One of the Kentucky Derby's Two Tribes is Taken For Granted

Horse racing, in my view, has always had a problem subsetting their customer base.

I think I first realized this many years ago at a conference. I talked about some betting stats and threw up some gambling charts on takeout rates and rebates. These showed the obvious - regular players, if given a price break, invest back in the pools without thinking, and it's a good way to reward customers to keep them engaged.

A track person replied, "I went into the grandstand and asked a handful of people. They didn't even know what takeout was."

Oh well, that's that then.

This weekend, the Kentucky Derby nicely illustrated these two tribes. The fans, dressed to the nines, having fun partying, along with the folks who bet Patch because he looked super-cute. On the other side you had folks who were constructing tickets with the precision of a NASA engineer, watching replays over and over; trying to find an elusive Derby day score.

Although there is some overlap of course (there's nothing wrong with getting dressed up, going to a Derby party and betting at the same time), that's generally what the industry is looking at. 

I had a nice glimpse of that during a phone call yesterday.

A friend who is a professional gambler was playing poker and betting a few races downstairs at Woodbine. The concierge, who knows he is a horseplayer, told him he'd comp him to the Kentucky Derby party upstairs.

My buddy said "sure." And he called me from the party.

"Hey, I'm at the Derby party at Woodbine"

"Cool, do you see anyone [horseplayers, regulars] we know?"

"No, everyone is dressed up here. It's really weird."

"Are you dressed up at all?"

"Jeans and a Tee-shirt. People are looking at me funny."

We also want to thank @RichardCazeau for being an incredible host & @KristenSongs for her incredible performance! #KyDerby #BetWoodbine pic.twitter.com/j3GGVoauP2

— Woodbine Racetrack (@WoodbineRacing) May 6, 2017

The man who bets more than the entire room, is in the room. His tribe is in the grandstand, or at home playing online.

It's only 10:45 EDT and Roberts has already blocked the CD signal even though they can show it till noon @EJXD2 pic.twitter.com/UXNPs4f0zU

— Inside The Pylons (@InsideThePylons) May 5, 2017

While racing seems to do wonders with the party crew - the NBC feed is 24/7 party and feel-good story central, the promotions are all "mass" - it completely dumbfounds me how bad of a job they do with the regulars (regulars who are fans or bettors) or those who want to be betting regulars.

Feed quality of what bettors watched on Derby Day

The rights are sold to NBC, which is fine. But nowhere does Churchill Downs write in the deal that people might want to watch horse racing, and not showing all the races is heresy. For regulars, it's not the end of the world we have to watch the Derby in standard definition in a little box on our computer. But if the party feed - capable of showing a race in HD - is not going to show an actual race, have some respect for the people who want to watch the race and give them an option.

TVG on tape delay, XBTV not being able to show the races. I mean c'mon. I watched ten minutes of the NBC coverage and it's ten minutes of my life I will never get back.

When Churchill takes money from a Derby pick 6 pool to seed a jackpot, gets complaints and does nothing, I understand. Churchill enjoys regulatory capture, and where other gambling businesses would get their knuckles rapped they carry on with impunity. Doing things like this is built right into the industry mindset and most are so blind they see absolutely nothing wrong with it.

But asking a simple question when making policy - "What will our regulars think of this?" - the answer is helpful.

Parties are fine and wonderful, and Churchill and others are really, really good at them. But for the other 364 days a year one tribe matters. Racing should stop letting them down.

Cub Reporter Visits the Kentucky Derby Trainer Dinner

As everyone knows by now, the hundred and somethingth Annual Kentucky Derby Trainer Dinner happened yesterday at the warm confines of Churchill Downs.

Much of the reporting so far has been from the racing media. And we know they're in the tank, like the New York Times is for the Trumpster. I wanted to know what really happened, and since classy, seasoned newsmen like Bill O'Reilly have been recently canned, I texted my old pal Cub Reporter.

"Cub", I said when I reached him at a pay phone at the track, "You there? Can you get me some quotes for my hundreds of thousands of blog readers?"

"I'm here. I sneaked by security when they were checking Steve Asmussen's hair for weapons. I'm standing right beside a CDI Vice President right now; although he's on an expensive cell phone, and I think he's firing an entire small town as a cost cutting measure. So he's busy," said Cub.

"I'll be back to you," said Cub.

Sure enough, less than 24 hours later Cub faxed me some quotes. I print them here, unedited, for you, the unwashed racing masses; those who can't get into the Mansion, even if you know someone powerful in Louisville, like Ed DeRosa.

Off we go:

Chad Brown, trainer of Practical Joke:

Cub: "Why did you put the blinkers on Practical Joke?"

Brown: "We were thinking of using him as a rabbit"

Cub: "He's your only horse in the race"

Brown: "Now you know why we're not using them."

Ian Wilkes, trainer of McCraken:

Cub: "Ian, there's been a lot of hyperbole regarding McCraken the past few weeks. There were reports he is almost human like, doing things horses never do - working himself, talking to reporters, going into other horses stalls and eating their food. Does this nonsense bother you?"

Wilkes: "Ha [laughs], I have to chuckle at it all because I was just mentioning this same thing to McCraken this morning when he was driving me to work."

Todd Pletcher, trainer of a bunch of horses:

[Note - Todd Pletcher only shows up to trainer dinners every 63 days - optimal for him - and since he went to the Arkansas Derby trainer dinner he wasn't here. He hopes to show up for the trainer dinner at the Belmont. In his absence, Todd told me to ask Dale Romans any questions I had]

Cub: "Dale, Always Dreaming has looked fractious...."

Romans: "Ya, I saw some reports of that."

Cub: "How have you been trying to settle him down?"

Romans: "How in the hell am I supposed to know."

Mark Casse, trainer of morning line favorite Classic Empire:

Cub: "Mark, there was a lot of talk earlier this week about Empire racing in glue-on shoes. Is this something we should be worried about?"

Casse: "No, not even a bit. When McCraken reshod him the other day he acted perfect."

Joe Sharp, trainer of Girvin:

Cub: "Joe, how did you enjoy dinner?"

Sharp: "Who wants to know?"

Bob Baffert

Cub: "What do you think  of your chances this year Bob"

Baffert: "Not good Cub."

Steve Asmussen, trainer of three horses:

Cub: "Where's Steve?"

Security Guard: "We found a six pack of coke, three screwdrivers and a pizza in his hair. He got bounced."

The staff of the PTP blog will be covering the Derby all week. So - like millions of you already do - watch for updates. As always, thanks for reading. 

Why Lowering Takeout Increases Handle 100 out of 100 Times

@righthind tweeted out a great link this morning, a research paper titled - "How Do Prior Gains and Losses Affect Subsequent Risk Taking? New Evidence from Individual-Level Horse Race Bets."

One of the conclusions:

•  The “house money effect” [shows that] bettors ..... mostly spend the money they have won.

This means what it says - when you are making gains, you bet most of what you've won. This behavior is often linked to the "break even effect", which is a way of saying the vast majority of people will bet at a slot machine until their original $20 is gone.

This is, in fact, a big reason why slot machines were taxed, at one time, at 25% juice, but this rate went lower and lower. The people playing to break even were not enjoying themselves at 25% and the casino was not making as much as it should've been.  At 5% you had a whole lot of people on the floor chasing break even. Chasing is maximizing utility.

This theory is relatively simple, and it's not solely used for racing, or slots.

In finance, Tobin's Q is (loosely) the market value of a stock divided by the firm's replacement value. Companies with a low Tobin's Q use the house money effect to chase gains, and even when they have minor losses in a given year, will increase their risk, chasing break even the following year. Companies with a high Tobin's Q do not exhibit this behavior.

In racing, low Tobin's Q users are your casual user. People like to say "they don't care about takeout" but they do, because they always know where they are when it comes to break even, and when they have (or don't have) house money. Higher takeout moves them away from break even, and in response, over time they leave the market.

This is also why, in my view, jackpot bets are so terrible for the casual bettor. When you take a bunch of a user's money and tie it up, they can't exhibit the behavior they are predisposed to exhibit. Then, adding to the deleterious effect, jackpot money is not spread out for masses to chase break even, it's sent to one winner and he or she puts much of that money away.

When I type, as I often do here, "people don't take their incremental winnings and stick them in a sock" this is what, more or less, I am referring to.

When you give people more back for them to bet, they bet. This is why, 100 out of 100 times, takeout rate decreases increase handle.