Monday, November 21, 2016

Retail Markets & Betting Markets Have Big Differences

Yesterday on the twitter I posted this (at left) screenshot from a book. It's about LEGO, who was falling on hard times in the early 2000's, and they commissioned "big data" to tell them what was wrong with their product.

The global data said that the digital generation (born post 1980) had "short attention spans", needed "instant gratification", and big, difficult, time-consuming puzzles were not going to fly in the new world.

Luckily for them, due to smaller, anecdotal data, the company took the opposite approach and made their product even tougher, and more time-consuming to use. This strategy worked, because by 2015 LEGO passed Mattel as the world's biggest toy maker.

Ain't that a kick in the pants.

For us in horse racing who believe this is similar to what racing experiences, it's refreshing to read. The LEGO experience is a polytrack race with 14 horses, versus a five horse field where the speed horse sprints and staggers home at 3-5.

The spawned a short discussion. One tweet caught my eye about using customer data.
In retail getting the customer to spend more in gross dollars is the goal. Always has been the goal. In fact, it's not only in retail. As noted in this marketing piece last week, the Trump team spent their marketing money in large fraction to get their voters to do more, too.

From my experience, racing thinks the exact same thing - get people to spend more. Of course, this is fine if we're talking churn. But their 'bet more' mantra is all about retail.

It's a jackpot bet, fractional betting, a guarantee, a post drag. It's tweets about an event. It's the Kentucky Derby shoehorning more people into the place. It's hats n' Miss Cougar II, n' stuff. It's all about one disparate entity getting a customer to spend more on their entity, venue or bet.

What many in racing miss, in my view, is that they can crunch numbers until the cows come home, but if their goal is to squeeze the customer for more, without tempering that with considerations of their customers' betting ROI, they're toast.

This is not a challenge for a lot of companies who depend on similar for growth (think Google), but racing has a great deal of trouble with this. Corporate entities compete, and if a jackpot bet breaks a betting base and hurts the sales funnel for all of racing, so be it. You can run down bankroll degradation examples, you know them all by now.

It's funny because, oh, about 15 years ago now I had a track executive tell me about something they found in their data, in an almost giddy-like way -- "It's amazing how much and how often customers bet when they're winning!"

A few years later his track raised takeout. In present day, their marketing team promotes their jackpot bet.

Have a great Monday everyone.


Sal Carcia said...

Based on this Twitter exchange, I skimmed the latest Churchill Downs 10K. The impression I get from Churchill's own report is that horseracing is an industry in decline. Also, racetracks are capital intensive and gross earnings are low. It does appear that they have invested a fair amount in the Churchill facility itself. But, most of their future growth and investments are outside of horseracing.

The greatest issue horseracing faces is and has been that it is not a viable standalone business. In its present state that is. As result, the game is lacking investment. Its survival is dependent on the fact that it is gateway to other gambling businesses. But, that is a risky proposition long term.

Sal Carcia said...

I have seen some consensus that the jackpot wager is potentially bad for the financial health of the game longer term. In theory, I suspect some good arguments can be made against it. But, if one looks at Gulfstream Park with its Rainbow Pick Six, they are breaking handle records every year. There is definitely a demand for this type of bet.

But assuming it is bad for the longer term, the question is why is this bet so attractive to the handicapper? Is it the jackpot, that makes it attractive? That could be the sizzle. Or is it, that players like it because they can use their handicapping skills to play at a reasonable price? I saw an analysis online where the Rainbow P6 day-to-day payoffs are greater than a parlay play. So, there could be more to it.

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