Tuesday, January 25, 2011

The Industry Matures

Our industry is maturing in fascinating ways, right before our eyes. Coming to terms with things that have held us back or made us protect the status-quo for so long is a sure sign. I don't know if it is too late, but debate on myriad subjects by a more and more well-informed industry, is welcomed.

One example that really sticks out is pricing. In 2003 I watched an industry conference put on by the TRA. It involved people like Maury Wolff, Dave Cuscuna (both bettors) and a couple of industry execs. The topic was bettor behavior and the rebate business. Cuscuna and Wolff argued with hard numbers about how they bet, their volume and bet size at different price points, and how the system is set-up for ADW's to attack these price sensitive customers by offering something racing has never offered them - lower juice.

The debate at that time was in its infancy on the big stage (although for years before that, bettors like Ernie Dahlman in New York was pushing people to look at it, because they were losing bettors like him). The chatter at that conference and a few others that followed was all about getting a bigger slice of the bettors business, rather than opening up rational discussion on why this business was working for bettors (i.e. the old way was failing them as customers).

Think of the machinations of the music industry and its response to Napster, one of the top blunders in business this century. And as Seth Godin wrote several years ago:

The new thing is never as good as the old thing, at least right now.
Soon, the new thing will be better than the old thing will be. But if you wait until then, it’s going to be too late. Feel free to wax nostalgic about the old thing, but don’t fool yourself into believing it’s going to be here forever. It won’t. Every single industry changes and, eventually, fades. Just because you made money doing something a certain way yesterday, there’s no reason to believe you’ll succeed at it tomorrow.

Along came tomorrow with betfair. For price-sensitive bettors this problem of too high pricing was brought even more into the mix. After years of the customer base being preached at as "degenerate gamblers who think takeout is what they do when they order Chinese food", the industry began, slowly, to say: "whoa, maybe they are onto something here".

Some early people in racing like Chris McErlean, who ran wagering at the Meadowlands, knew what was happening, and several others did as well. In 2004 racing commissioned the "Cummings Report" written by a gambling expert to explain what was happening with the game. He spelled it out on page two: 'The only businesses that can average cost price are monopolies, and racings ended years ago'.

In the years that followed there was not real honest discussion on things like rebates, even with white papers like the Cummings Report telling racing they are here and upping volume by catering to price sensitive bettors. The only thing that racing wanted is what it always seems to want: How can we get more money from these people? They failed to notice their customers were not the problem, they were a harbinger to finding a needed solution. After the UIGEA passed and all this money that was supposedly lost to offshores never came back, racing started to learn what their customers were telling them.

Things have now changed.

If we read the Paulick Report there was a piece yesterday on rebating, appearing to be disguised as a shot at Jeff Platt, a friend of mine. In 2004 the comments on this piece would have been absolutely brutal. But now, in 2011, the comments ran completely the opposite.

Not only did the web poll on the site accompanying the piece "Do you think rebates are bad or good for racing?" go against old time racing (90% good, and 9% bad), so did the narrative. Bettor after bettor and industry type after industry type spoke of racings mismanagement making this an issue, not the human target of the piece (in fact it was equally fascinating to see the comments about Jeff: When you are a good person, one thing you have are friends willing to defend you when they feel you are wronged. There is some "Jimmy Stewart" going on with the comments).

If you read twitter as well, they figured out what was going on in a milli-second.

It was completely interesting to watch as a case-study on how far we have come. Hit pieces about an issue that five years ago could be demagogued as effectively as a health care issue or a political attack ad fell completely flat.

Almost everyone who follows the business knows two things about rebates:

1) They provide lower takeout
2) They are here because there are horseplayers concerned about takeout and it keeps them in the game, betting bigger and being happier customers

They also know that rebates can be eliminated in one of two ways:

1) By cutting off all rebate shops or
2) Lowering takeout for everyone

Racing does not want to do the first one, because handle would fall faster than an oversized pair of swim trunks. They won't do the second because? Well that's the million dollar question.

Regardless, the industry and industry watchers via various forms of social media are aware, and anything but dumb. If you are going to put forth a 1995 argument in 2011, the responses are going to be much, much different. We are slowly maturing. The only question left is: Is it too late?

Note: Tom Lamarra via twitter (@JerseyTom) offers out his article from 2004 as background for those interested. Quote: "NYRA chairman Barry Schwartz said. "I don't think rebate shops are the problem. The problem is our structure--what we're charging for signals, and the takeout. If takeout rates were more reasonable, places wouldn't need rebates."

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