Friday, November 18, 2016

Numbers Are Our Friend

Everything's numbers. Well, not everything.

Churchill Downs today announced a $37 million capital expenditure for luxury suites. People-be -going, wow, $37 million spending for a racetrack, and they'd be right. It is a big amount of money in this business. But, the numbers probably show it's the right thing to do, because Churchill isn't dumb, and they own the Kentucky Derby.

At $1,000 a person (this is likely higher) for the Derby only, we're talking $2M in revenue for one day. If Oaks day is added, at say half that revenue, we have another $1M. With simple payback time as a measure, it's a shade over ten years. This ignores the other days of the year where they will generate some revenue, and discount rates, NPV etc.

It's nothing new. The Dallas Cowboys built an entire stadium for suites -- 300 in all - which bring in a couple of hundred million for 8 games (plus, I am assuming some other events). The new stadium in San Francisco sold $140 million in suites before turning over sod.

It's not going to work at Mountaineer and Penn, but I am sure the numbers show it will work for Churchill.

What's curious to me about the Derby and CDI itself is not its popularity, but when will the lemon be squeezed too much. With increases in general admission prices this week, plus more boxes at high rates, at what point will demand fall? I am sure the numbers will tell them, and they will adjust, but to me it's been an interesting question.

Fanduel and Draftkings ran some numbers of their own and merged this morning. They have protection in states which passed regulation to (ironically) protect consumers. Merging should allow them to raise prices more, and stifling competition will help. That, in my view, is a win for the two companies, a loss for their customers.

On the "let's not use numbers for the most part" front, we have racetrack marketing tactics, as described in HRU this morning. Marketing is about numbers in this day and age because almost everything can be measured. Spending $37 million is an exercise in projecting and discounting cash flows, developing IRR numbers and running formulas.  Today's marketing in racing should be able to answer "if we spend $500,000 marketing X, what type of return will we get?" But it is unable to.

Last up, if you are going to pass a new rule on geo-targeting or shutting off betting for customers, should you not be able to (at least in a rudimentary way) have some numbers to look at before making a decision? O_crunk looked at this phenomenon today at his blog, with regards to yesterday's CHRB meeting.

Have a great Friday everyone.

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