Chickens

Selling chickens is a really complex thing.

Long ago, in Florida, there was a distributor who sold the highest quality chickens. They wanted more people to consume their high quality chickens, so they contacted a group of chicken farmers in New York. They wanted them to sell their chickens at their Friday, Saturday and Sunday chicken fairs, which were all the rage because they were invested in for years. It was a ready made market of chicken sellers, matched with chicken buyers and they wanted in.

The local chicken sellers were wary, because their chickens were not the highest quality. With new high quality chickens entering the market, their local chicken sales would go down. Not to worry, though, because these high quality chickens were selling for $10 and the Florida people only wanted $3. The $7 in profit would be added to the overall chicken revenue pie. Sure the Northern chicken farmers would not sell as many chickens with this new entrant in the market, but they'd still have money. This money was used to market chickens, for chicken seed, trucks, trailers and other means of production.

They had to contact the state, and they said, sure you can import these chickens, but you must give us $3 of the $7 you make. then we'll let it happen. The chicken farmers agreed, and away things went. 

Things went along well. The local chicken farmers were selling fewer of their chickens, but with more of the others being bought, gross chicken sales were humming along. This was important, because chickens were fighting for market share from the big hamburger guys. They were going all out - promoting big greasy burgers with flashy commercials and low prices. They were coming after the chickens.

The Florida chicken makers were happy too, because the world was being promoted with their chickens. They were selling more chickens than they could have in the New York market.

One day, someone in Florida had a new idea, though. He thought "our chickens are more popular than their chickens, so we should charge $7 a chicken and let them keep $3 a chicken." The chicken farmers in the Sunshine State all agreed. Who doesn't want more money. Let's go get it.

Meanwhile up north, Chicken farmers began to realize this was why they were wary in the first place. If they don't pay they stifle customer choice and more people will go to the hamburger fairs, but if they do pay, they won't have as much money to support the local chicken supply chain and sales will go down too. Whatever they choose, layoffs will happen, chicken seed men will go out of business, fewer trucks and trailers will be bought. The state will still want their $3 a chicken, the costs for the local chicken fairs each weekend were high. It won't be worth it to sell chickens any longer.

Also, they've been promoting and servicing chicken customers with choice and good pricing. Because they were paying $3 a chicken and had good margin, they could have two for one chicken sales, and other promotions to encourage chicken eating. Now those would have to go away. People would run to the hamburger farmers. This was big stuff.

What should the chicken world do? Support Florida where fewer chickens are sold at higher prices and higher margins on paper allowing for more revenue? Or compete with the hamburger market by taking less off each chicken, and having a multi-facted distribution network, earning more and more chicken loving customers at a lower margin?

That's the question horse racing continues to face with the signal wars and pricing in general. It will probably not end up with a good resolution, for local horsemen, or customers.

The Smaller Horsemen are the Next Target

Reading Charlie Hayward's commentary today, "Good News in American Racing This Fall", there was this comment Charlie highlighted:

"Now the content provider gets 3-5% depending on the track while the simulcast site gets 15-17%, the blended takeout being 20%. Why shouldn’t it be 10-10%. In fact if a site doesn’t provide live racing why not 15-5% to the content side. The fact is the larger tracks have been subsidizing the smaller tracks by this split of the simulcast money"

Many of these tracks - small thoroughbred and small harness tracks - depend on simulcast dollars for their purses. If their track is racing live at 20% rake, then offer a new signal from a popular track like Gulfstream, they lose live handle at 20%, so they need some sort of comparable split to realize revenue.

A likely response from local horsemen is to kill the signal all together. What that does is hurt customers.

There is only one pie. More money for Stronach's slice means less money for local horsemen at some tracks.

Yes, the business wants lasix removed and it does make some sense, but that won't effect the big guys as much as the little guys. Yes, despite resellers making the bulk of revenues in other businesses, racing wants to change it up. The big guys want more, but make no mistake, the little guy will pay. The horse racing business is nationwide with hundreds of racetracks, supporting thousands of feed men, farriers, tack shops, vets and everything else. There's more to horse racing than five or six big tracks with with $30 million statues, or chandeliers. When the pie gets shuffled to the conglomerates, there are losers on the other side.

The Topsy Turvy World of Betting & Betting Business

If you are a bit of a betting and business of betting geek, the past twelve months have been pretty interesting.

In racing, we've heard from every nook and cranny in the landscape what's been going wrong.

Early in the year, handle losses, at say Churchill Downs, were due to falling foal crops. Then we heard a lot about polytrack from the usual suspects; i.e. when they get rid of the plastic, the roads will be paved with handle-flowing lollipops. Then we heard a little about those dastardly college football playoffs causing a ruckus in the betting landscape.

First off, I'm a guy who had to ask on twitter where Murray State was (I know the 50 states, and I am sure Murray is not one of them), thought the hashtag #BBN was in reference to the Backstreet Boy Nation, and watched some of the last Tennessee game only because I really like that mascot dog they have. His name is "Smokey". Anyhoo, I am certain my handle has not dropped 60% this year because of that. So let's extinguish that one.

Oh those falling foal crops. Well, handle is up at some tracks, down at others. I'm pretty sure there are not more horses having horse sex in Franklin, Kentucky (Kentucky Downs was up), than there are in Louisville (Churchill was killed). There may be a horse sex Maginot line, but I haven't heard about it and I suspect if there is one, it does not bisect Kentucky. Help me out in the comments section if I missed it.

That dreaded Poly! The evil plastic. Oh goodness, we've been telling you people this for years: You might not like polytrack; that's fine, to each their own. But the handle numbers prove someone likes it. In fact, tracks this fall that did well were 1) Woodbine 2) Del Mar and last evening 3) Turfway Park, aided by large poly fields, was up over 41% year over year. Meanwhile, Keeneland, who turned their meet into Churchill Downs dirt-east after removing polytrack, was down mightily. Please stop.

Horse racing's flowchart is an odd duck.

Handle Down > Look for strange excuses > Do more of the same without figuring out what has gone wrong and hope no one in the turf press notices

It's clear that the quality of racing (no I don't mean "Grade I's" silly goose's, but bettable racing, that allows us a chance to beat the juice) has been a real issue.

It's clear the mantra of CDI/Troutnet/Stronach/Tracknet/Monarch, or whatever such moniker that's being used now to describe a high rake, competition-stifling consortium, has not helped, but hurt gross handles.

It's clear those goofy ADW taxes in New York and Pennsylvania (and soon to come in Florida and probably three other states because horse racing likes to follow bad policy when the leaders do it) have done nothing but harm to bettors.

It's clear that states like Michigan, and Texas and Virginia, (and maybe even Murray) which have not liked the whole "internet wagering" thing and blocked it in some form, are causing a handle problem. No word if they are blocking iPhones to protect rotary dial, but it might be coming.

Meanwhile back at the ranch, other entities and businesses are taking advantage of the betting landscape the best way they know how. In fact, it is the only way to do it: They are competing for customers.  (unless you live in Cuba; there if you know someone in power, and throw good parties, your business can succeed and you can crush the little people).

The NBA has a ticket revenue problem, and its been going on for awhile. If you travel and want to go see an NHL or an NBA game, you know what that article is talking about. Adam Silver, NBA head honcho, knows it and is beginning to explore new ways to increase the NBA's popularity. He's taking a big chance with something that other leagues do not want to touch: gambling. Not only has he come out for gambling on NBA games, state by state, he has signed deals with "Daily Fantasy Sports" sites to encourage such pursuits. The thinking clearly being, if money is bet on a game, interest in a game goes up. He sees the writing on the wall and has to do something.

In micro-terms, these DFS (daily fantasy sports) sites are using the UIGEA carve out to their advantage, and they are acting like real businesses act. A new entrant into the space, "Fantasy Up" is offering no rake until April 1, 2015, and $300 signup bonuses. Think about that for a second: That's like TVG offering no rake and a free $300 to bet. Hell, my handle would be up 10,000% if that ever occurred.

The sports entertainment world is dog eat dog and survival of the fittest. The companies who earn a living off such, in myriad ways, are under the same marginal cost, burn the marketing budget, earn your business method of business operation as any good company is under in a capitalistic ecosystem. There's no talk about what's handcuffing them, no consortium's protecting slices, no talk about college football or poly or foal crops. It's about noticing a problem and trying to fix the problem.

The $.50 pick-5 returns $26.62. The $.50 pick-4 returns $4.75 at Big A
— David Grening (@DRFGrening) December 5, 2014

That's one big reason why they're winning and horse racing is losing. And with the headlines in racing that we've seen the last month, they're going to keep right on winning.