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.


Arizona Joe said...

I agree with you wholeheartedly that most older baby boomers do not understanding how media is consumed today and tomorrow. And your argument that along with media will come new forms of gambling is cogent.

While in law school, I did some odd jobs for the most successful bookmaker in Ohio after Jimmy the Greek Snyder. He spent a lot of time on his own byzantine accounting system in order to get an equal number of bets on both sides of the ledger, and thus make money on the juice.

I am new to exchange betting. I noticed that the vigorish for those bets is noticeably lower. Is the reason for the lower commissions because digital exchange betting is more cost efficient and precise? And that exchange betting is less risky for those that hold bets?

It seems to me that the internet now matches up back and lay bets instantly, and thus the bookmaker has much less work.

However, the old guy was correct in criticizing you for using an electronic device while doing the mowing. A power lawn mower, either pushed or riding, is an extremely dangerous instrument. It is easy to become distracted. Hence, electronics can cause you to either become injured with mowing, or most likely to do a careless job cutting the grass because you are not paying attention.

In many cases of work in the real world, digital is not your friend. See the book "The Glass Cage" by Nicholas Carr.

For a time, I worked in the emergency room and I saw a lot of law mower accidents.

Pull the Pocket said...

Hi Joe,

Thanks for the comment.

Exchange wagering is (more or less) predicated on driving the most volume for profit. Betfair, for the most part, has paid their fees to racing based on gross profit. That is much unlike the system in North America (and some other parts of the world) where a share of the margin is racing's revenue. Betfair's model, by definition, is lower rake and more volume, with hopefully more profit in a win-win. It is a high volume low margin model, for the win pools.

Thanks again for reading and commenting!


Anonymous said...

Every study conducted and paid for by racetracks that I’ve read about, close to 40 years’ worth, has come up with the same conclusion: Lower takeout for a higher volume of play that would increase total net return. The results have been pretty much laughed at by all tracks and states (I’m talking about you, California). AS PTP notes, that's not a recipe for long-term survival.

Racing doesn’t really start to compete until it reaches the 10% vig of sports betting. How much does an across-the-board reduction to 12% get us? That’s still hard to achieve with so many greedy mouths to feed. Yet how can a track with an existing Betfair presence just sit and wonder how Betfair can pay tracks a fee off 10% vig? Does “The Glass Cage” have a section on the loss of valueless racetrack executives jobs?

The number of foals continues to drop in the US. Tracks are still reducing racing days but still try to run all year long. Collapse is inevitable but slow. Rather than try to subsidize a failing industry, it calls for buyouts (if you’re sympathetic) or forced closings (if you’re not) of tracks, farms, racing-related businesses that won’t survive anyway. A lot of tracks would deserve and get the axe.

States’ current cut of the vig (which would be reduced) could kick into a combined policing/administrative superagency (Hong Kong); two agencies would avoid a monopoly. It would eliminate the maze of rules today and would allow WADA-type testing. A reduction to a series of shorter meets is in order (Australia, HK). Full fields encourage play, not expensive ones. Purses should end up much higher this way, to be earned on the way up (Kentucky Downs). On each race day, there would only be tracks that could fill a schedule staggered in 5-10 minute intervals (Australia), something US tracks mostly still won’t do. So that’s (say) 4 t’bred tracks during the day, 4 at night with carts and QHs holding down the (traditional) slots.

Stockholders need to be encouraged. Let tracks carry purse overages from one meet to the next. That’s money/value right there, though it makes a track vulnerable to takeover and looting. Separating the asset from the main business would prevent that. A leaner business model would be attractive to investors.

Track employees then become travelers unless they want part-time jobs – it used to be this way. Fewer physical racetracks and a better-paid dedicated core of staff reduces costs and thus contributes to lower vig.

The cheap fair meets will survive, I’m convinced. And a horse retirement fund should be worked into all this.

The world described in “The Glass Cage” (2015) has already arrived. Carr worries about self-driving Google(!) cars and the Airbus plane that pilots apparently couldn’t fly. It "forgot" the 2009 example of Capt. Sullenberger who let the plane land itself on the Hudson, as water landings by humans have usually been fatal. It couldn’t give the example of the highly publicized Tesla lane change fatal crash now blamed on recorded pre-set speeding and driver inattention after multiple system warnings. Like most lawnmower accidents, stupid is, as stupid does.

- Eudaemon


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