Saturday, March 8, 2008

Racing Needs to Stop Building Stagecoaches

In the current blog vein of chatting about the recent article discussed below, where racing is asking government to shut down off shore wagering, I came across a story at a probability site. The whole article is good, as it details betting exchange economics, but one slice of it I found really interesting. It seems (seemed, as they did not do this. This article was written several years ago) that the government in the UK was thinking of taxing the betting exchanges at a higher rate, at the behest of the bookmakers. Of course this was not a good policy; and the writer wrote a nice parallel to show what happens to people when they stifle innovation. Have a read:

Horseless carriages (cars) were a neat invention. However despite the revolution that was going on they did not meet with universal approval. Horseless carriages were cumbersome contraptions and had been powered by steam engines as far back as the late 18th Century. They met great resistance based upon two key issues.

• Stagecoach owners were afraid that horseless carriages would mean the end of their business.
• The general public found that their horses were scared of the machines.
Rather than try to compete, stagecoach owners decided to cling to the existing state of affairs rather than identify that an irrevocable shift had occurred in transportation and their businesses.

Eventually, opponents to the horseless carriage succeeded in harassing experimenters and lobbying authorities and laws were passed forbidding the use of steam engines on roads. In England, stupidity triumphed when Parliament passed the Locomotive on Highways Act in 1865. Popularly referred to as the "Red Flag Law," it stipulated that all self-propelled vehicles on public highways be limited to a maximum speed of four miles per hour and be preceded by a man on foot carrying a red flag to warn oncoming horse-drawn vehicles. Although the law was amended in 1878, it still retained the speed limit and required two people to operate the vehicle and a third to go ahead at danger spots, like intersections, and give a warning. After eventually seeing sense the law was repealed in 1896 but not before other, more enterprising, countries had taken the advantage. Such laws were unknown in the United States and the rest as they say, is history.

I guess belief and understanding of the free market are two diametrically opposed forces certainly where vested interests are at play. Suffice to say that the UK and its attitude put paid, or at best, delayed the adoption one of the most important innovations of the recent times. This in turn delayed increased productivity and commerce. The government also lost out on the basis of the fact that failure to spot his shift meant new commerce did not generate new profits which did not generate tax income.

Market forces could not be resisted and eventually the UK lost initiative, suppressed economic development but eventually embraced the horseless carriage when it was obvious that it was actually a good idea.

In betting exchanges the UK has become a global leader in this new and exciting industry. Exchanges are a new paradigm and demonstrate destructive capitalism at its best. Without these break points in economic development we would not be using computers for fear of decimation of the pen and paper would we? Inevitably these break points cause short term distruption to business and tax revenues as the market adjusts to the new state of affairs. By over-regulating or attempting to punish the success of exchanges it could be possible to de-rail this progress. Progress that could lead global dominance by the UK in a new industry and one that could generate significant opportunities for UK PLC.

Despite my best efforts I don't see many members of parliament currently using horses in London. But they do appear to use horseless carriages a lot. If they want to see the country prosper and develop they should learn to embrace and encourage new ventures rather than penalise them. Failure to do so should see all members of parliament adopt a drive to abandon the horseless carriage and move back to horses, to drop computers and adopt the pen and paper. If you fail to allow those things to progress and shape the world as they have done in the past you will fail to let the innovations of today shape tomorrow.

We could of course parallel that with racing here in North America. In the late 1990’s Betfair came to racing and said “this is what we do and we think you might want to partner up”. Racing did what they do, and continue to do to this day: They demonized them. They called them names, and said they were a threat to us.

What if instead, they said this: “This is interesting. Ebay is going crazy with people trading goods…… this is like an Ebay for gambling. We have to be a part of this.”

What if they said that.

What if they chose to embrace a new technology, convince government what it can do for them and racing, and what it can do for the North American gambling economy.

This is what our industry faces today. We have executives - from horseman groups and tracks - who are clinging to the obsolete realities of yesterday. They have not kept up with the times. Offshore wagering, online poker and betting exchanges are not going away, they are here to stay. As the writer above stated “market forces could not be resisted.”

Racing is the stagecoach operator who could have partnered and made cars, instead of trying to shut them down. They could have been a part of, and grown with the most significant invention of the century.

The Internet, and online gaming is this industry’s automobile. It is simply the most important invention that gambling has ever seen. We can choose to be a part of it, or we can choose to cling to the past.

If we choose the latter, we are clearly in serious trouble.

I hope someone, somewhere is listening. But I, like you, unfortunately believe that the lights are on, but no one is home.


Carol said...

While I don't disagree with the premise and I do think some existing players will and have leaped into new technology, there are some issues that continue to perplex me:
When I worked at the Meadowlands, we used to joke that our patrons were the last on their block to still have rotary phones. There is a certain truth to this. Given the demographics of racing, it is largely a Luddite crowd.
When there was actually some money in the marketing budget at the Meadowlands, various in-house promotions and "community outreach," including promotions at bars favored by 20-somethings, were pursued. It continues to be difficult to get young folks to try racing. But to be honest, I've been hearing that same lament for 30 years.
I am of the belief that there are just so many gamblers and, for now, they have taken their money elsewhere. Racing's monopoly is long over and now we have to figure out how to recapture the public's interest. Maybe instead of trying replicate the casinos, we should try to promote the more laid back "charms" of a night at the races.

Anonymous said...

I cannot help but think back to 1899 and that US patent guy who said that the office should close, all things that can be invented have done so. Imagine!!

Offshore wagering, online poker and betting exchanges blazed right on by us and I suspect more will follow less racing.

Was it Perot who said, "that sucking sound you hear....."

It doesn't matter if we discuss the latter for every discussion we have about racing is always from here on in, a past tense discussion.

Anonymous said...

I just left someone obviously affiliated with the racing industry a question.
How does keeping track takeout rates ridiculously high help WEG get and keep clients?

I'm thinking the Anonymous poster who attacked me was either an exec from somewhere else if he is telling the truth or someone affiliated with the HBPA. They represent another hurdle because I doubt they get that cutting the takeout will mean nothing but less money for them. The horsemen collectively aren't too bright either when it comes to Horse Racing Bettor's Economics 101.

Pull the Pocket said...

Hi Carol,

Thanks for the note!

I think racing people (employed by the tracks) have a tough job with marketing, since they are not given proper tools.

1) We dont look at the two types of customers, the bettor and the fan. We combine them in our marketing efforts.

2) No studies have been done on marketing, worth their salt. It is a tough sport to market, we know that, but we don't test, and we don't have a central organization to supply direction and money. If there is something I have learned in my career as a marketer it is "test, test, test". Our new hires are probably tired of hearing it from me.

3) We are promoting a game that for 100 years the word of mouth has been "you can not win". This is tough to overcome. Our prices are too high; and we dont send enough people home with money in their pocket to spread the word. Slot machines learned long ago that 30% rakes do not work - no one went home with $$$. They told people it was a rip off, and it hurt business.

I saw your question on takeout below, and saying how does the track pay bills. It is an honest question, and with your background I do not expect you to know what the power of lower rakes can do. Quite honestly you have to live it, to realize it (and I have lived it). People spend millions on betting with a lower rake. With a higher rake they spend thousands. Please take a moment to look at the right, I have a piece on takeouts under "expanding harness" entitled, How lower takeout grows the game". As you can see from my example, the track makes MORE money overall with lower prices.

This is not conjecture, this happens every day, and like Wil Cummings said in his report on wagering - these people have saved racing from even more losses.

Give it a read.

I sincerely thank you for your comments; I know you love this game, and it shows.


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