Thursday, April 30, 2020

Price Controls for Racing - 15% Across the Board Takeout Anyone?

In this COVID world where up is down so often, we've been reading quite a bit about price controls - i.e., governments, not the market setting prices.

In one such instance, San Francisco recently capped what food delivery companies can charge restaurants in commission at about 15% (below the regular charges of 20-30%) hoping to "help restaurants".

Uber Eats and Door Dash, as you may know, charge a delivery fee as well as a commission to restaurants for their gross profit (about $8 on a $60 order). The consumer gets hot food at their door, via an app where we can follow progress, and which also allows us to pay seamlessly. The restaurants don't have to pay drivers, insurance and worry about load.

This is a relatively nascent business with both delivery companies losing money, and the ecosystem finding its feet.

Now, like with most price controls you may ask yourself - why would the Mayor of San Francisco get involved at all?

Uber, to increase demand, has been waiving delivery fees already. This means you and I can order from restaurants and get our food cheaper.

But what about the restaurants? They are paying Uber mostly the same rates (eating into the restaurants margins), but because it's not  monopoly we have someone else to fill that void. Door Dash, rather than having the consumer pay, sensed a growth opportunity giving half their margin back to restaurants, delivering $100M back to their 150,000 partners. They sliced their commission rates to less than 15%, done before any price control.

These two companies are - like Amazon 25 years ago - marketing through margin and price (not advertising), with two different tactics. One to the end user, one to the supplier. Prices have come down during the COVID crisis and delivery can be expanded, not curtailed, which (theoretically at least, this is a new market mechanism) is good for the consumer and restaurant. And it didn't take a politician to make it so.

Meanwhile, let's shift to horse racing.

What if, say congress, through this Jockey Club sponsored legislation on lasix and a hundred other things, passed price controls on takeout. No track could charge 15% or more on any bet.

Don't laugh, it's been done, in free market Australia, where the rate cap was 16%. Remember the 0% takeout Fat Quaddies? That was to give the excess (charged over 16%) takeout back to the customer. 

First off it'd be good, right? 15% is less than the blended 22% we currently pay (top line, leaving aside rebates for this example) so the consumer wins.

Would supply, like with Uber Eats stopping delivery to some areas in San Francisco with this decree,  fall? Would tracks show fewer races? Likely not.

Would demand fall? No, the prices are lower. Demand would rise.

Would tracks do this on their own, i.e. like how Uber and Door Dash pricing mechanisms changed through good old-fashioned competition? No, they would not. Tracks have had literally 50 years to do this themselves and they've moved takeout up, not down. They don't compete on price, they follow each other around setting prices, like a Standard Oil monopoly.

Should we as players support a price control for racing?

I can't do it, because I hold out hope. Hope for expanded rebates; hope for a better pricing; hope for dynamic price by bet, like lower takeout for win place and show. I hope for optimal pricing.

But, this business, running their psuedo-monopoly-average-cost-pricing model is completely unlike the nascent food delivery business. And I must admit, it's a hell of a lot better of a candidate for government intervention through price ceilings. I'm sure - frustrated like many of you are at this business - there are more than a handful of you ready to dust off the Socialist Party ID's. Who can blame you.

Have a nice Thursday everyone. 

Wednesday, April 29, 2020

Takeout! And More Stats; A Deeper Look at Paulick Column

The wonderful and cuddly ITP said something on the twitter yesterday about takeout:

This is in reference to the Paulick Report article where, to lower the juice strategically for customer engagement, industry-wide 5% daily rebates were proposed.

ITP's tweet can be a bit of a mind-bender for some, so a quick explanation.

These tracks charge somewhere around 4% of takeout to the ADW's which are carrying them (their signal fee). The other, say 15%, of takeout is earned by distributors.

The tracks themselves earn every penny of on-track takeout (and have similar deals with other tracks - earning the bulk of takeout - from what on-track patrons spend on out of state tracks). But, of course there is no on-track betting volume with no fans.

ITP's math rightly says: Lower takeout to 12%, Xpressbet gets 8% instead of 15%, our track gets 4% just like we always do, so we're net equal. And because there are so few tracks going, and higher payouts (lower takeout) increases churn (the churn rate on 12% juice is about 8.3), it increases total handle. Which means more money to WRD.

Because there are so few tracks going, the small tracks do have some pricing power, and Xpressbet would conclude (in a perfect world, in horse racing they might just not take their signal) 8 percent is better than no percent. 

It's a simple concept but it's not the way things are done. Nothing is very simple in horse racing, which is why proposing a rebate to reduce takeout is more realistic and effective than an across the board takeout reduction.


The Paulick Report article regarding some statistics on marketing and customer retention was published yesterdy. I thought I'd share a few other thoughts and stats from some research.

First, some stats on why racing should be having a boost in signups, and viewership (without doing anything but racing), via the Acquisio report. 
  • OTT video streaming was up in March alone, 24%
  • 56% spent more time playing online games; Stream saw a record 20 million users on lock down day in the Northeast. 
  • March saw 35 million downloads of fitness apps; revenue from March was a record from these apps. You're at home, and it appears you want to work out (not me, but you).
  • Netflix saw 16 million new account signups. 
  • The new Call of Duty game had 30 million downloads in ten days, a record. 
We don't have April's numbers yet, but you know they're up even higher than that.

The nimbleness of some of the companies selling you things in COVID, with lead gen, demand gen, or pure e-commerce is displayed by an increase in "addressable geo-fencing" spend. Normally advertisers try and target you when you are near shops, or downtown (geo-fencing), now they're targeting you in your neighbourhood (this sounds creepy, perhaps it is, but people sign up for things like this).

Horse racing, like these companies have been attacking you in your house too - the TVG/NBCSN coverage comes into your home each weekend.

Via AgilityPR, millennials (not shocking) are the most likely to change spending habits via COVID (54%) while 49% of gen Xers follow closely. The least likely are boomers at 33%.  This, sadly or greatly, depending on your perspective, is probably good for horse racing. It's likely younger people will find something to do, while older people fall back on habits. A habit is betting on horse racing again.

I've believed for some time now that wishing for younger demos to play horse racing might be misguided, or at the very least, not optimal. There is serious pent-up demand from players who left racing for other pursuits, and from older demographics who are predisposed to play racing but do not anymore for the multitude of reasons we speak of every day.

I hope you have a great Wednesday everyone.

Saturday, April 25, 2020

Packaging the Product & Saturday's Blog Piece

I could not think of a title of this piece so I settled on the above. I am quite creative. Anyhow, because I am totally bored on this Saturday morning, here's my Saturday Blog Piece.

The Virtual Kentucky Derby is next week, in place of the Real Kentucky Derby. Thinking out loud on the twitter I surmised (with national TV coverage) why they could not come up with something better to grow the sport, and/or increase revenues (or signups etc). Peter Rotondo of the Breeders' Cup (who knows a thing or two about these television deals) set me straight.

That makes sense. However, I will double down.

Rather than TVG showing haphazard races on NBC Sports on a Saturday, why not Racing Day in America, where we focus on betting. If the tracks could take a moment to work together on off times, maybe six races in an hour - with seeded pools - at three tracks for a National Pick 6 (at $2 naturally). Maybe - if Scott Daruty is on lockdown - a Draftkings or Fanduel game for an hour.

If you've got an hour or 90 minutes when absolutely zero other sports are on, and where people are craving a gamble, why doesn't racing do something to deliver it to them? We've got the NFL Draft tripling gambling revenue, we've got a gambling game and we can't do that?
Moving on in another but similar vein, PEI - Canada's smallest province with just over 100,000 people - reported no COVID positives for the eighth straight day. 26 people have had COVID on the island since February with 24 recovered. None have been community spread and there have been no deaths.

With people craving harness racing and with a COVID matrix like that, why hasn't Charlottetown Driving Park been up and running? If they sold their signal at 5% they'd likely get it (ADW's are craving content) and with no harness racing going on anywhere, they'd be making some money. Anyhow, I have a blog, so WDIK, but if we can't race in that kind of environment, we should probably never open to race again.


With the Elitloppet in Sweden an apparent go over the third week of May (and no harness racing to bet here) I wonder what kind of volume their pick 6 would generate if offered here in North America. Carryovers in the past have allowed pools to reach US$35 million. As you may know, Sweden allows corner stores and lottery outlets to sell this bet to their citizens.

So a good friend emails me yesterday. He and his wife have two boys, aged 17 and 19.  Locked down and having nothing to do, the boys are kind of bored, so mom and dad told them (politely) to stop whining and go get a job. They listened and walked down the street to the grocery store where they immediately got hired to stock shelves; 25 hours a week at a premium of $15 an hour (lots of these places are crying for people).

The next day Trudeau came out with his subsidy to post-secondary students; $1,250 a month, but you can't have over $1,000 in income a month. So, the oldest boy has figured out he could quit his job paying $1,500 a month and get $1,250 for doing nothing, or better yet (I know the kid, he's in math so he's gonna game it) he could take fewer shifts, make $980 a month, and get the $1,250 on top of it. 

Now, me and mean ITP and a bunch of others like Mattress Mack talk about lower juice, rebates, and making racing a better betting value quite often.We talk about this not being marketing related, or hats or free beer. This is why.

People - smart, thinking people of any age, but especially millennials who are a lot smarter than us Gen X'ers were - are drawn to value. They're drawn to money. If you give them a good bet they will play. If you give them a bad bet they will not play. Sometimes, like working for $1,500 or getting $1,250 for doing nothing, the decision is easy.

Have a really good Saturday and weekend everyone.

Thursday, April 23, 2020

Games Without Fans, Horses Without Numbers, Better Judging?

In the WSJ today, it was hypothesized that when sports do come back without fans, officials will be less biased and the calls they make or don't make, will be more true. This point of view is based on the work of economists written about in Scorecasting, along with studies in soccer matches:

"Their performances before empty stands in 2007 delivered the key finding of the Swedish economists’ study: Referee bias, the biggest factor in home-field advantage, all but disappeared in games behind closed doors."

There are numerous other instances where the "home field" effect was seen - balls and strikes calls in late innings, 4th quarter or third period calls, etc. There were even noticeable differences based on how close fans were to the field.

In horse racing we horseplayers are pretty conspiratorial minded. Who can blame us. With hundreds of things that can happen in a race oftentimes happening to kill our tickets, we have plenty of "woe is me". And that certainly doesn't change with the calls judges make.

Putting away our tin-foil hats for a second, though, what about our judging in this Scorecasting, Swedish study vein?

If our stewards were blind (no jokes please), meaning they judge a race without an odds board, without knowing what trainer or jockey was who; without knowledge of a carryover; the size of the purse or Grade of the race, would they show the same inclinations as sports' referees?

I suspect they would. It's just human nature.

Maybe that's why Pat "Category One Rules" Cummings is on to something. Take the decisions out of their hands more often, leaving it to the horses. Our equine athletes race without bias.

Have a nice Thursday everyone.

Saturday, April 18, 2020

The Long Awaited PTP Derby Top Five

I was tweeting last night with Carly Kay on the twitter and was lamenting how much I miss Derby Top Ten Lists.

I know I am not the only one who feels this way, so I thought I'd create one, to help us all pull through the lack of a Derby list funk.

I am the first to admit I have not really paid attention to this year's preps, but I did a little research into them this morning using google, and came up with my list. Comments welcome!

PTP's Derby Top Five List

 1. Tiz the Law - Unless you've been living under a rock, the Derby Prep season has been three words, Tiz, the and law. The racy looking Constitution colt is winning everything under the sun and is number one on this list with a bullet. 

2. Temporary Hospital - I had not heard of this horse but after doing my due diligence for the Top Five List, this colt was making some headline noise. Although I did not see it, he must have romped in the Wood Memorial with a good Beyer. I suspect he's trained by Chad Brown, although when I check Chad's twitter page, all I see is him making fun of Jorge Navarro with gifs. That makes me more intrigued - he seems to want to keep this colt's hype on the down-low, maybe to get a price. 

3. Postponed - I have not seen this colt run either, but he won both the Bluegrass and Sunland Derby. I know what you're saying, "PTP, colts who win those races rarely win the Kentucky Derby", and I agree. That's why I have him only ranked third. 

4. The Baffert Horse Who Wins the Santa Anita Derby - This one is TBD, but it's surely going to be a good wager for the first or second or third Saturday in whenever.  This big strong colt will romp at 1-9 against a stout three horse field in a fast time. It'll be 33 lengths back to third. Frank will be ecstatic. Because I like to be early and not follow you lemmings, I am on this colt now. 

5. I don't have any others. I ran out of ideas. 

I hope the above helped you get through the lack of Derby Top Ten lists. I know it helped me just to write it. Have a great Saturday everyone. 

Wednesday, April 15, 2020

Horse Racing & Diversification

"First we have no purse money left", said the Oaklawn President on why the meet can not be extended. Projecting  little of what we spoke about a few days ago, i.e. "With no slot money, where will purse money come from."

As Crunk ably notes here, "we're going to find out how much it cost racing to decouple handle from purses."

He's probably - barring something unforeseen with reopenings - correct. We're in a very troubled time in terms of long term funding for purses.

Switching gears away from the sports' dependence on slots and missed opportunities related to this money, I've been thinking about diversification.

As you probably know, diversification is a business strategy where a company lowers business risk by having several revenue streams rather than just one. If one goes poof, you have something else to lean on.

When Sharp - who made radios - switched to CRT's televisions and screens (and invested million to pivot) it was a success, but that was in the 1960's. Canon, who saw some writing on the wall with their camera business, produced copiers using their tech, and thrived as Xerox was only in the lease market to big business.

Over the last thirty or forty years, though, where the economies and business changed to comparative advantage on just about everything (companies lower costs and offer products cheaply by being super-good at one thing) this has been less talked about.

But racing is in a highly regulated market. They're not selling copiers and they are likely (or more accurately were) in a better position to meet the rules of diversification for expansion. They have an edge.

Here are a couple that come to mind - 
  • Racing has tens of thousands of customers on account. Like DFS companies, on account monies have value. 
  • Racing has a tote system in place. While people are betting sports via fixed odds, and some users can't get bets down over $50 if they're any good, parimutuel takes care of it. Trifectas for the Masters? Try that sportsbooks.
  • Racing still has first mover status on exchange wagering.
  • Contests, Derby Wars, tournament play. 
  • Racing has its own television network (through TVG). 
There's been a lot of talk of late about what government was prepared for what, when, as related to the virus. We can probably safely say most, if not all, were under-prepared for a pandemic. And not preparing for something with limited budgets and so much happening daily is not uncommon.

For horse racing it isn't uncommon either. We worry more about a $30,000 purse being cut to $28,000 tomorrow, rather than what it will be five years from now. However, when we see slots go (potentially) poof this year and decoupling causing so many issues, isn't it time to prepare? Isn't it time to build more diverse revenue streams with everything the sport has been afforded?

Have a nice Wednesday everyone.

Monday, April 13, 2020

Racing Should Be Back Soon, But Long-Term, Where's the Money?

As we hear more and more talk about portions of the economy coming back online, horse racing probably has a front seat. It's arguably one of the safest areas to bring online, with a baseline of the thousands of people who are, and have been, at work caring for animals. In fact, in the UK a decision this week about a May1st start is expected.

For the entire ecosystem a restart means a lot. Horses, like able-bodied humans, need to be doing something; they can't sit around watching Tiger King all day. For the business, two year olds need to race, because (like in harness) stakes payments are paid. The sales in the fall demand that money to be paid out so breeders can make a living.

That's all fine. However, because racing does not get purse money from just wagering any longer, this might be a world of hurt. Race, sure, but with slots closed for perhaps most of the year (it could happen) where does the money come from?

In places like Ontario where the government supports horse racing to the tune of around $100 million per year it's less of an issue. That money should be there whether slots are turning or not. But for others, do we have any idea how long this cash lasts?

In the big picture, I'd say this is a false question.

In economics we may have heard about the Environmontal Kuznets Curve.  This theory states that as an economy grows with increased economic activity and ROE driven capex it gets dirtier and dirtier, but because wealth is generated it reaches a peak, where the excess wealth allows for better choices to make the economy cleaner and cleaner. Here in North America we see this almost every day - money from excess wealth is directed to new technologies, taxes on dirty industry, mandated cleanups etc. We can afford it.

In horse racing we don't have a Kuznets Curve. If we did, we'd likely be knee deep in money. With nothing else to gamble on, with people watching Tiger King, we'd be blowing handle and revenue out of the water. We'd be making hay when the sun shines; salad days with extra ranch. We'd be one of those toilet paper companies where everyone says, "wow, I'd like to buy some of that stock."

We aren't. Handle is not a metric in a non-Kuznets Curve world.

I don't know what the ongoing budgeting looks like for horse racing if in fact it does come online in mass next month. In terms of slot cash in the barrelhead, jurisdiction by jurisdiction I just don't know. But that we have to ask this question, it signals we've already lost.

Have a great Monday everyone. 

Saturday, April 11, 2020

Cub Reporter Exclusive - Racetracks Spark Privacy Concerns

I knew something was up this morning. My encrypted hotmail account was flashing, and that could only mean one thing - Cub Reporter was trying to contact me.

"I have some disturbing news PTP," his prose growled. "No doubt you've read about Google and Apple people trackers, law enforcement taking photos of license plates at churches in Kentucky, and health passport cards. Well, so has horse racing. And they held an emergency meeting to float some ideas of their own".

"One person on the list gave me access to the highly secure Zoom feed and I got to sit in." Cub said proudly. "This is the time I usually say, 'don't publish this on that stupid blog because it's my scoop and it's secret' but this time the stakes are too high. Your four readers need to know about this."

Under Cub's direction, protected by a bunch of amendments to the US constitution, I publish his email in its entirety.


The following is a list of new initiatives floated by horse racing, to ensure handle is protected and everyone is rowing the boat in the same direction. Most, according to the participants, are easily achievable in the current environment.

TVG-Twinspires Shock App (submitted by the Thoroughbred Owners of California and the CHRB) - We tried geo-fencing and that didn't work too well, so we propose that each Twinspires and TVG app is equipped with an electrical shocker. If any customer tries to wager via the app within 150 miles of a racetrack, he or she gets electrocuted. Not killed electrocuted, but electrocuted so it hurts. Our CDI lawyers say it's permissible, and we think it could raise on-track revenue by 0.94%. Hopefully this gets people to bet into the track pools when anywhere near a track once and for all.

Six Degrees of ITP (unanimous support) - Anyone who currently follows Inside the Pylons on twitter, through six degrees, is automatically banned from racetracks. This will be enforced by facial recognition software created by Scott Daruty. Thank you Scott. This sport needs cheerleading to survive, and great ideas like this will help. ITP is a scourge with his downer talk about high takeout and Ron Turcotte parking spots. We think this can purge him forever.

Jackpot Bet Tax - Through a hidden takeout, customers will be paying this new tax when they make any bet. Many customers don't want to support 62% jackpot bets, and despite billions in slot and casino money, we all know we need these bets to survive. This will be done electronically so they won't know they're wagering into them. It's a brilliant idea, so thanks again Scott.

The NHC Purge, aka The Skiba Rule -  In response to people who complain on social media about funding and prize levels for the National Handicapping Championship it was proposed that anyone who wants to play has to sign a paper called "The NHC Doctrine". This is a pledge that no bad words are ever spoken about the NHC on any medium, even personal email (which by signing the doctrine you allow the authorities to view on a weekly basis). Anyone breaking the doctrine has to download the TVG/Twinspires shock app for punishment.

0 MTP Ruse -  It was proposed that racetracks trick customers by showing zero minutes to post on screens, when there is really 7 minutes to post. Almost everyone said this was a stupid idea so it was shelved.

The Lasix Spread Initiative -  Taking hopeful advantage of misinformation during the COVID crisis, a new rumour that horses who use lasix can spread EIPH by brushing against each other is being floated. The only hope to stop the disease is for lasix to be banned.  

Morning Calisthenics -  This was an idea about mandating horseplayers to exercise each morning because so many of them are out of shape, and this will help them live longer so they can keep paying 22% juice. It was all set to go, until someone pointed out this was once done by Hitler.

Have a great Saturday everyone.

Tuesday, April 7, 2020

Society's Off-Income Gains, Racing's Opportunity Lost

We read a lot about income inequality in the web world in 2020, and much of what we read is correct. But, as we often see in the web world, looking a little deeper we can learn a few important things.

From the late 70's to today, real wages for the lower rung of workers has stagnated in real terms (it's almost flat), but what's not taken into account is prosperity. Today we receive things above wages we did not receive 40 years ago - benefits like group health and life insurance plans, child care, transportation benefits, moving costs paid leave, profit sharing, employee discounts and more - totalling up to 40% of our salary.

In addition, virtually everything we buy today costs less. In terms of hours worked, household goods are 81% cheaper than in 1960.

What this means is that in the aggregate we're better off today, because these benefits are real. We can live better lives than you and I did if we grew up in the 60's or 70's.

In horse racing, let's look at the purse growth since 1988. It's up close to a double, but with inflation, about a double since '88, like wages, it's flat.

But, like total wages, total purses only tell part of the story.

Horse racing has also received tremendous benefits, off book. They don't have to inject capital into earning dollars because billions have been given from slot machines. Racetracks don't have to fight for a customer in New York or Toronto because it was afforded a carve out to offer their product track by track, across state and country lines. In 2006 it was given a monopoly on online wagering.

In addition, while the number of racetracks and race dates dropped, total variable costs to run the business also fell. New capital didn't come from selling stock or issuing debentures, but from the retained earnings from slots.

These are elements that any business or individual would kill for. 

While many live better lives because of profit sharing, pensions, cheap stoves or dishwashers and a hundred other things our parents were not afforded, no one can say racing is living a better life. In fact, we read a racingisdead-racingisnotdead hashtag fight on the twitter extolling just that.

Humanity has progressed with stagnating wages because it evolved, and although you and I aren't Bill Gates, we embraced the advantages given to us. Racing, in my view, has not evolved; it has not embraced what it's been given. I believe it's the single biggest failing of the business.

Have a nice Tuesday everyone.

Sunday, April 5, 2020

Wagering Horses, Like Oil Markets

I got a note on Friday from a friend, detailing his view of the general credit markets and, in his first paragraph, oil.

He doesn't wager, he trades, yet his mantra of making sure someone else is on the wrong side teaches us bettors' a lesson we all, deep-down know.

Last Monday, the consensus on oil was to be short. The entire world was running out of stockpile capacity, and supply was up thanks to the Saudis doing bad things. Because of this, especially in inland basins, the consensus view was for negative prices.

Then, next-level replaced first-level. Diplomatic pressure on the bad actors, from primarily U.S. but backed by most others, cracked the narrative. Oil prices rallied 40%, and the consensus view lost a pile of money, scrambling to cover.

He wrote, "it's a reminder there is usually no way to make money with a consensus view".

Those words involve billions of dollars a day, but they're exactly what we have to do with our $48 pick 4. We get paid when we're against a consensus view, and we get paid in multiples when that view clicks.

This process is hard for you and me, and it's hard for traders as well. Navigating implied versus realized volatility is not easy when trading oil, or making a pick 6 ticket.

But as a discipline there is no way around it; it's something we absolutely have to embrace. With 20% takeout, it's as impossible to make money with consensus as it is for people trading oil off a consensus twitter trend last Monday. "That horse can't lose" is not too dissimilar to "there's no way oil can rise this week" more often than not.

Have a nice Sunday.

Thursday, April 2, 2020

Snuffed Out

Yesterday, many of you were readying for the Cal Expo racing card, only to learn shortly before post time racing bit the bullet. As reported, the Country Director of Health instructed the track to shut down a few hours before post time.

This, to me at least (and from what I read, many of you), sounded illogical. Cal Expo raced yesterday (after applying to change their dates to Tuesday and Wednesday a week or so ago). They were not racing - at the conclusion of the Wednesday card - until next week.

Why, with two shakes of a lamb's tail; with horses warming up or already trucking to race; with track employees, judges and the betting network fired up; with everyone almost behind a starting car, would this get so abruptly cancelled when they could just cancel it on Thursday? It had to be something, right, because even in the world of government this didn't really make any sense.

It appears (and in this day and age of doctored news etc I am hesitant to believe a lot on Social Media) an animal rights activist and a county civil servant served up the snuff out:

If this email is correct, someone named "Aquawoman" - no, not a joke - seems to hold a lot of sway.

We learned pretty early on around this big wide world recently that viruses move faster than bureaucracies. In this case however, an activist sure made a bureaucrat work fast.

Enjoy your day everyone.

h/t to @gocashking for the screenshot

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