GUEST EDITORIAL: HORSEPLAYERS LOCK HORNS WITH OWNERS’ GROUP
(The Paulick Report was contacted by the recently formed Horseplayers Association of North America (HANA) with a response to our recent article on the Thoroughbred Horsemen’s Group and its approach to negotiations with account wagering or advance deposit wagering companies (ADWs). The following commentary does not reflect the views of the Paulick Report but is published in the interest of advancing the discussions on this subject. — Ray Paulick)
It was announced a few weeks ago that Ellis Park in Henderson, Kentucky struck a last hour compromise between Ellis and the KHBPA, allowing for racing to begin in 2008. With it, close to 6% of ADW handle will be going to purses this summer. It appears that Ellis is charging Advance Deposit Wagering (ADS) companies up to 8% signal fees for the right to broadcast Ellis races.
The Thoroughbred Horsemen’s Group’s Bob Reeves said this recently about the deal as reported by Ray Paulick of The Paulick Report: "We are trying to save racing."
We think deals like this will do the exact opposite. And we’ll tell you why.
An ADW normally pays about 5% (which is about what the current free market dictates) for the right to broadcast a signal and sell it to their customers. It is like a web-affiliate bookseller selling a book and keeping a commission. Then the ADW pays expenses, keeps some of the generated handle for themselves to run their businesses, and returns the rest to the player in a few ways:
1) Player Rewards - A video game, maybe a hat, trinkets of some sort, what have you. We all have received these perks.
2) Innovations and Customer-centric Benefits - An improved betting interface, R and D (like Twin Spires TV), free handicapping information (like Ian Meyers’ paddock reports at Premier Turf Club, his deal with Woodsideassociates.com, or partnerships with Thorograph at betfair), free past performances, free video. Things to encourage the player to up their handles.
3) Cash Rewards Through Rebating - Churn baby churn.
This model of giving something back to the player and delivering it in a customer-centric way has resulted in a rise in handles for ADW. Up over 17% last year - our only true blue growth segment.
If ADW’s are charged a higher fee, things like free rewards, hats and shirts; or the interesting innovations we have seen like race replays, and conditional wagering and paddock reports can all be cut. This hurts us in attracting new fans to our Internet platform, as well it alienates our existing customers (ask Vegas how they’d do without comps or adding a concert as an attraction; and ask them now what would happen if they took them away!). All those rewards and incentives are very important, but the most important point however to us as a business: It effectively increases takeouts. If 3% more is charged for a signal, 0.5% might be absorbed by the ADW. Where does the other 2.5% come from? Yes, the customer’s pocket - the customer that already pays for purses to the tune of 21% blended rakes.
When the signal fee is raised 3%, more than likely 2-2.5% will be taken from the cash rewards from certain ADW’s. If you were receiving a rebate of 5% on win wagers at track ‘A’ and they are cut in half you know, we all know what happens, you bet less. With these price sensitive players, where 2.5% can mean a huge difference, it can kill their handle. As Dan, a professional player, said recently to us "Even miniscule reductions of 2 points can make a HUGE impact on a player’s bottom line. The intelligence of the modern player is frankly overlooked by those in positions of decision."
With a conservative elasticity of demand of 4 for rebated high volume players, this takeout increase could result in a 10% drop in handle (many would argue it would be much more). Not to mention any new players (especially the younger demographic we covet) that are attracted to some of the perks like free past performances, or innovations, will find they are not there any longer, and it makes the customer experience deficient in a demanding 21st century business model. Online poker anyone?
It’s like going to McDonald’s and finding out that yes, the price of a Big Mac was raised 30 cents, so you might eat one less a month now; or maybe go to Wendy’s instead, but not only that: Now your more expensive Big Mac is served not complete in a nice wrapper, but in a do it yourself kit. When sales of Big Macs go into the tank, it would not surprise any executive at McDonald’s, they would know they cut their own throat.
Increasing takeouts, poor customer service and an absence of both soft and hard innovation through reinvestment is something we should have learned has helped kill this business by now. Year after year the evidence is overwhelming. In fact, this study written several years ago by a gambling expert and reported to racing, stressed the takeout point and making sure these players are taken care of.
Racing has lived with rising rates of takeout for so long that they have become a way of life. They are the line of least resistance whenever the industry needs money. It is all too easy for the industry to see that if we have a constant $100 in handle, and we raise the takeout by one percent, we’ll make a dollar more. It is much less easy to see that handle is not constant and, over the longer term if not the short, we won’t have that $100 any more.
If we don’t offer a low takeout (via rebate) to customers, we’re going to lose them, or at least a significant portion of their money. Hence the efficacy of rebates: they target reductions in the takeout to the customers who would respond the most to them.. (Analysis of the Data and Fundamental Economics Behind Recent Trends in the Thoroughbred Racing Industry, 2004)
Sometimes I wonder. I really do. Do we actually want racing to lose market share? If we do, we are certainly doing a good job at it.
Everyone needs to work together in the current ADW impasse and the business must know where players stand. If players are not heard from and respected, we will not grow the pie, we will simply end up having less of a pie to split.
This opinion piece was submitted by a HANA member at Pull the Pocket blog spot. We will be discussing the ADW situation and offering solutions over the next few weeks; including a white paper. The paper will show what we think ADW should look like for the 21st century and beyond - it will include, but it is not limited to, open access, fair prices for all players (not just whales), and fairness to the producers - the track and horsepeople. The overall goal is one thing and one thing only - to grow the sport. This is an opinion to kick off the discussion - players matter. We matter. If you would like to join HANA click here. It’s free.
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Tags: Account Wagering, advance deposit wagering, bob reeves, ellis park, hana, horseplayers association of north america, khbpa, Paulick Report, Ray Paulick, takeout, Thoroughbred Horsemen's Group
July 22nd, 2008 at 9:24 am
I love that Ray is featuring writers from across the internet. He truly understands that this is a team effort and seems to view himself as the beacon for the independent movement. Kudos Ray!
July 22nd, 2008 at 9:33 am
H.A.N.A. has it right on the money.
The horsemen get paid in purse money. Want to increase purses? Increase handle. Plain and simple. How? Well increasing ADW revenue goes a long way
With ADW wagering the only growth segment of the business it makes no sense to stop folks from betting and watching any track at any ADW. All these exclusive deals and horsemen blocking wagering at certain tracks are going to kill the game.
Wake up execs and horsemen of racing!! The writing is on the wall.
July 22nd, 2008 at 10:17 am
This is a very intelligent analysis. It is clear that our sport depends on three often neglected and somewhat overlapping constituencies…..owners, fans, and horseplayers. After the horse, they are most important to our long-term viability. They are the legs we stand on (which is why we are wobbling around on three legs, while the caretakers in charge merely yank the beast around while failing to enact a long-term, cooperative vision designed to benefit the entire industry) . I am happy that these groups (owners, fans, and horseplayers) are beginning to gain a voice. If all sides can proceed to find common ground and a cooperative spirit to make things better for everyone, this ship can still be saved. Go HANA !
July 22nd, 2008 at 12:01 pm
My problem with this kind of analysis is that it assumes that high-volume players are good for the game. It is a notion that is superficially attractive, but becomes doubtful upon further thought, because it ignores the effect of high-volume players on other players.
I assume that, after rebates, most high-volume players are cash-flow positive. They are intelligent people. If they were consistently losing money, they would stop being high-volume players.
Like the operating expenses of other gambling enterprises, the expenses of horse racing (e.g., purses, tote operations) are funded by players’ losses. Any player who is not losing is enjoying the game without contributing to the expenses. Because the game is pari-mutuel, he is just taking money from other players. He is just another mouth that the industry (already reliant on subsidies from people playing other games) can ill afford to feed. If the winning player leaves the game, his “churn” is not lost. It is left in the wagering accounts of other players, for them to churn. Las Vegas does not “comp” players who win money from the house, it comps losers. Long-term winners (e.g., card counters in blackjack) are tracked down and shown the door.
I am not arguing that horsemen should receive 6% to 7% of handle. Maybe the industry needs to be restructured so that handle is spread over fewer tracks and fewer horses and the remaining horsemen can survive on a lower percentage.
As for horseplayers, they are customers. They don’t need organizations to exert their influence any more than the customers of McDonald’s need organizations to influence the menu and prices. Their dollars speak for them.
July 22nd, 2008 at 12:06 pm
Until recently, I used to not think too much about the bettor. Kinda the opposite of what I blasted Alex Waldrop for in an email after the Eight Belle’s fiasco (see, my blog wordpress.thoroughbredthoughts.com In the months since Eight Belles I have been introduced to the real underlying problems in our industry. Money. Money which is being taken from our tracks, horsemen and owners…and thereby the farmers, breeders, horse rescue groups, van drivers, - everyone who draws a salary from this industry.
The gambler is not more important than the horse and the horse is not more important than the gambler. If there was no racing, they gambler would bet elsewhere. If there was no gambler, the horse would be racing back at local fairs and at point-to-point circuits, as they do at Fair Hills, NJ and other outstanding non-pari-mutuel wagering race meets. To succeed, both need nurturing.
We tend to get so isolated in our own little world (ie, betting, breeding, rescuing horses, selling, training, etc.) that we never have time, energy or even comprehension to solve the bigger more complex picture of ADWs. Yet we cannot continue to ignore it. If there is money that is being wagered outside of the recognized betting pools, as I understand the offshore accounts are doing, then there’s less money being placed back into our sport. We will eventually die.
To me, money solves most all of our ills. As one person said to me recently, could you imagine the money that would put into our business by the owners if they actually had a better chance of making a buck? Recapturing the off-shore account funds by a transparent central thoroughbred industry-owned entity would bring in enough money to support horse rescue, support backside worker conditions, give owners a chance of a return on their investment; perhaps that would in turn allow longer and more expensive therapeutic options for hurt horses; maybe the market would then find breeding a sounder horse would bring in more money than the price of a flashy sales horse. Regardless, we have got to start working together to address the true enemy of our business - the off shore wagering shops.
July 22nd, 2008 at 12:12 pm
Refer to Fred Pope’s recent article in TDN. Surely he has the right idea that most of the money should go to the place that puts on the show, not to where the bet is made. Surely it is plain as a pitchfork that without the “show” nothing else exists.
A few of the words in the HANA statement lead me to conclude it is not composed of the people who bet their money; it is the outfits that take the bettors’ money.
Nevertheless, it is good these groups are speaking out. The old gang has taken us to our present, sickly condition.
July 22nd, 2008 at 12:28 pm
Hi Everyone,
These are some excellent comments. Very nice Allison. That one really caught me eye.
We are starting a discussion about the best way to grow the game - nothing more. This is a stab at a couple reasons why the writer thinks that taking more money from ADW is not the best way to go. Is it about “getting a slice because bettors are ‘greedy’”? Absolutely not. It is because having the player involved and giving good survive and better prices allows all people to bet more. We want people to bet more don’t we? We all want the game to grow - owners, players, blacksmith’s, grooms, tracks - everyone. And raising handles is a great way to do that.
In the recent Jockey Club report the US was ranked 11 out of 12 countries in terms of per capita betting on racing. The only country surveyed the US beat was Turkey. This really burns us! How do we fix that? I think we all want to.
Did you know that Mr Nader in Hong Kong (to compete against the offshore Macau casino’s) recently gave rebates for the first time ever? Handle was up 5.75% last meet.
Did you know that in other countries people can bet every track at a one stop shop? They dont have to have five or six betting accounts?
Did you know that takeout has a ceiling in Australia? At certain times a year when there are overpayments to the ‘fund’ that it is given back, promoted and people flock to the bets?
If we all want to help wagering we should be doing more, and HANA is offering some suggestions. In a week or two they will be done their paper on ADW. It will be a suggestion. I hope that people in the business take a look at what the customer thinks should be done, and offer out some thoughts.
Maybe we can beat Turkey by a wide margin in the coming years in per capita wagering if we work together on these things.
July 22nd, 2008 at 12:43 pm
Just a quick note to Bitplayer,
The takeout examples in the piece (hopefully) exemplified that all players can bet more if helped. There are several ADW’s currently who help smaller players bet more though churn. There are wagering credits at several and Premier Turf Club does apparently give cash rewards.
At the very least the ADW’s like Youbet and Twinspires cut some costs to the player that help them bet more. In a recent column by Barry Meadow in American Turf Monthly he explains some of the ways that players are helped and encouraged to play. Unfortunately, some things like bookmakers work best, and we think we have to attack that and keep that money here at home and going into purses.
July 22nd, 2008 at 12:57 pm
PPS: to bitplayer: The HANA White Paper on ADW will have a plank where lower prices are given to all bettors should they choose. One HANA member was a 30k a year player and played 1M with lower prices. We want him and thousands like him aboard and growing the game.
July 22nd, 2008 at 2:29 pm
HANA Member –
I’m less interested in how much someone bet than in how much they lost. The horses have to eat, and there’s no money to feed them if nobody loses.
The perspective of the horsemen is pretty simple. The industry is not growing. What makes ADW handle a growth segment is not new dollars, but dollars that used to be bet at the track. Purses have historically been about 6.5% of handle. Why should that number go down just because handle is now flowing through a different channel? It strikes me as naive to argue that the industry would suddenly start growing (in the face of increasing competition for the gambling dollar) if horsemen would just chill.
I’m not against ADW’s (I’ve got three accounts myself) or rebates (although I don’t bet enough to earn any worth talking about). My point is that when bettors post about these topics on the internet, their economic analysis seems to get pretty sloppy and self-serving. When bettors actually bet, all that analysis goes out the window. For example, a couple of recent experiments in lowering takeout (Ellis Park and one of the Magna tracks and Maryland) have failed. High takeout bets seem (like the Pick 4) seem to be the fastest growing in popularity.
Rather than forming organizations, horseplayers should start putting their money where their mouths are. If a track charges a higher signal fee to accommodate the demands of horsemen, let the ADW reduce the rebate for betting on that track’s races, and let the bettors shift their wagering dollars elsewhere. If a dispute with horsemen makes Churchill’s signal unavailable to your ADW(s), don’t find another way to bet Churchill, shift your wagering elsewhere. If Del Mar signs an exclusive deal with TVG, and you don’t want to bet through TVG (or Youbet), don’t bet Del Mar.
There is no question the industry is going through a shakeout. NYRA is in bankruptcy. Magna is not exactly healthy. Churchill is laying people off. Bay Meadows and Hollywood Park are on the verge of shutting down. All-sources handle seems to be down everywhere. If horsemen are not already suffering, they soon will. People see Eight Belles break down in the Derby and wonder why slots dollars are subsidizing horse racing rather than education. The way for bettors to shape what comes out the other end of this transition is through their wagering dollars, not idle talk.
July 22nd, 2008 at 2:42 pm
I’d love to know why offshore wagering shops are the ‘true enemy’ of ‘our’ business. Please elaborate, thanks.
July 22nd, 2008 at 2:43 pm
Hi Bitplayer,
Your quote:
Rather than forming organizations, horseplayers should start putting their money where their mouths are. If a track charges a higher signal fee to accommodate the demands of horsemen, let the ADW reduce the rebate for betting on that track’s races, and let the bettors shift their wagering dollars elsewhere. If a dispute with horsemen makes Churchill’s signal unavailable to your ADW(s), don’t find another way to bet Churchill, shift your wagering elsewhere. If Del Mar signs an exclusive deal with TVG, and you don’t want to bet through TVG (or Youbet), don’t bet Del Mar.
Well it appears that unfortunately bettors have listened to you:
From Ray’s old publication (I wont post the URL Ray) “Wagering Plummets” which was just out a half hour ago. Del Mar - down. Churchill - down. Thoroughbred wagering overall - down.
The bettors are speaking with their money. That is a fact we can not ignore. Bettors have left racing and their pricing and delivery mechanism for the last several years (wagering down about 400M last year).
As for low takeout experiments, well that is here - they were piece-meal and they were short, and they were not done in a tight ADW model where churn can roll. There is a gambling world outside North America that has embraced many of the concepts of open access and lower takeouts. The prime example is of course the betting exchange in the UK where they have over 1 million customers and have grown their handles by 30% per year. It was started only 8 years ago. TOTE in Australia has a 16% blended rake. Studies have shown that with a churn rate of 7, the revenue maximizing takeout rate is 13%. There is innumerable evidence out there.
As the Bloodhorse article says. We are currently getting our butts kicked as gamblers flock to other games. HANA is making a proactive case to help get them back. We hope racing comes up with a plan to grow our game in this tough, competitive 21st century market. We need it. And we need it badly.
July 22nd, 2008 at 10:11 pm
Well now Ray-ray U have hit the nail on the head aaaaaaaaaaaaagain. . .Ive been a big fan of your writings … for telling the truth and thats why I’m proud of you son (I;m 73 and retired and worked the Shed rows on the West Coast and thought Id died and went to Belmont and rode out on the big Sandy so I know the truth when I here it. . .Remember a saying That Mr C told me one day holds truth today . . . .
“Just because a horse carrys a set of “Stone” don’t make them work in the Breeding shed”
Well I donated some “Go to Hell” money to the cause just a tad (I don’t have much) and the “cause” is you tell the truth. . . ans as “Oat willie used to say onward through the Fog”
Scrapiron
July 22nd, 2008 at 11:58 pm
this is just the problem….everyone has an agenda, and every one of them is self-serving
July 23rd, 2008 at 8:44 am
“I’m less interested in how much someone bet than in how much they lost. The horses have to eat, and there’s no money to feed them if nobody loses.
The perspective of the horsemen is pretty simple. The industry is not growing. What makes ADW handle a growth segment is not new dollars, but dollars that used to be bet at the track. Purses have historically been about 6.5% of handle. Why should that number go down just because handle is now flowing through a different channel? It strikes me as naive to argue that the industry would suddenly start growing (in the face of increasing competition for the gambling dollar) if horsemen would just chill.”
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Bitplayer, I admire your honesty. I think that racing execs especially realize that the amount bet is not the way to look at things anymore, but the money lost by each individual customer. They want to maximize the amounts lost by each customer because they feel they are competing against all other forms of entertainment.
In other words, they don’t want winners. They even resent winners.
However, it is this mentality that has made it so that the ADW business has really just taken money out of the pot that used to be split by only racetracks and horsemen.
You would figure that once betting would be available to everyone anytime that customer growth would be exponential. It would have, if the takeouts were competitive with other forms of gambling.
Instead, the public has woke up and realizes that no matter how much time and effort one spends on trying to beat the game, without healthy rebates, there is absolutely no chance of winning over a 3 year period (OK, maybe one chance out of 20,000 tops).
Meanwhile, if one is sharp enough, sports betting is beatable or at least gives someone the chance to bet a lot and bet often and maybe even break even. The same is true with online Poker.
That is why WINNERS are important. They create BUZZ which creates new players.
What the racing industry needs badly is a whole slew of new players who will add to the pot that the horsemen and tracks and ADWs get to split up.
HANA’s goal is to find a way to attract new horseplayers. In fact, that should be the racetracks goal too, but the standard racing exec doesn’t seem to have a clue on how to achieve this goal.
August 3rd, 2008 at 7:02 pm
This Monday I was searching Google for throat pokers and found this post GUEST EDITORIAL: HORSEPLAYERS LOCK HORNS WITH OWNERS’ GROUP and wanted to say thanks for a great read!