Monday, April 25, 2022

Rebates For All!

So, I did a little reading on the railway rebate system. No, stop laughing, I really did. And it was a pretty interesting exercise. 

For those who don't know, railways across particularly the northeast U.S. around 1870 were in their nascent stages, and they were controlled by very few. This is not because of some underlying conspiracy, it was just due to the capital costs involved. And these near monopolists had a pretty monopolistic way to charge. 

They pretty much made the prices up. 

If you wanted to ship your cattle that weighed 8,000 pounds 50 miles, you paid say $200. And the $200 was kind of pulled from thin air. 

Sharp people like Rockefeller who was refining oil in Cleveland at the time knew the game and said to these railroaders, "I will guarantee you lots of shipping and keep your cars full, but your prices are just guidelines, give me back some money."

They were happy to comply. This practice of rebating freight was not against the law, nor was it unsound (volume discounts are available to this day on many things). And with prices artifically (not market) set it was a business practice. 

Congress and other lawmakers in the U.S. were loathe to regulate any new business, and this paid off handsomely for the relatively new country compared to its regulation-laden, old school European counterparts. Business was allowed to thrive or fail. But, as was custom as well, when things were wacky, and the greater good - economic growth, free passage for goods - was threatened, they acted. 

This scheme was threatening to the overall business health of the country. Smaller businesses were squeezed out, consolidation and price fixing occurred, new entreprenuers and businesspeople were disincentived. 

With the passing of the Interstate Commerce Act in the late 1880's the government simply said "Rebates for All". Prices fell and the rest was (business) history. 

Horse racing, "the railroads" set their prices pretty much the same way. Takeout rates are made up, as can be done with a monopoly on gambling. And like the railroads, they rebate action to bigger players, while the smaller ones suffer.

Unlike the railroads, however, there are no gatekeepers. The business just trudges along with higher and higher prices, and rebates for some. It keeps the rail cars filled and they seem to be happy about it. 

But the business has been dying a slow death, with inflation adjusted handle stagnating; even with technological advancements and off track wagering. The funnel is not being filled. 

Some people out there believe all rebating should be stopped and things will be better, but with respect, they have not thought this through. High takeout for everyone would be the result because it's too hard to lower national takeout. And that's bad. 

But rebates for all? Yes, that would help immensely and give this game a shot in the arm it hasn't seen in a 100 years; just like it helped one of the (now) most powerful countries in world history to grow business and demand for their products.  

It'd be nice if 140 years later this industry gave it a shot. But I guess we shouldn't hold our breaths. 

Have a nice Monday everyone. 

Tuesday, April 19, 2022

Sinking the Sunk Cost

 Axios reported today that fledgling CNN+ is "doomed".  The parent company has suspended all marketing spend and began firing people, this, just a month or so after launch. Eliminating so much sunk cost is something a lot are loathe to do. Things have to be super-bad for these changes to be made. 

The thing is, CNN+ did this right (and still could succeed, as the piece alludes) because they built out a 4 year plan for success. Four years is about what normal new business allows for such investment. 

Flipping to racing, we seem to try things that we have sunk cost (hope) for a longer period of time, if it's minor, or an inside idea. We can hammer racing roulette messaging for instance, because it takes such little investment, even though it won't work.  

Meanwhile, on the important things? It's not like that. It's the opposite. 

Canterbury Park tried a lower takeout menu, and as Crunk showed on his blog, the results were - all other things equal, with his usual astute analysis - fairly good. Lower takeout is a CNN+ strategy: a 4 year one. It was scrapped almost immediately, of course. This despite being unlike CNN, it actually showed promise. 

3% cash back is used as a novelty, not a strategy by racetracks. If the business doesn't get more than the 3% they offered in like a week, it's doomed as a long term strategy, despite it showing logical and empirical might. 

CNN+ sunk a ton of money in something, got terrible results and they're pivoting. That's good and the way things should be done when investing in something new. Racing never seems to invest in something new, but on the off-chance they do, even if it shows promise, they scrap it almost immediately if the Brinks Truck doesn't roll right in. It really is, in my view, a pox on our house. 

Monday, April 18, 2022

Money in the Racing Industry Moves Rationally & Monday Note

If you're north of the 49th, you're suddenly hearing quite a bit about Canadian productivity; meaning, over the last half decade or so it's been particularly abysmal. There are many reasons we're 25% less productive than our friends down south. Rising taxes, increased regulation and other negative factors have decreased business investment wildly of late, and with firm size not being what it is in the US, we have issues. Even on a micro-scale it takes over three hundred percent more time to get a permit for a new building in Canada than in the US now, despite the litigious state of our southern neighbor. 

That people do less, work less and firms stop innovating and investing and pivot their money somewhere else is perfectly rational. It's why a lot of left-brained math folks like business. It's not twitter fights or politics, it's just well, business. 

In racing, as we all know, it's a different kettle of fish. A person investing in horseflesh is not looking at NPV's, or modeling risk; they know they're in a negative expectation game. It's probably why tax write-offs are so important. But people can only keep losing money to a point, mainly if the utility they receive is not worth it. 

And with the current state of the game - little direction from leadership and the absence of confidence or hope, large barns winning all the races, power concentrated at the top and other issues - like business investment in Canada, money moves somewhere else. Again, this is perfectly rational behaviour. 

From this blog's point of view side, it's exactly the same with the customer. As Crunk has pointed out on his twitter feed, the average ADW weekend warrior loses badly, and this also should not come as a surprise. This is a high takeout game and most of us know we'll lose. But the enjoyment, or the thought of winning keeps us going if the losses are minimized, and there's hope for change. 

With, according to his numbers, which I think are sound, people losing 39% in ADW's - that's a level of max pain few can overcome. Add the fact that field size is going down, the races are harder to win at, power is concentrated at the top, and takeout has not moved lower (even with massive subsidy), what's the rational move? To leave for sports betting or other pursuits, or bet less. 

I know harping on racing is not very interesting and it ain't click-bait (lucky I don't sell anything here on the blog). But I hope this explains why we do it. Without fixing the foundations and giving the supply side and demand side hope for a better day, a hope for change, a hope for new policies that will make the game better, investment will continue to decline. It's more than just dollars and cents, it's bigger than that. Without hope for a better day, better days can't happen. 


I watched the Pompano card last night and I'd be remiss not to mention what a wonderful evening it was, however bittersweet. The boys put on a really good show on track with aggressive drives and lots of entertaining races. And Gabe, as we'd expect, ended the track's history with a large carryover, which has been a staple of Pompano's resurgence as a wagering racetrack. The videos, the interviews, the races honoring long-time participants and employees were tremendous, and we all know it was done with virtually no budget. A hearty congrats to a track well lived. 

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