Monday, July 31, 2017

There's Big Day Racing & Really Big Day Racing

I noticed the Haskell card checked in yesterday with over $12M in handle, up around 7%. That's a pretty good number, and the race was excellent.

That $12M in handle, though, represents only a sliver of total handle for the Monmouth meet. It's that way with most big events in North America, outside the Derby I suppose. 

Down in Australia, I noticed a figure or two which I found eye opening.

The Cox Plate, Melbourne Cup and Caulfield Cup races attracted over $1B in total handle last year, representing 44% of total handle for the entire meet.

The overall spring meet is good for betting customers - a field size of 10.9 with good pool size, as well as plenty of ways to play, like fixed odds and exchanges. But to have near half of the volume on the three big events is formidable.

I've often believed that mature gambling markets are a leading indicator for North American racing. Big days have been big in these markets for a long time. The US and Canada are catching up, but maybe there's a lot more upside to big day handle than we realize.

Have a nice Monday everyone.

Wednesday, July 26, 2017

DRF Purchasers Look at the Blue Sky

After what was rumored to be a great deal of time, the DRF finally sold. Details of the deal were not announced, but speculating, it was likely for less than the (again) rumored $100M asking price.

Being a private company, it's very difficult for us to value the DRF based on discounted cash flow. What we do know about their cash flow, however, is that it relies primarily on PP sales, advertising and a margin on each dollar bet. All three of those things are not high growth. In fact, a probable argument can be made that at least two of three are in or approaching a negative growth phase.

What appears to interest this new group are a couple of characteristics that could be blue sky:
  • “The big opportunity for us is to digitize the print side of the business, which the former owners started to do—it's expensive and there is still a way to go to make it fully function, and then the online gaming offering,” said Z Capital Group CEO James Zenni
On the surface it looks like the plan is to embrace and enhance the DRF as a data company. Data is worth something and the DRF has it.

Secondarily - and more long term as well as blue sky - is 'online gaming'. They seem to feel that owning a brand like the DRF can give it first mover advantage in sports betting, or other gaming offerings, should laws be relaxed.

Again, without knowing the DRF's total revenue, historical growth (or negative growth) rates, we can't make an assumption on what percentage of the purchase price is a blue sky premium, but in my view it's probably pretty formidable.

Data companies are being created and gobbled up as a matter of course - in DFS and sports. They clearly feel there is some upside here. And, as we all know, the skill game gambling market - esports, sports, DFS, exchanges, etc - is growing, unlike old-school hit and hope gambling markets. What happens in this space over the next few decades is anyone's guess, but it seems this private equity group is positioning itself for it, and thinks it's worth the risk.

For horse racing itself I believe this is not a deal that will send too many shockwaves through how we consume and enjoy the sport. However, Stronach and CDI are probably not fans of these new kids on the block.

Have a nice Wednesday everyone.

Monday, July 24, 2017

Forget Phelps Versus Shark.....

Proving man versus shark racing ain't dead, I, like many of you were watching Discovery's made for TV match race between Michael Phelps and a Great White Shark on Sunday. Although some people were clearly disappointed Michael Phelps did not race an actual man eating fish in the open ocean, the rest of us were pretty satisfied with the spectacle.

Discovery Network clearly used the event to push "Shark Week" on its network, and feels it's good for ratings.

That got me thinking, in horse racing, actual horses race actual horses thousands of times a year. Even though wiener dog races are the bomb, I feel the sport can do better to promote the sport.

One way, in my view, is to offer some match races of our own. Here are a few of my ideas. I hope you like them.

Match Race : Andy Serling against Someone He Blocked on Twitter

This race might help attendance, and we all know how much Chris Kay likes butts in the seats. This would not be a one-off race, because Andy has blocked quite a few people on twitter. The blockees would probably have to be whittled down in some sort of elimination, then the King or Queen of the hill will take on Serling. This would be decent for a final day at Saratoga, when there will be mainly claimers on the sked.

Match Race: Adam Hickman against any rider at Mountaineer he bet that gave a "brain dead ride" and "who needs a new career, maybe at Wal Mart"

Jockeys are pretty fast, but Hickman is no slouch.  Regardless who wins, this would be a pretty neat spectacle.

Match Race: Ray Paulick against Brad Cummings

If Ray wins the site remains The Paulick Report. If Brad wins, he regains his rightful place as lead editor for the Cummings Report.

Match Race: Sid Fernando against Gennadi Dorochenko

If Gennadi wins, Sid can't tweet about Russia for one month. If Sid wins, Gennadi puts Sid in touch with deep state Russians who can blow the doors off this whole Trump-Russia thing.

Match Race: Sheik Mo against the people who promulgate the "Dubai Bounce"

This reached fever pitch Saturday evening when Arrogate threw in the clunker. Let's settle it, by racing. 

Match Race: Jim Gagliano of the Jockey Club against Eric Hamelback of the HBPA

If Eric wins, it's lasix for everyone. If Jim wins, lasix will be banned forever. Both Jim and Eric will be tested, but only on-site. There is no out of competition testing allowed, as per agreement.

Match Race: Cozmic One against people on twitter who make fun of Cozmic One

The twitterati would learn just how tough it is to win a race, and Cosmic One would break his maiden.

Match Race: The CHRB against Andy Asaro

Since it took third party lasix getting through the CHRB longer than it took to build the Hoover Dam this one might never get through committee, but I'd pay to see it.

Have a great day everyone.

Thursday, July 20, 2017

The Numbers are Great! No, They're Bad. They're Great!

Del Mar's attendance was reported down about 20% yesterday for their opener. Handle was down as well.

The sky is falling. But at least no horses died.

"A safely run racing day more than offset a downward spike in on-track attendance on opening day."

Other things that more than offset a loss of attendance:

A North Korean rocket didn't hit the San Diego Naval Yard.

E-Coli was not discovered in the Del Mar drinking fountains.

There were no (reported, at least) floppy hat injuries.

I kid. But often this represents analysis in horse racing.

Attendance could've been down for a hundred reasons - a Wednesday with something else going on, people waiting to see Arrogate on Saturday (attendance will then be up and everyone can stop hand wringing), or a big sale at Jim's Jumbo Burger. Who knows.

Horse racing's use of statistics, are in my view, so rudimentary and knee-jerk, it's no surprise we learn nothing from them.

I think that probably will have to change, especially if California racing is to get out of its funk. It's a great business to analyze, with $12B in handles and tens of thousands of people showing up for an opening day. When headlines provide some detail illustrating that use of data - instead of some strange parallel that no horses were put down - the business will be better off.

Tuesday, July 18, 2017

Racing's Forever Shifting Goal Posts

When I wrote "Why Lowering Takeout Increases Handle 100 out of 100 Times" recently, I did so because talking about injecting betting capital into a system that needs it (to spur end-user demand) is a conversation worth having. I must confess, I did it for another reason - to see, from those who are pro-status quo and don't like to talk about racing's high juice, where the goal posts would shift to.

What I saw, I must also confess, surprised me a little. I knew some shift would occur, because being 'anti-handle growth' in a game we love is not a warm place to be publicly or intellectually. But I did not expect the posts to move so forcefully into the argument that, yes, handle will go up, but not up enough to make more money.

I see it more and more as times goes on. It's not about increasing short term end-user demand anymore. It's about increasing short term handle, and making more short term profit.

Why did these goal posts shift so much the last few months? I think, in part, because the argument from the status quo can use Canterbury as their main selling point.

Last season Canterbury Park decreased takeout, gross handle grew, and handle per betting interest increased about 10%. But, according to corporate interests this was not enough, and profit suffered. so they increased takeout back to old rates.

This year, overall handle is up, and per betting interest is flat. The conclusion drawn from the status quo is, of course, that raising takeout was a good thing. See, we have all this evidence - they're making more money!

Let's propose for a minute that Canterbury could not get their takeout decrease past the board and commission last season. As most know by now, they had one of the worst seasons for horse racing a track can have - no barns, no field size, the worst weather since 1896, cancelled cards, three horse fields, no bridge jumpers as in years past, etc.

Their 2016 handle would've likely been down about 20%; their per race handle off by as much or more. Revenue would've been down by 20-30%.

Now, let's say they got their takeout decrease passed for this year.

Back comes the field size, back comes the bridgejumpers, back comes the turf races, and now lower takeout with more eyeballs was added! They would've blown handle completely out of the water. It would've been up 25% or 35% this year (all inputs considered YOY).

And guess what -- they would've made more money!

What would've happened at that point is the pro-lower takeout forces would be taking the anti-takeout forces arguments, and vice-versa. Their worldviews would be held in place, and everything would be wonderful for both sides; although one would be happier than the other.

This is the problem with shifting goal posts, and racing in general. It's tethered to widely held belief and that belief is unshakable.

Lowering takeout is about injecting capital to spur end user demand. It's about increasing the lifetime value for a customer, so he or she comes more often or bets more. It's about throwing a hat in the ring to gamblers who are looking at DFS or other skill games. It's about trying to compete. It's about using alternative gaming money - money that makes up about 35% of all US purses - to increase demand while the sport still has that money. It's about changing an ecosystem for the long term.

After all that, after some time, one hopes that then the sport will be better off than it was, and when looking at standardized revenues, it then does have more money.  

I hold little hope that happens of course, because racing (like some other industries) can't see past the bridge of its own nose. It can't see past one meet, or one pool. Racing is about a little midwest track "making more money" in a monsoon, not about economics, business smarts, or common sense. The pull of the status quo in the sport remains strong and I don't see it going anywhere. 

Have a nice Tuesday everyone.

Thursday, July 13, 2017

Racing's Legacy Business & a Closed Mind

About 30 years ago now I worked summer vacation in a meat plant. My Saturday job was, generally, to be a garbage man - clean up the plant and and make trip after trip, dumping whatever I was cleaning into the incinerator. The plant was not 24/7, and on weekends I was all alone. To make the time pass, and since I had no one to talk to all day, I - under the hard hat and parka - had my ear buds in and I'd listen to music.

One day, the union rep came in for something and flagged me down. He saw the ear buds. He shook his head and said, "kids today."

Fast-forwarding 30 years, I was out last week on the lawn tractor cutting the neighbor's lawn. He was in an accident at work and hurt his ribs, so I figured it'd be a nice thing to do. Dutifully I grabbed my blackberry (hey, don't judge) and ear buds and while mowing streamed music.

An older person in his 70's walked by and saw me. He told me later, "You kids today. Electronics on a lawn mower ....."

In a piece that I recommend, Matthew Ball analyzes the changing media landscape in terms of consumption. While old media businesses like the nets, or pay TV cling to old models, the new ones are being embraced more and more. The nets have scrambled to "become digital", but they will not embrace the new models - they are married to ad minutes, and changing would cannibalize their business model.

Mr. Ball does a great job explaining why this strategy is unsustainable, and in the end will not work.

"Today’s giants have the potential to thrive, but they’re not yet positioning for it. They all reach millions of Americans each and every day – often entertaining for hours at a time through the best content the media industry has ever created. But they continue to allow this market leadership to erode. Rather than try to own the content feeds of the future, Hollywood is focused on wringing every dollar out of its legacy model. As Barry Diller told Bloomberg late last year, “[They] don’t want to trade dollars in a closed system for pennies in the open one. That’s lovely until you don’t get the dollar anymore. And it’s inevitable.”

I'd argue they know it's inevitable; they're smart and have fancy degrees and read all the important books and newspapers; they attend the proper conferences.  I'd submit they completely see the writing on the wall. But because they are of another generation and it's all they know, it just doesn't seem real. Tweaks feel like the right policy, because watching video on a mobile phone on demand is something that they don't do; Netflix was a fad that would die out; Youtube is a place to watch cat videos.

Market leadership is coming from those in a completely different generation; those who have grown up in the present, and are moving with the present, not against it. To them Youtube is the next subscription TV network, twitter is a medium for live sports; Netflix and cord cutting is all you need.

In horse racing I see very similar in my travels. We speak a lot about the industry's marriage to the status quo and it's a common complaint, but I think it runs much deeper. It's about not being able to see the change that is coming because the concepts are so foreign.

It's hard to see that the core pari-mutuel model is a thing of the past; not "will be", but "is". For example, if horse racing does not offer fixed odds wagering starting like yesterday, it's a relic, because no person born today will ever be a part of such an archaic model. In ten years, telling an 18 year old kid who is playing a skill game that he doesn't get to see the price he will receive for a wager is like telling him to dial up Susie's dad and asking his permission to take his daughter to the sock hop.

It's hard to see that TVG will not exist at some point - hopefully just because it won't exist as is, not because "racing is dead." But make no mistake, that kind of delivery system is well past it's future date at the present moment. Racing just doesn't know it yet. 

It's hard to see that data is free flowing, and API's and all that funny stuff you read about Mark Zuckerberg doing is the present, not the future, and if you're not doing it now, you're years behind. It's hard to see everything will be living in the cloud, where we, as consumers will not own anything in the not-too-distant future, we will rent everything. When we want to use it we'll use it; when we don't we won't.

It's hard to see that - like in content distribution as Mr. Ball explains above  - pennies in an open system instead of dollars in a closed one is the system. Racing can't embrace the fact that it is a high volume low margin business. It will have to be exactly that soon; not because I say so, because the generation behind me does.

In my view (and it's not mine, it's from smart people and it's widely held) all of the above will will have to happen if any industry or business in this age wants to function and thrive. But to racing, these concepts are so different than the concepts they live with each and every day (and have for generations) they are completely alien. They're so unfamiliar, that even opening their mind a crack to see them is difficult.

In twenty years 25 year olds will be gambling in a completely different way. We'll be walking by them, shaking our heads saying "kids today". Unless racing opens its mind they'll be gambling on e-sports, or Wimbledon, not the third at Belmont. And that will be a shame.

Monday, July 10, 2017

Do You Think You Can Beat the Races? Here's Your Test

In horse racing you'll find a lot of opinions, some of which are right, wrong or debatable. One that is considered an immutable law of racing, however, is that winning long term is very hard; so hard in fact, that without lower takeout through rebate, I'd submit only a handful of people could ever hope to beat the rake.

What makes the game more difficult than ever, in my view, is that yes, information is more flowing now, and fields are shorter which makes chalk more formidable. But more than that, one piece of truth has been harder than ever to test -- if you can't win while betting only the win pool, you don't have enough skill to beat exotics. Exotics are everywhere, and for newer players they're a black hole of bankroll death because the rake is high, and ticket structure (along with keeping your wits about you through inevitable bad losing streaks) is a learned skill. You can, and will, lose money faster than ever before.

With that, I was perusing the interweb and saw this:  A 10% win rake offer from DRF until September 15th at selected tracks*.

If you've ever wanted to learn if you have what it takes to beat the races (and can't get a proper rebate structure to test your skill) this, in my view, is a perfect test. Bet win, pay ten points, and at the end of the test see what your ROI is. If, again this is my opinion, your ROI is in the mid to high nineties or better over this time (betting regularly, not spot playing), you're on to something.

It's really difficult to find proper pricing in racing, if you're serious about trying to beat it. It's more difficult than ever. With a win bet test, and if successful, seeking lower takeout with a bigger bankroll, the game gets a whole lot easier to figure out.

Have a nice Monday everyone.

* fine print, ID, VA, and (of course) California residents are not allowed into the offer. I feel so sorry for California players. I don't know how you even function as a customer of this sport.

Wednesday, July 5, 2017

When You Can't Find New Customers, Go After Someone Else's

Crunk >
This seems to be the crux of the entire sport of horse racing right now - not expanding the tent but inviting people from other tents into theirs as a measure of success.

Each day, you and I as regular players see examples of it.

Why do tracks post drag? Is it because focus groups discovered that sports bettors have a deep attraction to watching a flashing zero for eight minutes? Maybe it's because new fans love watching horses walk around in a circle behind the gate; it brings them back to their whimsical youth when they liked the merry go round at the county fair.  In this delirious state, high-level racing researchers discovered that endorphins in the brain are released which makes them want to wager.

The jackpot bet arms race sure doesn't appear to be something that is attracting new players. What it does is park a customers money in a single track's betting account, and if these bettors want it back they better keep playing my track, not that other track. Then one day we'll let all this parked money go and a whale from the Oregon hub will take down a big score.

Where it gets really weird is when we truly examine the above two items.

Post drags anger existing customers for a hundred reasons you've read here, and on social media or chatboards. Jackpot bets are horrible for customers; customers the game needs whole, or at least interested and playing. Parking their money at 60% takeout is torture.

Racing is in such shape that a strategy that i) annoys core customers and ii) takes 60% of their money (so they have nothing left to bet with) is considered a viable one. And it's such a great business strategy that when one track does it, so does another. Really.

I don't think McDonald's is formulating a pro-growth plan that makes customers wait longer for their food, and when their food finally arrives, they keep 60% of it.  Wendy's isn't reading about it in Barrons and saying "hey, great idea, we should do that too."

In racing, somehow, someway, in some form, this is considered a way forward. 

ADW's (many track run), racetracks (minus a few like Kentucky Downs), and the industry as a whole has appeared to given up on outside growth. They've centered on getting their customers from other racetracks. Maybe it's a lack of imagination, the wrong people in the wrong jobs, or the right people in the wrong jobs. Maybe there's just no hope for growth and this is a proper strategy.  For whatever reason, racing's entire being is focused on the parts of its sum. That, in my view, can't ever end up in a good place.


Strangest argument I've seen for not lowering takeout rates - "when [track A] did it, revenue did not go up for the meet." Since takeout changes are long term that's obvious. If the sport wants to increase revenue tomorrow by billions of dollars for 2017 they should raise takeout to 80%. I'm serious. They will make lots more money..... this year.

The Queen's Plate handle was over $13M on Sunday. Woodbine does some great work with the event and should be commended. However, Queen's Plates up until about 2009 had minor-league betting distribution and rebate shops were exempt. As well, the dollar has moved down about 30%. With 70% of the handle from the US, that represents a 21% handle increase on its own. Again, they've done good work and I don't want to be a Darrin Downer and gloss over that, but some perspective is in order.

Owner (whose horse wasn't even paid into the race) criticizes Jeff Gural for his track rules. This really made me, as the kids say, smh.

Enjoy your Wednesday everyone.

Tuesday, July 4, 2017

The Changing Horse Racing Rebate World

DeRosa did a little bit of 4th of July tweeting today on the twitter:
He's generally right when it comes to casual players, of course. Four team parlays at terrible juice are still popular in sports lotteries around the world, because people are playing to be playing. No player alive can bet into Parx juice (other than maybe spot playing) and end the year up money, but it still attracts some handle.

What's not quite correct about the Parx numbers - and this has been true forever - is that Parx still does decent handle because of low takeout. At the present time, a large player doesn't pay 30% for supers, he or she pays about 9% - rebates for Parx are in the 21% range for serials.

Without that low takeout, Parx's handle is in the toilet. I doubt they'd do more than $700,000 a day.

This has been a phenomenon we've seen for some time - lower takeout in horse racing has been delivered through rebate. But that too has changed.

Ten years ago, lower takeout was achieved through rebate for anyone who looked for it. If you were betting $50,000 a year and wanted to get better, you could through a price reduction; for example, you too would pay about 9% for a Parx trifecta. Now, with increased signal fees to smaller ADW's, that margin has been eaten away. Those playing $1M or more a year (many of whom are funneled into CDI and Magna's rebate system) can get the largest price breaks.

As well, the largest signals - the ones most want to play - have had fees go up for casual players seeking lower juice. A rebate to a medium sized player at Santa Anita, for example, will be in the 3% or 4% range on their 22.68% exactas - paying about 19% takeout. For a large player in these track run systems, he or she will get a rebate in the 12% area, paying about 11% takeout.

The result of this, in my view, is threefold:

i) Smaller tracks have subsidized a larger track's handle from receiving more margin from players  in the $50,000-$500,000 per year range

ii) An important funnel which cultivates medium sized horseplayers, and helps turn them into larger ones through better pricing, has been hampered

iii) Medium sized players are getting ground down by higher takeout more

Twenty-five years ago rebating was a bad word for horse racing, because those in power had lived with a monopoly for so long they did not respect the effects of pricing.

Ten years after that, with handle increasing rapidly from this very subset of customers, they realized how important it was, and the system was much more laissez faire.

Ten years after that, the system has been regulated by the large signals to their benefit, and the medium to smaller horseplayer has been hurt.

What ten years hence brings is anyone's guess. However, the way the current system has evolved, I'd suggest it will be sub-optimal, and will likely continue to be controlled by the large tracks in some form. That's bad news for the horse racing customer funnel (more food trucks, less good pricing for them to learn the game), but good in the short to medium term for the big tracks (more market share).

There are two possible solutions: Lower takeout at the source, or expand rebates through an industry-wide customer cultivation effort. Neither are likely, however. The big track entities like it just the way it is. 

Enjoy your 4th of July everyone.

Monday, July 3, 2017

Penn National Trump Tweets

In case you hadn't heard, there was a trial last week in federal court regarding Penn National trainer Murray Rojas, and the verdict came down:
  •  A Pennsylvania-based trainer has been found guilty of "misbranding" animal drugs and related conspiracy counts after a split verdict in a long-running, high-profile case involving alleged race-rigging at Penn National. However, a federal jury on Friday cleared trainer Murray Rojas of the most serious charges of wire fraud and conspiracy to commit wire fraud, which could have left her facing jail time.
The result is fairly straightforward: those trainers (and despite what you may read in the racing press about this, there are many) who use raceday meds - through prerace or otherwise - should be on the lookout for Elliot Ness. However, proving pure fraud which will land you in the big house is pretty hard to do. Still, the case clearly shows that things have changed. Business as usual in some barns isn't business as usual at all.

What's more interesting to me is not the case itself, but the reaction to it. On one hand we have the racing apologists, who don't even want to seem to say a word about the case, with a tacit "boys will be boys" support for such actions. On the other, we have those who believe what the federal prosecutors proved happens at Penn National (as seemingly a matter of course) is the worst thing in the entire world.

Both narratives, in my view, are a little too polarized.

If you believe prerace - in the form of brown bottle backstretch garbage, or vets charging $400 a pop for a "cocktail" on race day (which in many cases is 100% legal) - is not an issue at all you're probably part of the problem. If you believe everyone who tries to keep up in the cutthroat claiming game is some sort of John Wayne Gacey of the equine set, you're probably not doing the game any good either.

The answer probably lies somewhere in between.

No, raceday prerace should not be excused if the game wants to be where it needs to in modern society, and in fact, as an investment vehicle for horse owners. These practices need to change, and the penalties need to be severe for those who push envelopes. But let's save the jail time for those truly doing the really bad things, like pain killing which can result in horse and jockey death, or importing heavy drugs to defraud the public and fellow horse owners.

The reactions to a Trump tweet that's uncouth or offbase is often excused by a bunch of people. On the other side you'd think the man committed murder. It's uncanny, based on bias or otherwise, but it always leads to the same place - nowhere. With Penn National, excuses or over-the-top reaction with little in between will probably cause similar to happen. Being balanced and introspective is, in my opinion, the only way the sport will solve its myriad problems.

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