Friday, August 30, 2019

Gambling - Skill Game Success Must Be Achievable

I was reading the Atlantic's Derek Thompson's book Hitmakers this week. Thompson explores a lot when it comes to marketing, business and human psychology and I found it kind of interesting.

One section of the book is devoted to why some games catch on and some don't, where he introduced a concept called "MAYA".

To illustrate his point, he talked about Tetris, the best selling video game of all time, created in the 1980's by a Russian programmer, and Minecraft, the second biggest seller ever. Both games, the author contends, are pure puzzles not unlike lego or other childhood games and they have a few common themes.

"The level of play must be simple enough to execute, and the point of these games is neither to make players tear out their hair nor give  away the secret too easily," he writes. "... these [most successful] games are designed with what neurologist Judy Willis called an achievable challenge. People will take up a challenge if they think they can solve it - Most Advanced Yet Achievable : MAYA."

In terms of gambling games, this is pretty obvious isn't it?

Poker is a tough game to learn, but it's not overly daunting. And, with low juice you have a chance to win - MAYA.

Black Jack rose to prominence in the 1960's with the classic book, Beat the Dealer. You can beat blackjack, if you try, and someone is showing you how - MAYA.

Sports Betting has been around forever at about 5% juice. It's a tough game to beat, but it feels achievable to millions of people because the house edge is not usurious. MAYA.

When the misanthropes on twitter talk about grinding out in horse racing, jackpot bets kill the game, there are no low takeout bets to allow people to churn, and all the rest of those mean, nasty things, they aren't being misanthropic. They're just telling you that betting horse racing is not MAYA; succeeding at it is not achievable to the masses like those other games. And if the business would do more to make solving the puzzles (at potential profit) more achievable, the sport would be better off.

Have a great long weekend folks. And best wishes for a safe weekend to our friends in Florida and area.

Tuesday, August 20, 2019

Data Can Market Itself into Something Really Big

I finished a decent book recently - Digital Marketing in an AI World - about artificial intelligence in marketing, and big data.

Author Fred Vallaeys was one of the earliest google employees and he was involved in a lot of the big data (and systems) google has created over the years to enhance their marketing platform (which still makes up almost all of the company's revenue).

In the book Fred made a couple of interesting points that relates in some way to horse racing.

One of them - software, big teams, big data and wagering - I will cover later when I have some time. The one I'd like to share some thoughts relates to "the data"; a topic not unfamiliar to those in this sport.

Fred noted that back in 2005, google looked into the purchase of Urchin. Urchin was a system that collected data from various sources and allowed a business to see where pretty much every metric they could imagine was coming from. I used the system in my work, and it was a leg up. There was a lot of money being spent on developing these analytic packages at the time, but it truly was nascent.

Google being in the space scared a whole lot of folks:

"Many people were afraid that this was going to kill the analytics industry. Chills went up the spines of businesses and vendors who were installing tracking systems," Fred wrote.

When google announced this package - one they could charge a high price for; this is called Google Analytics today - was going to be free, it was even more concerning. It could be the end of many businesses, in a new space.

The result was the exact opposite:

"Because google made analytics plentiful and cheap, all of a sudden everyone was paying attention, and able to afford analytics. This turned out to be a huge boon for the industry. Businesses began to say "this is something we should do more with."

This freeing up of the data caused massive ripple effects, and it sure didn't kill an industry.

Back at a conference in about 2004 I hung around with these folks from Utah, all smiling and wearing green shirts. They had an awesome tracking and analytics company, but they were quite small. As demand for analytics grew, though, so did they. Four years later the small team were rich - Adobe acquired them for $1.8 billion.

Google freeing up data and making it all very mainstream no doubt helped them - and others; there were dozens of these companies, and many are still in business today - succeed. It created a massive ecosystem where each and every new entity - third party ads, internal ad spend (like Amazon) - and just about everyone else can enhance their sales process and grow their business.

Unlike web analytics which is still growing today, horse racing at the very best is stalled. Perhaps using institutional roadblocks and heavy regulation to keep others out is ROI positive in the long-term for the sport when it comes to data. However, when we look at where the growth is coming from in other industries, it makes one wonder. If Equibase invited participation and intra-sport growth through transactional-type economics, would the sport be better off? Perhaps it would.

Have a nice Tuesday everyone.

Wednesday, August 14, 2019

Fixed Odds Betting Solutions Seem Simple, Because They Probably Are

You might've heard a lot about fixed odds betting over the last few months.

In horse racing, some quarters believe that fixed odds wagering would be welcomed, primarily due to the failings of the pari-mutuel system - namely, money dumps at 1 minute or closer to post, making the odds board look like barely a suggestion. I'm one of those people, in theory.

The gripes about fixed odds wagering frequently revolve around the immutable truth that, at times (especially if you have a clue what you're doing), your wager size will be limited, or the book will not even accept your bets - the "no sharps allowed" phenomenon.

This is not difficult to understand, of course. If someone is making 1% or 2% returns with lots of volume, your book can get killed in a hurry at $5,000 or $10,000 per bet. In a sport like horse racing, with billions wagered, the inside money, the sharps; it could be pretty hellish for those taking the bets.

What I find curious about this whole system is that the problems are completely obvious, but we've seen a solution that's already been vetted and works - a betting exchange.

If you wanted to bet $20k on a soccer game in the UK, it wasn't overly difficult with an exchange. Ditto if you wanted to get $1,000 down on a horse, or even an NFL game. There was usually someone there to match your price - there's sharp money on both sides after all - and if there wasn't, you'd hang your bid (or offer, if you prefer) at a more attractive price and would probably get matched.

The advantages of this system were pretty clear. There was little risk to the bookie and the consumer could place a bet of virtually any size, seamlessly, at takeout rates which encouraged volume and sticky LTV's. In addition, those who were "stuck" in a position, either personally or owning a book, could lay off action, or balance. It could be used as a clearing house.

Earlier this decade, though, the largest exchange - Betfair - went public, and then was swallowed up, as we often see in the current M&A century we live in. Perhaps the new owners needed more margin per customer and the book itself was better for that, or maybe there was another reason (or fifty); but for whatever reason, the exchanges were not marketed.

Despite this technology and its numerous advantages, it's not being used like it even was a decade ago. It's the cousin you forgot you had.

Meanwhile, markets have long taught us that when there's demand, there's going to be supply. In the Far East, unregulated betting exchanges and similar services have popped up. One exchange alone is rumored to be doing over $50B in matched markets - a good deal of it in horse racing. This excahnge was rumored to be bringing in close to 20% of Hong Kong racing's turnover, although that's probably high. There are several others, some in my view pretty scary, which are linked to money laundering and organized crime. 

As well, new unregulated full service betting companies are doing what we describe above - using the exchange as a clearing house. I won't link the site, but I noticed one betting service scours the web for your price, and if your price is not available, it will automatically place your bid for you on the exchanges. With some regulation it would be pretty much the perfect betting ecosystem. It's exactly how this is all supposed to work.

What if racing - with its near monopoly, regulatory capture and $500M or more in subsidy - created a system like this for the sport a dozen years ago? Perhaps in 2019, Draft Kings and other books, now happily taking sports bets, would be a forgotten cousin to the racing exchange.

Fixed odds betting is fantastic for horse racing. Placing a bet at 5-2 when you like the horse at 5-2 and getting 5-2 is the way things should work. However, it's simply not the way it is, or it appears it's ever going to be. For that we should not blame fixed odds, we should blame the system the power brokers have created.

Have a nice Wednesday everyone.

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