Friday, November 15, 2013

Friday Comments & a Little Branding

Happy Friday everyone.

I received a comment on the "Marketing Paradox" post from a couple of days ago (thanks for all the RT's, and thanks for the link Seth). It's anonymous so I don't think this person will mind me highlighting it:
  •  I've never understood the focus on how much a customer bets versus how much that customer loses. If Linda's handle does not multiply by 3.5 when her ROI rises from .93 to .98, then she is actually paying less to play the game. That reduction has to come from somewhere: purse reduction, lower ADW or racetrack profits, or another customer losing more money. If Linda manages to get her ROI above 1, then she becomes just another mouth for the game to feed. What the game really needs is more people losing more money, so that Linda's gain doesn't come out of the pocket of the horsemen, the ADW, or the track. That should be the (best unspoken) focus of marketing efforts. 
This person's math is fine, and he or she makes a point that racetracks, horsemen groups and others have focused on for some time. It's one reason we see Jackpot high fives and Pennsylvania track takeouts. It's 'squeeze the lemon disease'. These efforts are being followed, this very day.

"What we need are more people losing more money"

How does a business get "more people losing money"? You attract more people by getting them to lose at a lower rate. Then you hopefully tweak it and grow. It's not about more people losing more money, it's about more people losing money.

When Vegas takeout on slot machines was 20% in the 1960's and 1970's, a few folks played them, and those few people lost a lot of money. When they dropped that takeout, it attracted more people to the slot floor. They were losing money - but losing money at a lower rate. When the volume exploded to where it is today, you are not multiplying 4,000 or 5,000 people times 15% losses, you are multiplying millions of people at 2 or 5% losses.

Betfair espoused this early on. From their annual report when asked how they arrived at a low takeout (or "win") rate:
  • "Racing knows that customers who go racing, and a) feel they had no value for money at the racecourse, and b) don’t win a single bet all day, don’t have much fun. They may not come back. In just the same way, we know that the least valuable customers to Betfair are the ones who lose all their money quickly. They go away and never come back. So, we are happy to take less off our customers per bet. Business is all about offering your customer the product he wants at the price he wants. If you can do that, he’ll spend his money with you."
Betfair has their own issues. They have data and premium charges because they don't like bots to squeeze the exchange and squeeze the average punter; they don't want big bets overhanging the market, nor do they want bookies laying off action, clogging Joe from Wales from trying to get a nibble at a price. But the fundamentals are there.

Similarly, it does not mean racing cannot have a high takeout V75 or Rainbow Six. It just needs to fundamentally offer a punt that puts to rest racing's negative branding of "you can beat a race, but you can't beat the races".

You can never attract bettors to a skill game by asking them to lose more, without attracting them first by letting them know they have a chance to win more.


Anonymous said...

I was the poster of the comment you quote. I’m not sure we really disagree on much. My intent was not that racing needs to squeeze the lemon, but that the focus on handle versus losses seems misguided. If Linda is playing $3,000 per month with an ROI of 0.93, and Will from Sacramento is playing $1000 per month with a more average ROI of 0.79, they are both losing the same amount, but rebate systems treat Linda better than Will. Isn’t Will closer to leaving the game than Linda?

The focus on handle rather than losses opens the door to (admittedly skilled) batch bettors who have a positive ROI (with rebate), drive annoying late odds changes, and win money from both Linda and Will.

I’m curious how poker rooms deal with this issue. Do they treat pros better than the tourists they win money from?

The bottom line is that you cannot make everyone a winner, or even close to it, especially with a blended takeout over 20%. So how do you enhance the experience so that even the losers want to keep playing? I don’t disagree that reducing the rate of losses has to be part of the solution.

Kyle said...

Both Linda and Will lost the same, but it went different places. Linda generated $600 in pari-mutuel taxes while winning $390 from fellow players for a net loss of $210. Will lost $10 bucks to his fellows while paying $200 in tax. What the industry might benefit from and might be able to take a role in promoting is improving Will's play, hence his enjoyment and hopefully his longevity. Racing is a zero sum game only for bettors, not for bet takers.

BitPlayer said...

Kyle -

Right. So racing needs 39 Wills for every Linda. And if Will's play improves, then racing needs to find someone else to lose to Linda (or Linda's ROI can drop). So does racing focus on encouraging more Wills or more Lindas?

Pull the Pocket said...

Racing attracts more Will's by attracting more Linda's and vice-versa.

Newbies playing the markets on Etrade were attracted to trying it because Linda made a few dollars buying a selling stocks on her computer, and she told all her friends. Joe, who maybe watched Rounders and told his friends he was doing okay at online poker brought them in as well. They don't all win - not even close, the majority loses, but they all think they can win.

When people go to the track they think they'll lose. Big difference.


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