Betting Decisions Are Made to Fit a Box, Not to Increase Revenues

There has been a lot of discussion of late via #simocon about racing, betting and signals and all the rest. The main theme is that racing can not do much, and things like lower take are not important because it won't do anything.

Those comments come from people that are starting with a simple premise. The premise being, racing is in its own box, and since we have to live within that framework, all decisions are tied to it.

Racing's takeout when the pari-mutuel industry began was 5%. This is back in 1907. Since then, tracks, horsemen, and states have added a percentage here and a percentage there to get where we are today - a blended takeout rate of about 22%. This was not done scientifically, it was done because it could be done. Racing was the only place to gamble, and a percent increase brought more revenue in.

Most monopolies are regulated in price. Your hydro company cannot charge a 5% fee in 1900, and have it raised to 22% in 2013. It would probably kill GDP as fast as a three-legged gazelle running from a lion on Animal Planet. Racing was never subjected to the same pricing mechanism. It created a system whereby slices are given out (as a monopoly) and when the monopoly came crashing down with casinos and lotteries, the system did not reboot, it stayed with the same system.

This system is alive and well, and as you can read from #simocon, it dictates every decision racing wants to make, primarily by fostering the words we are all too familiar with "we can't do that".

The problem with that - and it is a huge problem - is that "we can't do that" is code for "we can't grow". Even when a good idea comes along, it can't work.

The Ellis Park pick 4, which we were speaking about on twitter, involved a 4% experimental takeout at that little track in 2007. Chris Scherf and others at the conference will have you believe this did not work. It was a failure.

In 2006, pick 4 handles were about $17,000 a pool. In 2007, with 4% takeout, the pools grew to $42,000. In the second weekend of the meet, $65,000 was bet on a Saturday, with a bunch of 5 claimers racing, which was third to So Cal and NYRA, who were carding stakes cards. The Claiming Crown card near the end of the meet had a $90,000 pick 4 pool. This all at a little midwest track that I had no idea what town it was even located in.

Remarkably, this was achieved with little distribution. Many ADW's would not take the bet, a lot of tracks and OTB's would not, and in Canada, they left the takeout at 22%, not 4%. Virtually half the betting world would not even let you bet it. But there it was, up about 260%. Bettors seemed to be finding a way to bet it, and the bet was ripping.

The following year the bet was disbanded. Ron Geary told everyone that bettors liked it but the industry did not - he could not get distribution. Handle at Ellis was actually down year over year. No distribution to big outlets = no handle.

What did that little pick 4 do for racing? It increased handle by 260% on the bet, it got more eyeballs on a track that few people out of Kentucky even played. Ron Geary got free impressions on blogs, news stories, the DRF and chat boards. Poker playing websites were talking about racing "finally getting it". And now, in 2013, you can't go anywhere without finding a low takeout pick 4 or pick 5.

If Ebay, or any other company had a loss leader promo that decreased a price by 80% and got that kind of mileage from it with more viewers, more eyeballs, 260% more gross sales, new members and a CPM that's microscopic, they'd love it. Racing, ah, not so much. 

Personally, it did much more than that. It made me a thoroughbred player again. I found out about it and wanted to get back into betting. After weeks and weeks of searching, I finally found someone who would take my bet. I purchased software for $700, gave Bris a check for $2500 for back data and away I went. I don't want to tell you how much money I have played in the thoroughbred pools since 2007, but it's more than $50 and a falafel on food truck day.

At #simocon you will hear people say this "doesn't work".  It 'didnt work' because the box they are working in, and decisions are based from, was built a hundred years ago. It strangles racing and has for many years.

That is why decisions are made in racing as they are. There is no one looking outside the system. When someone does, they are crushed. "Get back in the box innovator, we don't need your kind here"

Working to change the system, by looking at blended rake signal fee tweaking, retooling government deals where gross profits are taxed instead of handle, writing into simulcast contracts that to take a signal, all tracks must accept all bets - things that should be worked towards as a huge goal, and done to increase revenues and innovation, are not spoken about at simo conferences.

Instead the famous racing words we hear so often are repeated, like a flock of Trumpeter swans:

"We can't do that"

Well if you can't do the things that are needed to expand - and even worse, when they are staring you in the face you shoot them down -  you should not be surprised that you've accomplished the mission to shrink.

Yesterday at the simulcast conference the panelists told us we can't grow. Like we already didn't know that; our handle is down about 50% in inflation adjusted dollars the last decade or so. Next year the conference needs a topic called "Ways to tweak the system to give customers what they are asking for. "

That topic, unlike the ones this year, will be worth paying attention to.