds so simple, right?

When it comes to jackpot bets, racing makes the same mistakes that many businesses and entities make even today. They weren't Edison. They created something for them, not for you

They have not created something you demanded; they have not analyzed what these bets do to customers' bankrolls, frequency of reups; they have not determined how detrimental they are to lifetime value; they have not tweaked them, or changed them, or completed "50,000" experiments to make them better. Hell, they don't even seem to want to tell us when a jackpot is a jackpot carryover or a real carryover on ADW websites. Revenue by hoodwink.

Do people love Jackpot bets like Bucky likes to opine on twitter? Do they help the game, hurt the game or something in between? Is this a bet something players want or wager on them only because they are offered?

Your guess is as good as mine on those questions, but the worst part: Racing is right there with us.

Have a good Tuesday everyone. 

It was an Odd North America Cup Night

Hi Everyone. Last evening's North America Cup card is in the books, so please allow me to share a few thoughts. 

Handle came in pretty solid, although it's hard to compare historically because of the number of races and a super high five mandatory; the latter in what I hope is another indication shows this is a gambling game, as new money for the carryover was more than was bet on the North America Cup. To those of us who gamble, this makes sense, but really, it was about the only thing that did most of the night. 

We saw massive form reversals like American History at even money in the open, horses stopping, numerous breakers including Atlanta who seemingly never breaks, the best pacing filly in the country who looked like she should've stayed home; we had horses racing off the course for no reason. 

And it in the Cup itself, well we had some head scratchers. 

$1 million on the line, glory, biggest pacing race in the world and everyone but one horse tucks? 

Most of us made serious light of Bob McClure choosing to drive a longer shot rather than an elimination winner, and that was not the case as his choice was inexplicably lower odds than the elimination winner. I say inexplicably on paper. Captain Kirk, who is two and ohh against Papi Rob Hanover and almost beat Tall Dark Stranger in his pace elimination, raced exactly like the dead on the board horse he was. Jody was ducking faster than a solider on the Maginot Line in summer of 1940. Maybe Bob knew the horse would be no good; I have no idea. We peons are usually in the dark about such things. 

Why so few other horses came to race - this is still the richest pacing race in the world - is something maybe more than one or two of the local drivers would like a do-over with. That no one other than Bob tried to get placed near the front is bizarre. Kudos to Drury with Moneyman Hill. A recent purchase for a reported $80k US, the horse fell into third, sat third and came third, pocketing $120 large.

Something surely a lot feel haoppy about as do I, is for Gingras. The dude moved to Canada, quarantined and did so primarily because he wanted to win this race. 

The race was a total snoozer, but the best horse and driver won. 

Overall, and bigger picture, I'm happy for all involved, as they got this race into the books. Still, I can't help but think of next year with better horses, better drivers and a deeper undercard. It should be back to its old self.  

Have a nice Sunday everyone. 


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