Making Sense of the Senseless Regarding Pay to Play PP's

Probably one of the most frustrating parts of the horse racing business is paying for past performances. I know what you're saying, oh boy, another article on paying for past performances. But, well, read on if you are interested.

First off, the capricious nature of the whole pay big for past performance phenomenon flummoxes. If you are at an ADW and bet $250,000 a year in 2014, you get free unlimited PP's. This makes some sense, of course, because $250,000 results in over $50,000 of revenue, and if someone is handing your restaurant $50,000 in revenue, you better damn well not charge him or her for a menu or water refills. Then, say in 2015, you bet $150,000. Well, that's $30,000 in revenue -- still quite good -- but then you charge that person for PP's.

Why would you give a customer free menus when they spend $250k on steak, but annoy them by charging them for a menu when they spend $150k on steak? Who makes this rule, and why is there some arbitrary cut off? If the laws of economics had a head, it would be shaking.

Second up, marginal cost equals price. This is an odd concept to learn in economics class, but there it is. The cost to supply a customer, like the one above - someone who bets with you often - is not much at all; it's pretty much the cost of a pdf - pennies. Why on the margins do they charge average cost for a file or a piece of paper? It's a mystery. Someone call Matlock.

Third, selling a core product and giving away a product that encourages the use of said product (or vice versa) is a concept not lost on the business community. When I asked my dad and mom for an Atari in 1984 because it was "on sale for $199", the response was "the games cost $100, son, so no, not this year." My mom and dad never even took business at Yale. In racing, this rudimentary concept is more elusive than finding Atlantis.

Last up, lifetime value. For subscription services - racing is the ultimate subscription service, because it thrives only on players playing every day and reupping at regular intervals - the lifetime value of a customer is everything to its cost and revenue functions. Everything. This is why Direct TV can give you a free six months, cell phone carriers pay for you to switch, online gambling cost per acquisitions can be $400, when they only see $200 in revenue in the short term. To keep you betting, a free past performance PDF (at pennies at the margins remember) are not even a part of the lifetime value per customer equation. Sure, this guy or gal could be here for five years, giving us money over and over and over and over again, but let's chase her away because we want $3 for her to play.

I think it's clear - to me anyway - that the above makes almost no sense at all. I think to most people outside racing it makes no sense at all.

Like a lot of things in racing, we need to make sense of the senseless.

Remember when Jim Gagliano and the Jockey Club were talking a lot about uniform rules and some racing commissions were poo-pooing such initiatives? That's because a fiefdom - their racing commission - was threatened. If there are a set of rules used by everyone, what use are they? Using the above as common sense, and fixing it, requires another fiefdom -data - to be threatened.

Yes, it makes sense for each track to upload charts to a master database, have past performances  generated from a master database, and all tracks can supply their customers with PP's on the interweb. Bingo bango bingo. Bob's your uncle. That helps eliminate points one through four above, and it will help the industry overall by putting it on footing with most of the rest of the world. It's simple and cost effective - and in a world where we'll soon have a man on Mars - not exactly difficult.

But, no, it can't happen.

You, me, business schools, and just about everyone else can gripe and point out inefficiencies and ways to change the racing business for the better. But they don't matter, because even when you make sense of the senseless, the senseless side has too much entrenched power to ever lose the argument.

1 comment:

Anonymous said...

Most track owners and managers blame customers for losing interest in racing, betting less or stopping the bets entirely. What other business people ignore their own shortcomings, accept no responsibility for failure and generally look at customer suggestions as attacks on them personally?

Would a supermarket charge $3 rental on a shopping cart that allows customers to buy more than what they can carry in their arms? Of course not. Racing bosses should look at a program as the track's shopping cart. Customers with a program spend more.


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