Wednesday, October 28, 2020

About those ADW Splits ...

There was a discussion - and yes, I realize this is like a Christopher Nolan movie - about ADW splits on the twitter yesterday. It was spawned by the venerable Pat Cummings tweeting the following:

 "More of a share" has been the mantra for fiefdoms in this sport since about forever, so this is nothing new. But one thing that bothers me (and I know most of you, too) is that when you're not building wealth, or growing, taking more of a share can end up degrading wealth creation and growth, and no analysis in this sport ever seems to take account of that. 

If an ADW makes $50,000, this analysis contends that if you take $40,000 of that $50,000 for purses, nothing will change. We're applying single variable conclusions to a multi-variate problem and it can be very maddening. 

In the ADW world, gross margin is made from the takeout minus the host fee (along with several other fees). For simplicity, let's say net margin for the Acme ADW is 5%; that means if $1M is bet, the ADW takes home $50,000 for their business. Of that $50,000, $30,000 might go back to you, the customer, to encourage you to play more and stay a customer of horse racing; a portion may go into marketing for customer outreach; a portion to promos. 

That money is reinvested to grow wagering. The $30,000 alone, with a modest churn rate of 7 means $210,000 of added handle to the sport (of which a fixed percentage is returned). As well, marketers and businessmen and women will often talk about Lifetime Value of a customer, and the LTV goes up when perks like this are added to the mix, when they are taken away, the LTV goes down. LTV is simply future revenues. 

This is not static. In our example, sure at this distinct point in time a set of purses have gone up by say $20,000, but a month or a year from now that $20,000 might not exist because the players' LTV has gone down by X times and they are not contributing near as much through handle. 

At a Capital One or Discover card meeting you won't hear about the elimination of 3% cash back, front of the line concert tickets, discounts on gift cards, or whatever to increase general revenues, with impunity. In racing - in some quarters, not all; certainly not CDI analysts or the O'Rorke's at NYRA of the world - this seems to make perfect sense. I haven't got it since it was brought up 20 years ago, and I don't get it now. 

Until the sport rows the boat and doesn't worry about what each paddle is doing I can't see handle increasing. I just can't see the sport growing. It's a pox on the sport, and in my view, it makes seeing a positive way forward very difficult. 

Have a nice Wednesday everyone. 

Note - I hope the post above wasn't read to be about Pat's article, rather than the simple fact racing tends to focus on the small items like this, rather than larger ones. Pat and the TIF, I believe, have always centered on growing pies not splitting them; trying to find the unbelievably elusive common ground that is (at times) unfortunately needed in a sport devoid of leadership. They have a difficult job and I don't want to add to the chorus. I support them, their hard work and their vision and wish them nothing but good luck. 

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