Today's Notes - Letters, Hedge Hogs and Hikes

Good morning peeps!

It was a long Saturday (I was bacheloring with the dog) so I missed a lot of the news. I am sure you can read the trade press for those stories. Here are a few other things I found of interest.

Sometimes you read a letter that speaks to the industry and find it in a different place. One little letter to HRU today (pdf) exemplifies it.

"The tracks don't think that way, though. Instead of working with the online bookies to expand the off-track market, the tracks and the politicians they control put penalties on the online bookies so that they couldn't afford to offer large rebates anymore. I used to get a 5% rebate. Now I get less than 1%. Everyone loses. The sport doesn't get new fans, and the total handle is less. When I was getting 5% back I bet about $30,000 a year. Now, I only bet a few bucks here and there."

As signal fees go up, this is why handle goes down. This is not a whale, it's a fellow looking for a way to make racing slightly more enjoyable because he doesn't have to pay 22% takeouts and go broke.

Not dissimilar to this man, quoted on my blog: 
  • Because of a rebate I found a way to make place bets profitable. I wound up with a 3.2% loss, but a rebate of 7%. It actually was a rebate of 6.2% as they did not give a rebate on 2.20 horses. Now the kicker is, I went from betting about 30 to 50k to 1.3 million that year. It made the churn factor possible. If takeout is lowered it may have the same affect. 
Vic had an approximate 2600% increase in handle by getting some juice back.

The business looks to take margin at all costs, because of falling total handle numbers, but when you take a margin away, there is an opposite and fervent counter reaction which results in lower overall revenue over time. This truism happens at Wal Mart (if a Wal Mart executive proffered what racing does in these instances he or she would be laughed out of the boardroom) and it's true in horse racing too. That's why the business is in such rough shape as a gambling game.

Speaking of 22%, the Churchill Downs Inc rake hike (doing the opposite to the above and hurting long term handle and customer growth) was in effect last evening. A few of the guys held their heads low because handle was up about 6%. I don't look at it that way at all.

If you held a grand opening with a new celebrity announcer and a new $12 million dollar big board at your restaurant with a much better menu than last year to eat, would you expect it to be only half full? I expected a much higher handle increase, quite frankly. Last year the card was horrible (I checked and last year I only bet $1,200 because I could barely find a bet), and this year it was much better.  I figured handle with all that positive spin, a grassroots group of a few rabble rousers, and a general public that hadn't even heard they'd be paying more to be up even more. I.of course, did not play. I didn't even watch a race. The big board was too expensive.

Further in HRU (p7 pdf), the story of a hedge hog. Racing, with short term fixes not based on economics, science or numbers, continues to fox itself out of revenue. It has to happen this way, in fact, it could not happen any other way.

Enjoy your Sunday everyone!

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