Arguing for Slices of Revenue, Episode 61

Racing sometimes makes me shake my head. Or as the kids with their fancy phones say, smh.

Yesterday in the TDN the HBPA's Eric Hamelback spoke about the biggest challenges and solutions for horse racing.

"A critical step is ensuring that owners are fairly compensated for their property and their horses’ images and statistical records being used for wagering in this tech era by entities that benefit without contributing toward the care and upkeep of our horses"

This was similar to what was said way back in 2010.

Looking at the logic of the statement is a little difficult, because, well, it's difficult to decipher in the real world.

A reseller gives you approximately 50% of what they generate from handle revenue, for purses and for tracks to put on the races. Some of these resellers are the racetracks themselves. They use statistics and images of horses to generate revenue, because without them both you and they get nothing. It's a factor of production that's already being compensated for through simulcast agreements.

More broadly, maybe the point is that the Jockey Club makes money from selling data, and they are not directly putting it into purses. But even then, with over $1 billion in purses per year, the net profit from the Jockey Club from this data revenue is a tiny percentage of that.

More importantly, however, is the simple fact that 'horses images' et al, don't drive any revenue. If it did, Frank Stronach would not be having to pay NBC to show the $12 million Pegasus Cup, NBC would be paying Frank.

We're back to the beginning in this strange, circular argument. It's - for it seems the umpteenth time -  some faction in racing wants money, from a place that generates no money.

In the racing press when someone yells for more money, it's often presented like it's some grave injustice being righted, and the stalls will be soon laden with 14 carat gold straw.  It's a fantasy. Revenue will grow - for the HBPA, purses, and others - when racing grows gross revenue. This nitpicking that someone gets more or less of a percentage of almost nothing, means exactly that -- almost nothing. It's a complete waste of time.


 

Horse Racing Winners and Losers of 2016

As (yet another) tumultuous year comes to a close in horse racing land, I thought we'd look at a few winners and losers from 2016, from my perspective.

Winner - The Big Tracks (minus California)

Handle and market share at the big tracks got bigger in 2016, as this trend from mid-year finished out the year strong. Florida tracks especially garnered more betting dollars, but NYRA tracks (despite no Triple Crown try this season) certainly held their own.  The downside is (as handle will show in a couple of weeks) the pie didn't really grow much. But for those who've been asking for the big signals to be front and center, you're a winner.

Loser - By Corollary, the Small Tracks

There's no two ways about it, many small tracks in 2016 were crushed. Fewer dates, fewer races were followed by smaller handles. It's tougher and tougher for smaller tracks to get noticed.

Winner - Jackpot Bets 

Overall handle didn't move much, but there was a "rise of the jackpots" in 2016.  These bets attract newbie money, and when the newbies are broke chasing them, the whales swoop in to take over positive expected value mandatory pools.  If racing was Daily Fantasy Sports, the New York Times would probably do a story. Although these bets probably do more harm than good for the customer ecosystem, track execs love them for the short-term bumps.

Loser - Fantasy Sites

Racing, in its never-ending quest to grab revenue from other people who think of cool stuff they didn't, came down hard on the fantasy sites in 2016. From reading the headlines, you'd think these trickles of revenue were shaking the foundations of racing. But, in my view, this is low hanging fruit and it doesn't take much heavy lifting.

Winner - Frank Stronach

While Churchill Downs, NYRA and California racing overall all have questions surrounding them public relations-wise, old Frank is teflon. Everyone knows Frank loves horse racing. Everyone knows Frank wants to create more interest in the sport (no matter how crazy some of his ideas are). The Pegasus World Cup - his latest foray into changing the sport - is slated to go this month. Adding to the Frank-zeal, is the handle and market share performance of Gulfstream and Laurel. They both had big years.

Loser - Long Term Racetrack Economics

Canterbury Park lowered the juice this year and bucked the 2016 small-track downward handle trend pretty good, with a decent enough handle spike. You'd never have known it. Despite field size being  down, more rain in the region since 1890, and just about everything else, the story was "the percentage of decrease in takeout resulted in a net decrease in revenues". Nevermind the 100+ years of takeout hikes that didn't destroy the betting handle immediately, pay no heed that Amazon.com was incorporated in 1994 and incurred losses until 2004. Don't worry that when tracks have slots, they can use them as a buffer to experiment with proper pricing mechanisms. Short-term revenue was down, so this was a loser.

 Winner - Exchange Wagering

Betfair's exchange started for New Jersey residents this year. Yep, the volume is lower than expected (with them operating with half the Internet tied behind their backs), but it's there. There is no doubt about it, this is a huge win.

Loser - Rabbits

This year's Sword Dancer brought the practice out in an in-your-face way, and the fans didn't seem to like it much. For those who support rabbits, many used the "it's the way it's done in Europe for a hundred years" defense. But, with Brexit and Trump in 2016, that whole pro-Europe-globalization argument seemed to go over about as well as an Ebola epidemic.

From the comments from the high foreheads at NYRA after Sworddancergate, it seems we'll be seeing a different handling of the rabbit thing if it crops up again. So that, by definition, means it's a loser.

Winner - Big Days

Unless we've been living under a rock (I go there sometimes on twitter when my touts run badly) we all see Big Days keep getting bigger. More marketing is being placed into Big Days, and they seem to be growing with population growth and inflation, aka, like other businesses grow. Even Hong Kong has been getting into the act to juice up their big days. It's been a huge winner.

Loser - The Horseplayer

If you're a guy or gal betting $40k a year and treading water with 0.95 ROI or so, your chances of reaching the mountain top are growing thinner, because it's more difficult to find better pricing. Small ADW's who offer you better pricing are shut off from some top signals. The top signal guys have created their own ADW's where only $1M+ players get good pricing. ADW's are being shut out of California as we speak. In 2016 it's been harder and harder for racing customers in the mushy middle.

Winner - Kentucky Downs

2016's meet was another huge one for the little track that could. At KD, alternative gaming money is placed into both purses and lower takeout, making for a compelling exacta for horsemen, bettors and fans. The sky is the limit for this small, soon to be bigger, signal.


Loser - Medication Reform

This feels stalled to me, and it was in 2016, when the brakes were applied. I am not sure why, or how it happened, but at the end of 2016 here we are talking about steroids - something supposedly purged from racing a long time ago - not real reform.

It's hard for me to find blame in this. It just seems racing - where getting people together for a common goal is tantamount to finding fifty random people who all like Nickelback - is in its usual spot, stuck in the horse latitudes. 

That's my list. I am sure I have forgotten many items (I did the post at lunch, off the top of the head) so feel free to share yours on the social media machine, or in the comments section.

Have a great Thursday.

** Exclusive ** : A Christmas Chat With Cub Reporter

Cub Reporter, File Photo

Y'know, a day doesn't go by when someone doesn't ask me, "Pocket, can we see more posts about betting economics Cub Reporter on your blog? We want to know who he is, where he came from, what he likes to eat, or watch on television; what tracks he enjoys. We want to know where Maria Borell is hiding, and who the drunk guy who runs the photo finish camera at Santa Anita is."

For those who read the blog - especially those who enjoy breaking news - you've certainly come to know "Cub Reporter". Cub (not his real name) has graciously offered me stories to publish here that he cannot publish anywhere else; those that will get him kicked out of the turf club, or banished to covering one of those tracks in Chile where the horses all race like six miles. He knows very few people read my blog. I offer a cloak of safety.

I often let Cub know (through secret backchannels) that he has a following. People are interested in him. Finally, this Holiday season, he agreed to a sit down. I share this exclusive interview with you now.

PTP: I guess the big question on everyone's mind this week was the positive and brouhaha surrounding the Ellis test for the Breeders' Cup. Why haven't you touched this story?

Leading charity fundraiser, loves dogs

CR: I did. I meticulously researched the story and wrote a 2,000 word article. I thought it was comprehensive. It detailed the situation, with quotes from the connections, and the decision to run a horse who might test positive. I then contacted people in Hong Kong about their zero tolerance policy for steroids, and its efficacy. I quoted an actuarial scientist who has written several peer reviewed articles on the cost/benefit analysis of banning athletes with trace elements of sometimes therapeutic drugs in their systems. It was a good article.

PTP: Why didn't we see it?

CR: I submitted it for review but no one wanted it. One editor told me the press were saying picograms were no big deal and the trainer in question loves baby kittens. Keeping the industry narrative and editing out everything else made my article only 200 words, so I buried it. Plus, I have no idea if he likes or dislikes baby kittens.

PTP: In general, what do you think the state of racing journalism is?

Frank

CR: It's tough out there, and I don't really hold the industry or the writers responsible. I blame sites like Vox and Buzzfeed. It's clicks. It's listicles. It's advertising. For example, I lined up an interview with Frank Stronach a couple of months ago. I arrived at Gulfstream and the PR department handed me a pre-written story called "A Dozen Ways Frank Starts His Morning" they wanted me to use. On the sheet was a picture of a 12-pack of Frank's Energy Drink. Seriously, I like the drink as much as the next person - it makes me yodel - but I can't file that.

PTP: Do people in this industry like you, or because you are writing hard-hitting stories, you are shunned?

CR: Good question. Sometimes I am liked, sometimes not. I wrote a story awhile back on a CHRB meeting and it was - I thought - fair and incisive, but maybe not everyone thought so. I got home one evening, showered, and was getting ready for some shut eye. I drew the covers and found a Bob Baffert bobblehead in my bed. I have no evidence who sent it, but even if there's a small chance the CHRB went Godfather Part I on me, it shakes you.

PTP: Frightening. And signs you are liked?

CR: Well, last week I received a nice Christmas card from horse sex expert Sid Fernando. It was a form-card that he sends out to everyone, but to me it showed he likes my stuff, and I appreciated him sending it. I sent a note back telling him I felt for him when he lost all of his Kentucky twitter followers during the recent federal election.

PTP: Any others?

CR: Sure, Brad Cummings still sends his best wishes, and the fellow who took over his site after he left doesn't seem like a bad guy. Caroline Betts is a nice fact checker when the CHRB uses all those fancy equations I don't understand when they're making a betting economics decision. Sometimes Todd Pletcher invites me to tag along when he goes shopping for ties, or gets a haircut. We shot the breeze recently about him lobbying Daruty to extend Gulfstream's stakes meet to 365 days a year. Calder used to try to take me to strip clubs, so I guess they liked me. Even some old sources keep in contact. After the recent Winstrol positive in California, Richard Dutrow sent me an email that read "HAHAHAHAHAHAHAHAHAHA".

Richard Dutrow - racingfallguys.com

PTP: So, you have no trouble getting sources?

Churchill Downs CEO- Artist Likeness

CR: No, not really. When I was writing a piece about the switch to dirt at Keeneland, the PR department was happy to send me links to industry stories about how dirt will keep the Blue Grass a Grade I. When I write handle stories about a meet, the tracks send me numbers on whatever metric is up. If betting is down they send me quotes about a nearby Star Trek festival, junior women's snowboarding competition, or the release of a new movie that hurt their handle. If I need something from Churchill Downs - say if I am researching a story where they are planning to shutter a track or fire a lot of people - they send me a link to their share price.

PTP:You don't twitter. How about a New Year's resolution that you'll join the twitter? There are lots of journalists there.

CR: I am on twitter, but I keep my account quiet and have never tweeted. I guess you could call me a lurker, like that PETA person who exposed Scott Blasi for swearing a lot. I follow a lot of people and keep track of what they're eating, who is on the ABR Party Bus, and who won a Beemie Award. I follow my DRF friends like Hersh, Hogan, other H people. Some of the horse accounts crack me up. Remember Palace Malice? Whoa, tighten that tongue tie pardner.

PTP: Do you follow any horseplayers?

CR: For meat and potatoes I follow Ed DeRosa. He posts this weird excel sheet with tons of horses he likes. Some of them come in sometimes. I follow that Inside the Pylons person. He's best friends with Ed. Racetrackandy keeps trying to lobby me to investigate various people in California so I keep tabs on him. I follow Adam Hickman to see which jocks are riding cold. I used to follow Andy Serling, but he blocked me.

Julien Leparoux (l) Meets Adam Hickman (r) for the first time

PTP: Have you received any horse-themed Christmas gifts in the past? Anything horse-related you send to your friends in the industry?

CR: Last week I received a "bet a hundred get a hundred" deal from TVG for Christmas, which was personalized in an email to me. It's gotten a lot better for customers, because when I covered a TOC meeting in California many years ago as Junior Cub Reporter, they were debating offering a 'bet a hundred thousand get a toaster' promotion. I actually think that one is still running for California residents who use Xpressbet.

TVG's Todd Schrupp

On the giving side, I'll probably re-gift that Baffert bobblehead I found in my bed. Maybe I'll give it to Sid Fernando since he sent me that nice card.

PTP: Any parting thoughts this Holiday season?

CR: Horse racing is a wonderful game, and even more so during the holiday season. I am lucky to write about it, follow it, bet it, and read about it. We're all very lucky, despite all the problems.

PTP: Merry Christmas Cub.

CR: Merry Christmas Pull.

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For those of you celebrating, from my family to yours, have a very Merry Christmas.