PRIORITY 1: RACING’S BUSINESS MODEL
Fred Pope is one of those rare individuals in racing who does more than identify problems and complain about them; he actually spends a great deal of time working on solutions. Whether it’s the National Thoroughbred Association, an owners-driven organization he created more than a decade ago, or pushing for a "major league" of racing, the Lexington advertising executive has been a strong proponent of horse owners and their rights to get a greater share of simulcasting revenue.
Pope’s current proposal, which he outlined recently at the University of Arizona Symposium on Racing, is for a change in the Interstate Horseracing Act of 1978, the federal law that governs interstate simulcasting. By providing for more rights to the racehorse owners where the live race is run, Pope believes purses and bloodstock prices will greatly increase and the sport of racing will grow. The complete text of his speech follows.
What is your opinion on this subject? Do you believe the lion’s share of takeout from simulcast wagers should go to the business taking the bet (simulcast site, OTB, or ADW company), or to the track and horsemen’s organization where the live race is run? Take the Daily Paulick Poll (located on the left-hand column of the Paulick Report home page) or leave a comment at the bottom of Pope’s article.
— Ray PaulickCorrecting the Interstate Horseracing Act
Racing’s Off-Track Business Model Favors Bet Takers. It Should Favor Host Tracks Putting on the Show.
Speech by Fred Pope at Univ. of Arizona Racing Symposium, December 11, 2008
Let’s start off today with a show of hands. Be honest. How many of you feel that Government should be involved in Thoroughbred racing? I see just one or two hands, so perhaps we should work to get government completely out of Thoroughbred racing.First, let’s tell government we want them to take back the laws that make it legal to bet on racing. Why should government intrude and force our sport to have a monopoly on legal wagering?
Next, let’s ask Jay Hickey when he returns to Washington to see if we can get the federal government to rescind the Interstate Horseracing Act. Why did government feel the need to give our host tracks expanded distribution across state lines?
And third, for good measure, let’s tell government that we don’t want the exemption they gave us in 2000 from the law that prohibits gambling on the Internet. That ought to do it.
Ladies and gentlemen, the truth is racing is more involved with government than any other sport. Government involvement is at the core of racing’s existence. If it weren’t for government involvement in racing, the only place we would enjoy our sport would be at the County Fair.
I understand why most of you didn’t raise your hand today. Government involvement comes with strings doesn’t it? There’s a yin and a yang to government and politics.
It seems when government steps in and passes a law to do one thing; it inadvertently winds up hurting something else.
That’s why I am here today, to talk about how government’s gift of the Interstate Horseracing Act (IHA), has inadvertently resulted in an Upside Down business model that is killing Thoroughbred racing.
We are all aware of how our once-healthy American automakers are suddenly on the verge of collapse because they failed to take action and correct their business model.
Talking about off-track betting and business models isn’t a very sexy subject. It causes a lot of people to get a glassy look in their eyes; however, that is where 90% of all the money in racing is today. If you want to have a future in racing, or breeding, you need to understand where the money from off-track wagering is going now, and where it needs to start going.
Here’s how wagering under the IHA should have worked. The regulated host tracks and racehorse owners putting on the show would have licensed and paid a small commission to those taking off-track bets on their product. For example, if someone bet $100, the host track and purse account would get about 15% and perhaps pay a 5% commission to the bet takers.
That’s the model used by lotteries. Lotteries pay a 5% commission to the convenience stores punching in the numbers on the lottery bets. It is a very straightforward distribution model. The lotteries and the IHA in racing kicked in about the same time, but last year the lotteries grossed $50 billion and paid out about $2.5 billion to their bet takers. Racing could have used that same distribution model, instead racing invented its own model.
Now, here’s how wagering under the IHA actually happens today. The host track and racehorse owners putting on the show contract and receive only 3% from the people taking bets on their product. The bet takers keep 15% or more for just taking the bet.
Whether the bet takers are other racetracks, or OTBs, or ADWs, or casinos, they keep the majority of the takeout on the host track and racehorse owners’ live racing product.
Why? The short answer is because the bet-takers felt they owned their betting customers. If the bettor was going to wager on other tracks’ races, the bet-taker was going to get the lion’s share. Today, bettors can bypass the receiving tracks and pick up the phone or go online. The genie is out of the bottle and won’t ever go back in again.
The 3% going to the host track is split between the track and its purse account. It isn’t enough to pay for the live show, but 3% is the going rate established by the receiving racetracks taking the bets. Since the Interstate Horseracing Act has a provision that requires approval by the group representing horsemen in the receiving state, the host track has no option, but to accept the going rate of 3%.
Bet Takers Keeping All the Off-Track Money
If you bet $100, only $1.50 goes to purses at the track putting on the live show, but more than $15 stays with the place taking your bet.
You might think the cumulative effect of 3% from lots of sources totals more than the bet-takers receive, but it doesn’t. If $3 million is bet off-track, the host track and purse account split 3%, or $45,000 each, while the off-track bet takers keep $450,000 or more and many have no connection to racing.
This upside down, business model impacts 90% of the handle and it is the reason Thoroughbred racing is dying in America.
The bet-takers are gaming the IHA to the effect that there is no incentive for the host track to produce the live racing show. Just like the American automakers; racing has to correct this model or risk a total collapse of the business.
The potential closing of Hollywood Park is the new reality that no matter how large the market, a host track cannot overcome the upside down business model that is enabled by the wording in the IHA.
The IHA is supposed to help racing by simply expanding the distribution of the host tracks’ product. That is all it was supposed to do. Racing was relatively healthy in 1978 and this new distribution should have seen the sport and business revenue explode. If we had used the normal distribution model like the lotteries, racing too could have $50 billion in handle.
Now that it has been identified, this is a problem we can fix. With the stroke of a pen, the promise of the IHA can be realized. We can turn the upside down business model, right side up.
Racing has a monopoly on legal sports betting. We have virtually national distribution of a wagering product. We have a monopoly on Internet gambling. All we are missing is a real world business model and that comes quickly by correcting the Interstate Horseracing Act.
The American automakers’ business model doesn’t work because labor costs are too high. Even if a labor official knew the business was going to collapse, you can image how hard it would be convince the members to go from $70 an hour to $40 an hour.
And the same in our business, even if receiving track horsemen know the off-track business model means major tracks will fail, it would be hard for them to voluntarily give up making 15% as a bet-taker in order to save the host tracks.
That’s why it will take responsible people who have a national interest in racing to get involved, because few people will ever agree to a haircut in the interest of the sport.
That’s the beauty of correcting the Interstate Horseracing Act. Without state by state turf battles, the national law will fix the problem. Racing’s upside down business model will be turned right side up.
At a time when everything in racing and breeding is heading south, correcting the IHA would see $1 Billion going to the host tracks in the first year. Half, $500 million, would go into racehorse owners’ purses at the host tracks. For breeders it should be noted, that $500 million in racehorse owners’ purses is more than all yearling sales in 2008, and it is reasonable to expect racehorse owners would reinvest that purse money into new racing prospects.
So, here’s what we need to do to correct the Interstate Horseracing Act and have a normal business model for off-track wagering that will restore the business of Thoroughbred racing.
1) Change from the term “horsemen” to “racehorse owners”. There is no reason for trainers to be making business decisions for racehorse owners. This should never have been written into the original legislation. Like in California, the HBPA should be funded for benevolent activities in every state.
2) Eliminate the provision in the IHA requiring approval of horsemen in the receiving state taking the bets. This provision, while well intentioned in 1978, is obsolete today and is responsible for the upside down business model that has evolved over the past thirty years. Approval of racehorse owners at the host track should remain in the IHA.
3) Mandate the host racetrack and host purse account receive a minimum of 50% of the takeout on interstate bets. This will allow the host track and a receiving track taking the bet to share the same amount. All other bet takers, like ADWs and OTBs, will need to contract with the host track and racehorse owners who approve the host track agreements under the IHA.
The Interstate Horseracing Act is business distribution legislation and these corrections, that must be made, are relatively minor amendments. I do not support using the IHA as a vehicle for non-business issues like safety and medication.
Once this new business model for off-track wagering is law, racetracks and racehorse owners putting on the show will have great incentive to package, present and yes, promote their Thoroughbred races.
Under the new business model, the host track will be free to go direct to the betting customers in every racing state. Racing can be a leader in the new economy and take advantage of technology that can deliver the same business model we enjoy with on-track wagering.
The problem is today a bettor can be standing in the paddock at the host track putting on the show and make a phone bet that results in very little money going to that host track and its purses.
After these corrections to the IHA, it will not matter where the bettor happens to be at the moment, the majority of the money will go to the host track putting on the show.
That means if even small tracks, like Turfway Park or Tampa Bay Downs, puts on a good day of racing and attracts wagers of $10 million, they could split up to $2,000,000 with the purse account. That’s how you bring Thoroughbred racing back. And, when racehorse owners start winning these purses, that’s when the breeding business has a firm foundation for the future.
Every track in America will have the opportunity to provide their races to every wagering jurisdiction, with no gatekeepers, or middlemen siphoning-off the fruits of their labor.
This philosophy of owning the bettor and giving the majority of the money to the entity taking the bet is a worldwide problem. We have the technology for live racing to be sold to a worldwide audience, yet because of protectionism and old economy thinking, we do not have a business model to grow the live racing product. Everything today favors who takes the bet, not who produces the live show. Change that premise and you assure the international future of racing.
Leaving the Old-Economy Model and Moving to the New Economy
The day of the franchise that values bet taking is over. It has no place in the new economy.
When racing’s business model moves away from the old economy thinking of we own the bettor, to the new economy realization that we own the show, then our sport has a bright future.
Changing economies are frightening things, particularly with the realization that if you don’t change you die. The new economy for racing, under a business model that favors those putting on the show, will bring innovation and opportunities that are unimaginable today.
Nothing succeeds like a profit motive and corrections to the IHA will bring solid incentives to package, present and promote its races. The sky is the limit for our host tracks.
The unfair advantage racing has been given, time and again by government, has never been realized because of the stranglehold bet-takers have had over the sport.
The Holy Grail of Sports Marketing
A monopoly on gambling, with national distribution and a solid profit margin is the holy grail of sports marketing. How we have screwed this up all these years is a crying shame.
Five years ago, I was hired by a racetrack company to do the most extensive consumer research ever done on Thoroughbred racing. I reviewed the research done by the NTRA, and then set out to find more in-depth answers using a top research firm.
I’m restricted from telling you the results, however, I can tell you this: The research did not support other entertainment or alternative gambling at the tracks. The facilities are not the problem and they are not the solution.
The research did show there is nothing wrong with Thoroughbred racing that cannot be fixed by packaging and presenting a better racing product. The first step though, is to change the business model to make it all possible.
The Kentucky Derby and the Breeders’ Cup have shown us the daily market for racing exceeds $100 million. That’s a good goal for host tracks to aspire to each week.
This current ADW problem is a symptom of how upside down our business model has become. ADW’s should be simple businesses that just handle transactions. Not companies trying to game the IHA with schemes and kickbacks called source market fees. When we correct the IHA, the ADW’s will no longer be a problem.
The real problem that must be solved is between the bet-takers, and the host tracks and racehorse owners putting on the show. Everything else at this time is just noise.
We have the opportunity for a new golden age of Thoroughbred racing, in full partnership with government. This industry is all about jobs and a way of life we all love. This is how we take action and reclaim our sport.
To those who might say we should not risk correcting the Interstate Horseracing Act, I say how can we not risk correcting it? Do we, like the automakers, risk total collapse of our business because we’re afraid to change and act?
We cannot fail to correct the Interstate Horseracing Act now.
Thank you.
© Fred A. Pope 2008
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Tags: Account Wagering, advance deposit wagering, ADW, Breeders' Cup, fred pope, Horse Racing, horsemen's organization, iha, interstate horseracing act, jay hickey, kentucky derby, national thoroughbred association, National Thoroughbred Racing Association, nta, NTRA, off-track betting, otb, pari-mutuel wagering, Paulick Report, pope advertising, Ray Paulick, Simulcasting, symposium on racing, university of arizona racetrack industry program
December 19th, 2008 at 9:12 am
Would someone please tell me what is missing here? Why is changing the model not the answer to our problems? It seems to me that we are bleeding ourselves to death. If we don’t change the pricing structure and economics then we will continue to be a business that has no economic basis for success except for the ever elusive stroke of extreme luck for the breeder and owner. How can the host tracks improve their facilities, put on a good show, to attract the customer and then have the customer come back if they have a good experience if their economic model doesn’t improve? How can the owner and breeder except for those with the true passion for it all justify the cost and expense?
Perhaps the risk is going to the Federal Goverment and opening “‘pandora’s box” which will cause them look at other aspects of our business and the risk of them regulating other areas of the business. The alternative under the current economic model doesn’t look too bright to me.
I’d love to hear the other side of this argument. Fred has espoused for years ideas and possible solutions to address the issues facing our declining sport. He’s the voice in the wilderness that we never listen to. Someone explain to me why, please.
Craig Bandoroff
December 19th, 2008 at 10:16 am
I speak from a country where the sport is really in shambles; tote revenue that ends in the sport has declined by 75% over the last decade. the main reason: bookies on site and in the internet. both have corrupted amateur driven race tracks by making direct contributions in exchange of grabbing the business away. professionalism against after work uncles. the name of the country: Germany. the land of Manduro Silvano Shirocco and other equine top athletes is a kindergarden at the races. good night.
December 19th, 2008 at 10:24 am
Why has this not been a priority of the National Thoroughbred Owners and Breeders Association? What do they do? If this is not the kind of issue they should be involved in, what is? We are sinking, and not slowly. Are there pride of authorship jealousies or something?
Like Craig said, am I missingsomething here? Why the tracks and owners that put on the races are getting a small fraction of the betting revenue compared with what the OTB’s or ADW’s g et is completely beyond me.
December 19th, 2008 at 11:01 am
There is one obvious road that rarely gets mentioned. That road is all ways through customerville. This is a gambling game. There are no fans, just horseplayers.
It is a three legged stool and the horseplayers leg is too short. Level the playing field by lowering the cost to horseplayers. This would create more winners, and then more horseplayers would create a larger fan base,not smaller.
A larger fan base would create larger betting pools and benefit ALL concerned and pave the road to prominence again.
All we ever hear from is fiefdoms that promote their own self interest, without considering the most important fiefdom of all, the customers(horseplayers).
December 19th, 2008 at 11:06 am
This guy is a dolt. He has tunnel vision and only sees what he wants to see instead of the big picture.
If the host track charged 15% for it’s signal, 95% of rebate handle would be gone…..every ADW would shut their doors so there would be no internet betting period…….many tracks that live off of simulcasting dollars would shut their doors….many other tracks would make huge reductions in their simulcasting menus hoping to keep their 5% dollars on-track dollars…etc
I would conservatively guess that total nationwide handle would be down 30% instantly. With that decrease, the smaller pools creating a reduction of handle due to big bettors not being able to bet at the same levels, it would cause a further reduction which could reach 50%.
Also, why does this guy use a signal fee comparison of 3%? Tell him to get a clue and ask him why he doesn’t call any CA, NYRA or Magna track and ask them what their avg is for signal fee. It’s not even close to 3%!
Racing has been listening to idiots like this forever and look what has happened.
December 19th, 2008 at 11:10 am
Is there any way to blame the Breeders’ Cup for this?
December 19th, 2008 at 11:22 am
I give Pope credit that he does look for solutions, even if they don’t work.
The economics of this game are broken but telling one group — in this case, owners — that they deserve more of the pie at the expense of the others in the mix is a toxic recipe (but we should note that formula has kept Drew Couto employed for 15 years).
Can the economics be refined? Sure, but that ignores the main issues. There’s too much product, much of it watered-down an unatrractive and there is no central structure to mandate the types of changes that would help grow the pie. If the annual handle on racing were $20 billion instead of $14 billion, we wouldn’t all be bitching at each other. The de-centralized structure and the crappy economics prevent us from taking the types of steps (e.g., NTRA 1998-2003) that might actually grow the business.
The appetite for our big events is still there but fans feel no compelling reason to participate other than the big events and, collectively, we do a bad job at encouraging them.
December 19th, 2008 at 11:25 am
While I don’t question that the revenue distribution model from interstate wagering shouldn’t be modified given the current day and age, I do not think that people in racing should beat themselves up for the revenue model they developed when simulcasting began.
Those of us that were involved when it got started remember that there were two sides, and each benefited from the current model, the host tracks, which in the earlier days where the large tracks, and the receiving tracks, which in the early days were the small to midsized tracks.
Host tracks and their horsemen saw the host track fee as found money, while the receiving tracks and their horsemen saw a cannibalization of their live handle, but a overall revenue gain because of the overall raise in handle. If the host track fees, when “full card simulcasting” first began, were one half to 3/4 of the total take-out, I question whether simulcasting would have developed into what we know it as today.
As it happened, as we learned more about it more tracks began sending out their signal and allowing access to their pools and we got into the “I’ll take yours if you take mine” negotiations. This was the beginning of some jurisdictions modifying their host track fees. If Portland Meadows was going to get 3% then Santa Anita was going to ask, and get, 5-6%.
When the ADW’s both domestic and off-shore began getting access to the signals and pools a new wrinkle to the pricing model entered the picture. And now as some racetrack companies are vertically consolidating and operating their own ADW’s there are even more pricing and revenue sharing issues that are going to come into play.
Having said all of that, there is only one thing in Mr. Pope’s comments that I completely disagree with, and that is his statement regarding the elimination of the approval rights of the receiving track horsemen.
“2. Eliminate the provision in the IHA requiring approval of horsemen in the receiving state taking the bets. This provision, while well intentioned in 1978, is obsolete today and is responsible for the upside down business model that has evolved over the past thirty years. Approval of racehorse owners at the host track should remain in the IHA.”
Under the IHA the receiving track horsemen do not have any approval rights.
The rest of his ideas and comments I believe at least deserve serious consideration. Not because the initial simulcasting business model was wrong. Rather because the simulcasting environment has evolved, and is continuing to evolve, which requires the revenue sharing model to be re-examined and adjust to fit the new environment.
If that requires federal legislative action, so be it. If it can be done without federal action that is okay too. Given my experience with the industry I would bet on the former, while preferring the later.
December 19th, 2008 at 11:26 am
What you are missing is that Fred is a Marketing guy, and apparently failed math and economics in grade school.
Handle was flat for the last several years and is tanking this year. Why? Because compared to other forms of gambling it is priced too high for the consumer. Takeout is too high, and the additional costs of participating in gambling on horses don’t exist in other forms of gambling. Pay to park at a casino? How about to walk through the doors? Pay for drinks? How about to sit at a table?
There is no monopoly for horse racing any more. Gamblers can, and do, vote with their wallets.
Racing needs to fix the economic model for the guys that really put on the show, and that’s the people who wager. Contrary to popular belief, it’s not the horsemen, or the host tracks. No wagering, no purse money, no outlets, no sport. Until the powers that be in racing figure that one out, the revenue will not grow.
Don’t believe me? Fine. Put on the races with no betting and tell me how many people show up five days a week, 52 weeks a year. Events like the Kentucky Derby might survive, but I won’t bet on Aqueduct racing in January still being around.
Why do non racetrack outlets (OTB’s and ADW’s) exist? Simple, people want to save money and play more often.
These outlets find a way to reduce the customer’s costs to the point where it’s attractive to play. This can be through more convenient locations, the ability to stay home, takeout reduction (rebates) and doing things as shocking as giving away free past performances. If you want to see handle really tank, revise the pricing model as Mr. Pope suggests and you will see these outlets go away, and the handle they bring to the table will go away too. Why? Because the large players will stop playing through the pools. They will either quit altogether, or will start playing off-shore where the industry gets nothing.
He gives an example of Turfway or Tampa putting on a day of racing with $10 million in wagering leading to splitting up to $2 million for the track an purse account. Well Mr. Pope, that’s 100% of the takeout (20%), so where is the guest site’s portion of that? Surely you don’t expect them to provide services to the people funding all of this for free do you?
Doing as Mr. Pope says will also do one more thing. It will kill off all the smaller tracks. The reason smaller tracks can still exist is because they get almost as much money when their customers bet on simulcast races as they do on the live product. Honestly, if you are sitting at ‘No Where Downs’ and have the choice of betting on those races or Churchill Downs or NYRA, what is the average gambler going to do?
Yes, the outlets that do not have live race meets should pay higher fees than those that do not. From reading all the stories about what is going on with the ADW’s and the horsemen lately, I suspect they do. Can some outlets afford to pay more? Perhaps they can. Some might not be able to because they are providing valuable services to their customers that make their economic models different. Certainly there is a happy medium out there, and guess what? Economics usually dictates that markets have a way of finding out what that level is on their own, without government help.
The industry has to stop crapping on its customers if it’s going to survive. Mr. Pope and the leaders of this industry have to figure this out first, or there will not be any money left to divide up. That means open access to all the signals through all legitimate outlets, sold to thouse outlets at a price that still allows them to provide the services the customers want … and heaven forbid turn a small profit for their efforts.
Oh wait, if he’s really in favor of doing things that will hurt his customers, then he failed Marketing 101 too.
December 19th, 2008 at 11:33 am
I’ll be happy to tell you what’s missing. Mr. Pope doesn’t know the law. The Interstate Horseracing Act does not give to the horsemen in the “receiving state” the right of approval. The only consents in the Act are the host racetrack, the host track’s horsemen’s group, the host racing Commission and the receiving state’s racing Commission. Some “States” require their horsemen to approve receipt of a signal, but that is a matter of State law and it is not uniform. The horsemen have nothing to do with the price for the exchange of signals–it’s the tracks!
December 19th, 2008 at 12:02 pm
Seattle Slew…I’m ashamed to call you my son.your more of a Smarty Jones type any ways. BC hasn’t had a chance to screw this up but if its a success they will try to get their hands on it
December 19th, 2008 at 12:37 pm
Fred Pope is a relentless hero. He is one of racing’s most innovative thinkers. No one in racing has had better ideas for a longer period of time and gotten less response and appreciation. The heavy part of the takeout should go to the track and the racehorse owners who are putting on the show. How could it be clearer? In desperate times, we can’t afford to be fearful any longer about involving the government. Perhaps it’s time to involve the government in a number of things having to do with racing.
December 19th, 2008 at 1:02 pm
Horsemen supervising and directing horsemen has not worked out too well.
John Hay Whitney said many years ago when “Sportsmen” lose control this game is going to have problems.
He has proved to be right.
December 19th, 2008 at 1:24 pm
Fred’s comment on receiving track approval rights aside, he makes a valid, but perhaps insufficient point.
Reserving half the takeout for the sending track and its horsemen is actually a lower target than the well thought out and researched proposal being advanced by the Thoroughbred Horsemen’s group, under which the sending track and the purse account would EACH get one-third of the takeout — say 6-7% at current takeout rates. The THG’s studies, I believe, show that most ADWs could survive quite nicely on 7%.
Either of these proposals — Fred’s or the THG’s — though, does nothing to deal with the issue of the “whales” who bet millions a year and who get very substantial rebates, in many cases greater than the 7% that would be left for the bet taker. Heavily rebated whales account for perhaps 10-15% of total handle, so there probably needs to be some sort of accommodation for them.
And then there’s the question of what the optimum takeout level is. The real-life experiments recently, in Maryland and New York at least, have been inconclusive, although there’s some research that says the right number is somewhere near 10%. I’m not convinced that it’s that low, but it’s almost certainly a good deal less than the current 20% or so.
December 19th, 2008 at 1:46 pm
Regarding Pope’s number 1 proposed change: “Change from the term ‘horsemen’ to ‘racehorse owners’. There is no reason for trainers to be making business decisions for racehorse owners.”
Why does he see a conflict of interest between owners and trainers? A trainer’s 10% comes directly from his owner’s share of the purse. Their interests are exactly the same. Breeders and trainers also have ties to each another’s success.
Many trainers also own and breed racehorses, and they fully understand the costs and risks involved. Owners, trainers and breeders are partners, not competitors. Why does Pope think trainers should have no say in the decision making when their entire livelihoods depend on the sport?
December 19th, 2008 at 1:49 pm
When I first read Mr. Pope’s ideas I thought, cripes! I need a PhD in economics, marketing, Federal Law and horse racing to understand his points and position. After reflection, I think I’m a fan who is part of the problem. I don’t go to races very often and when I do, I bet very little. It’s just freakin’ too hard! Yes, I’m a dummy. The system, odds, placing a bet stymies me. Even Vegas has classes for craps, poker and Black Jack. Based on that, I guess I certainly don’t think I have anything to contribute. But I do follow the horses. Many that post on Paulick are P O’d about gambling and surfaces. I’m angry about all the money that is generated with little going back to the everyday players. My question is…just who the hell is getting all this money? Because it certainly ain’t the horses….just ask Exceller. Oh, that’s right. He’s not talkin’ any longer. My bitch is just a simple symptom in the disease that is racing overall. And please don’t lecture me that money drives the game. It does. So why is the game so completely screwed up right now. The money is there; ups and downs considered. That sim signal is crucial and the Feds control that. Start negotiating with them and fix the mess that is today’s racing to the racing participant’s satisfaction….and off-shore skimming scum don’t count.
December 19th, 2008 at 1:55 pm
I am sorry, but this is completely backwards for today’s economy. I agree with the poster who said handles will be down 30%+ if something like this was enacted. This is 1960 thinking.
Ask yourself this: Amazon.com pays less than 7% of total revenue to an author. Their sales are in the billions. Now, let the author have 80% of revenue like Mr. Pope wants (after all authors “put on the show” dont they?), instead of 7%. How many books would they sell? It would hurt authors and businesses like Amazon.
Racing has to join this century. With all due respect, Mr. Pope would last about three minutes working for Ebay or Amazon with this ancient business model. He’d be escorted out of the building.
December 19th, 2008 at 2:11 pm
Provocative points from Mr. Pope. In any process evaluation environmental factors and time must be considered when exploring the root cause of problems. Mr. Barham’s cautions are useful. Mr. Foreman’s legal guidance is necessary. However, an important component is missing in Mr. Pope’s solution, the role of the fan. I would argue that the fan must be crafted into any solution if we expect systemic change. Mr. Pope should amend his position, if there are errors of fact, and add one more seat at the table for the fan. When, if ever, this issue makes it to the halls of Congress, you will need the voice of the 29 million fans (casual and core) to move it .
December 19th, 2008 at 2:44 pm
1. Market to bettors.
2. Organize.
3. Be proactive in saving race tracks. (The collapse of The Woodlands e.g. was ridiculous, and
no help from NTRA or anyone.)
4. Concentrate resources on one track at a time.
5. Remove trainers from their absurdly preeminent position in the sport. We have
training idiots ripping off and ruining the sport.
6. Facilitate ownership. Market ownership to ex-jocks.
7. Create economies of scale on the backstretch.
8. Create a few centrally located training centers where owners have complete
control of their stock.
9. Quit ripping off barely surviving race tracks for money.
10. Get someone to run the NTRA that is proactive and anticipatory.
December 19th, 2008 at 2:55 pm
The problem with this analysis is that there is very little incremental cost for a convenience store to handle off track betting on lotteries. There are a variery of other products sold in the stores, etc… It costs a lot to run OTB shops that only handle horse racing bets so they need a greater % of what they handle to simply function at break even. That changed to some degree with computer and phone betting which is less costly, but it’s still not the same as the lottery model.
December 19th, 2008 at 3:03 pm
Michael Amo:
How about a seat at the table for the horses that can’t and DON’T have ANY representation in this game? …..and who should be the advocate? I could throw the jocks and backstretch/trainer employees into that fray too. I know, I’m a liberal, left-wing bleeding heart (not totally). But with all the revenue that is being generated, what the hell is the problem with addressing these issues? Oh! I got it…money and control or the lack there of. But let’s focus on the marketing model with the road bumps Mr. Pope thinks the industry is facing. Geeze Loueeze. How about addressing issues across the board to include the freakin’ use of drugs, no matter the reason for use, cheap claimers, overbreeding and too many uncoordinated racedates. This is like watching the fox eating the chickens and hearing him say, …”but I’m hungry and I’m I know what’s best to eat.” Please.
December 19th, 2008 at 3:20 pm
When a commercial for Wal-mart comes on TV, do the suppliers and distributors tell you how great this company is and how much money they make? No. Customers come on and say how much money they save and what a great place to shop it is.
There’s your “business model”.
I started playing the horse in 1975. Stopped for many years, and recently got into it again. It is SO much harder today to make any money it is beyond belief, unless you were around back then. Greed, in the form of takeouts, is what has killed this game. More money for the horsemen? Get real. Every owner thinks his horse is the next Curlin, when 90% of them should be hitched to a plow. You want to make more money as an owner? Then stop raising “taxes” on your customers in the form of takeout.
The days of “if we build it they will come” are long over. When wagering on horses denigrated into a game of luck, you already lost your customers to casinos and poker. Give the average fan a fighting chance in the form of lower takeouts, lower costs to attend, cheaper, or free info, and banning cheating trainers for life, and you will exponentially grow your fan base, and everybody makes more money.
There’s your “business model”.
December 19th, 2008 at 4:20 pm
brewman–they don’t get “market to bettors”. it just never occurs to them.
December 19th, 2008 at 4:26 pm
Mr. Pope,
Does your plan take into account that handles will be decimated? Does it take into account that you are asking to give piles more money to a sport who has shown they have no idea how to spend it togrow their sport?
If there is something we should have learned by now, pumping piles of money into purses has not grown this game. Philly park had purses go up by 300%. Handle went down what, 30%?
How about this for something radical for a business model change? if it grows handles do it, if it does not grow handles, don’t.
December 19th, 2008 at 4:29 pm
Fred Pope and Cot Campbell have to be insane. They have no idea about the gambling side of the game.
It’s just impossible they can be this ignorant about what racing’s business needs are.
December 19th, 2008 at 4:39 pm
I think we missed the point completely. How does an owner of an NFL or Major league sports team survive. After all he is signing contracts for players in the 9 figure ballpark. The answer is: ADVERTISING
Not gambling or ADW or takeout. Why does advertising work. Because they have created a fan base and a product that is entertaining. Have we. Absolutely not. Does Eight Belles, Barbaro sound familiar. Do fans watch the Breeders Cup to see a filly stuck in the fence after flipping over (Belmont) and being euthanized. Do fans want to see horses whipped, drugged, buzzed, sponged, slaughtered. Get real. We are ignoring the problem and trying to fix it with a bandaid (gambling revenue).
Once we fix the perception. Gather a fan base. Fill the stands. i.e. Del Mar, Saratoga, Keeneland. Then we can talk handle,takeout etc. Make it festive, safe, and fun and the fans will come and spend. They will spend on gambling, licensed products, and television sponsorships.
Unfortunately, the organizations such as the NTRA are a rudderless ship. They never got it.
This is what needs to happen. Create one national organization with representatives from each state that represents only the OWNERS. Create an internet support group modeled after Obamas (like him or not) billion dollar campaign drive. Ask owners to support this campaign to revamp. Use slogans such as HORSE RACING: THE NEW GENERATION. Admit our faults of the past and market it as a changed industry. Barnum and Baiey them. Have petting zoos, horse rides, adoption of retired racehorses. Have a television spot to name horses. Give the fans a sense of ownership. Give a horse a day away campaign to a fan that qualifies. Have their picture taken with the horse in the winners circle. Have theme day. Dress up Hawaiian, 50’s, Hippie, Big Band and get in free. Have live music, concerts in the park, carriage rides. Sell the sizzle.
Owners need to be responsible. Breed sound breed less and breed quality. Race less often and they will come. Give the owners a chance make a buck not loose one. Help the owners make sure their horses are sound. Preventative medicine for all runners, blood markers for fractures could be implemented. Walk though xray machines. Ultrasound scanners. These are the practices that will help the image. Masking injuries will never do that.
If we want the status quo, then so be it. If we want a fractionalized industry we have it. If we want failure were heading towards it. Organize owners because division is causing a collapse of this great game.
December 19th, 2008 at 4:56 pm
[...] 20% on-track dollars
December 19th, 2008 at 5:14 pm
It’s frightening.
A gold miner would never tell a jeweler how to sell a ring, but in horse racing the producers of the product for years have told us how to sell our gambling product. And no one says a thing. All we do is get killed by other gambling games, which are run by gambling businesses and then do the same thing over again.
I would never tell anyone how to hook up a horse, or inject a hock, or change to a different type of feed, because I gamble, and they are the experts on horses. It is sad that the gambling businesses and bettors do not receive the same in return.
Until we let our gambling businesses flourish and run distribution and marketing, we are destined to infight, shrink, and we will continue to get passed by all other gambling enterprises.
December 19th, 2008 at 5:36 pm
Drake, advertising might get someone in the door, but the reason they stay is because of gambling.
Just like poker.
Racing needs to compete with other forms of gambling to grow, and the only way this will happen is to lower takeout dramatically so winners are created. Then you can advertise the winners.
It works great for poker and even lotteries, even though we know most of the winners in commercials are actors.
Racing needs real CONSISTENT winners who are not winning at rebate shops.
December 19th, 2008 at 5:50 pm
Who runs major league baseball? The fans sure don’t. They don’t run the NBA or the NFL or any other major sport. Last time I looked the customers don’t run the casinos either. Whats wrong with the horse owners controlling their destiny and hiring someone with some intelligence to represent them and get us out of this state of paralysis that is killing this game. You people actually think low take out is the only answer. So if we lower the price of GM’s crappy cars that’s going to save them too I suppose. Its more than price
December 19th, 2008 at 6:02 pm
New Jersy Jake,
Bad example, I do not think the fans play 2nd base in baseball and the are just spectators.
Horseracing is different. The fans are a participant and compete against each other and that is what makes the game “whole”
December 19th, 2008 at 6:22 pm
“Who runs major league baseball? The fans sure don’t. They don’t run the NBA or the NFL or any other major sport. Last time I looked the customers don’t run the casinos either.”
If they were trying to figure why the customers aren’t showing up, who do you think MLB management would ask: the personal trainers of the players, or the customers?
December 19th, 2008 at 6:22 pm
1. Drastically lower the takeout.
2. Drastically lower the takeout.
3. Drastically lower the takeout.
Did I mention drastically lower the takeout? Otherwise you won’t get any of my money to redistribute.
December 19th, 2008 at 6:22 pm
New Jersey Jake, the horse owners are equal to the players in your example. It is the team owners or in your example, who control baseball. Are you saying you want to give control to the team owners solely?
Horse owners and other horsemen are third on the totem pole.
First and foremost are the players. We can bet on anything. Without us there is nothing. But without horse racing we still exist.
Next important are the track owners.
And finally the horsemen.
That is just reality.
December 19th, 2008 at 6:24 pm
Richard Duchossois, former Chair of Arlington,and current largest shareholder in Churchill Downs was quoted in the DRF in 1994;
“We are a participatory sport,not a spectator sport. Our bettors are competing against each other. This fact should be a marketing focus”
December 19th, 2008 at 6:32 pm
This is good discussion. Most arguments pro and con are presented. There is a good mix of those who seem connected to the current model and those who want to see a new business model that favors the racing show.
The intent of the IHA was to expand the distribution of the host track’s product. That was to help our jobs-rich, agricultural-based sport and tracks. There was no intent to help bet takers. The IHA today only helps bet takers and negates any benefit to the host tracks. Since off-track is ninety percent of all handle, that’s why the IHA must be corrected.
The proposal to provide 50% of the takeout to the host track is part of a transition that will help ease the impact on receiving tracks over the next few years. Eventually, the host tracks will become more and more independent as bettors decide what is the best way for them to wager.
My goal is to have the regulated host track and racehorse owners putting on the show receive about the same percentages of takeout they receive from an on-track wager (18 to 20%). How? By going direct to the consumers in every state where pari-mutuel wagering is legal.
That means the host track, with IHA approval from its racehorse owners, will contract with, or create, a unit to handle the bet transactions and remit taxes to the state where the bet is made. There is every reason to believe the costs of taking these off-track wagers will eventually be less than the costs of taking a bet through a teller on-track.
If the host track and racehorse owners want to offer incentives for good customers and it is approved by their racing commission, then they can agree to do what is best for them in the market. The difference is the host track will make the decision on its product, not a bet taker. Racehorse owners are a mobile group and if a host track stops operating in their best interests, the horses will move somewhere else.
Racing, with a monopoly on legal wagering across state lines, can be the leader in the new economy, with everything flowing direct to those producing the racing show. Isn’t that what racehorse owners and breeders want? Why in the internet age should anyone in another state get anything more than taxes on the host track’s product?
Our funding from wagering is a crutch, a great crutch, but there is nothing to keep our sport from enjoying the same revenue streams of advertising and sponsorship other sports use to exist. Once tracks putting on a good show are healthy and racehorse owners are making news winning major events with huge purses, then our sport will have sports’ credibility and momentum.
Regarding fans and bettors — Content is King. That’s why you are staring at electronic type on Ray’s hot blog. Fans and bettors will find the best racing content. We can help them.
Every Bet Taker wanted Curlin and Big Brown to race, but no track could offer a sufficient purse and make a profit getting only 3%. If they had offered the two owners a $5 million purse and got a Kentucky Derby-style handle of $100 million, the track putting on the show would have lost $2 million. The bet takers would have made $15-$18 million. Craig just completed a high-level MBA, please tell him how that makes business sense?
Until we have a business model that rewards a good product, nothing good can happen. There is $5 Billion going through ADW’s, Non-track OTB’s, Casinos. At 3%, they deliver $150 million to host tracks. We can lose $4 billion of the $5 billion and deliver the same amount to host tracks and purses. Total handle means nothing if it is not contributing a fair amount to live racing. If their business model does not allow them to pay a fair amount, then racing bettors will have the alternative of direct contact with the host track’s pools.
Fans and bettors love big race days. Imagine a regulated host track putting together a race card of quality horses with full fields and taking bets direct from customers to total $50 million in handle. The return at 20%, would be a casino-style $10 million, split between the track and racehorse owners’ putting on the show. That is the profit motive the sport needs and it is impossible today.
The Breeders’ Cup would benefit greatly with the IHA correction allowing them to offer direct wagering. With up to 20% takeout return, the Breeders’ Cup would have huge incentives to market the races next year and perhaps increase funding to the special stakes program.
Those who benefit and are responsible for the current off-track business model, are going to try every way they can to keep the status quo, regardless of how it impacts the sport. I will assuredly make mistakes and use words that upset some people. Such is the nature of advocating change.
Alan certainly understands law and while receiving state horsemen do not have formal approval, the way the law works is the receiving tracks, resident horsemen’s organizations and racing commissions are aligned to benefit the receiving state. New Jersey is so aligned they have a law prohibiting a host track from being paid more than 3%. If the IHA removes receiving state approval, whatever mix of unholy alliances have been created in the various states will be broken. The intent of the IHA was to expand the host track’s product and that will then be implemented.
I apologize for taking so much space, however, I cannot image anything more important to discuss than racing’s business model. I’ll keep in touch.
December 19th, 2008 at 6:34 pm
Fort Erie may close. Who loses the most? The owner loses his source of potential revenue, the local horsemen are forced to move, change their game plan drastically, or find another source of income.
Meanwhile, the local gambler still has many options. We can bet on all kinds of other tracks, sports, and other games of chance.
If Fort Erie had more money from gamblers, there would be no consideration to close.
December 19th, 2008 at 6:43 pm
Mr. Pope, you can think “content is King,” and that making more big races is the way your game will grow.
You are sadly mistaken.
Personally, I only bet where I get a substantial rebate. I get as much of a kick out of betting 5000 claiming nw2 with a field of 8 or 9, then I do over betting the Kentucky Derby.
I think your problem is the same as almost every race track execs.
You don’t know how to grow the game.
What you are proposing is a short term solution, and it is typical of racing’s short term mentality.
They’ve had it ever since they started.
Imagine a day where 50 million is bet and 10 million is scooped? Who is going to come back the next day?
December 19th, 2008 at 6:48 pm
“Eventually, the host tracks will become more and more independent as bettors decide what is the best way for them to wager.”
I can give you the answer now: On something else.
December 19th, 2008 at 6:55 pm
Mr. Pope,
Include the horseplayer in the master business plan or continue to wither away.
It is not your game, it is OUR(collective) game.
December 19th, 2008 at 7:04 pm
Mr. Pope is so wrong it scary and guys like Paulick and Campbell are vouching for him.
December 19th, 2008 at 7:54 pm
Mr. Pope,
Thank you for your response.
Question: Where in your plan is bizdev, rebating and marketing spend mandated?
For example, according to Youbet’s last annual report, over 30% of their revenue was spent on those two items (and they are not even a rebater).
If racing gets all that money, say $3.0 billion per year, do you really think that they will put 30%, or $900M into marketing the sport and biz dev.
From its history, of infighting and lack of vision, I would submit they would not spend $900M on those things, they would fight over it, and probably split it 50/50 for themselves.
In my opinion, without a fixed percentage given back to the sport, and back to the player, and have that mandated in any deal (like it is in Australia) we will see more fingers in the pie, and less money for the bettor, the fuel of the sport’s revenues, which will result in a further decline in wagering.
I feel the only way that your plan would work is if we were a monopoly again, and that will never happen.
Once again, thanks for the response and have a nice weekend.
December 19th, 2008 at 8:31 pm
I plan on re-reading all of Mr. Pope’s speech and posts about this change. He mentions, bet takers, owners and tracks. But the one thing that struck me was that he failed to factor in BET MAKERS in his equations in any significant way.
Without BET MAKERS the sport is virtually nonexistant.
As an advocate of BET MAKERS it is my job to make sure we get our seat at the table.
I’d like to respectfully ask Mr. Pope to go back and review his comments and factor BET MAKERS in to his equations for change and then report back to us. I plan on reviewing his comments and reporting back.
John Swetye
VP Horseplayers Association of North America
December 19th, 2008 at 8:32 pm
Mr. Pope’s overall proposal is already test marketed, and as far as growth goes, it has gotten a huge “F” for failure.
I’m talking about HPI and WEG. Woodbine has their own ADW, and not only that through illegal collusive deals, they have made it so that Canadians have little choice in what ADW they can use.
The fact is that gambling in Canada has sky rocketed in the past 15 years, but gambling on horses have been left in the dust.
Why? Because Woodbine has failed to compete with other types of betting available to Canadians; online poker, sports betting, etc. They have abused their situation and have one of the highest collective takeouts in North America, including 28.3% on triactors.
They are set up to try to take as much money from their customers as quickly as they can. Ask Woodbine how many winners they have per 1000 accounts just on a year to year basis. Sources say one. And they are usually the ones who hit a huge super or win 4 during the course of the year.
There are winners at poker and sports betting, and of course horse racing exchange betting. That is what lures the young people. The idea that a game can be beaten or that you can last for more than a couple of hours with a $100 bankroll.
They do offer some rebates, but they are minuscule in the scheme of things. They also have secret rebate deals with their best customers which inflates their pathetic handle somewhat.
If the US tracks wind up doing what Pope is advising, the history of greed that Horseplayer’s Association alluded to will completely take over just as it did in Canada.
In the end, there will be negative growth as more and more customers leave and not very many are created.
December 19th, 2008 at 9:35 pm
With all due respect, Mr Pope, if you think NASCAR or WWF type advertising is going to bring players into this game….. You couldn’t be more wrong. This game is about BETTING. Everyone from the biggest owners and trainers to the guy that sweeps the floor at night is fueled by betting. But the chance to actually win at this game is going away day by day, as are the players themselves. We pay the bills, we keep the lights on, we make the payroll, and we supply the purses, and we want OUR piece of the pie. Without us, horseowners will be racing for trophys at the County Fair (see Goshen Track ). Handle is down all over the country and if you think its the economy….guess again. This industry has dipped into our well one time too many and we, as a group, resent it. It is time to think of taking care of the customer, because if we go away, it ALL goes away. No players;
No purses
No money
No racetrack
There is you “business model”
December 19th, 2008 at 9:56 pm
PRIORITY 1 - THE PLAYER!
December 19th, 2008 at 10:18 pm
Mr Pope,
You aret still missing the point. While you may be correct that the bet takers are getting a lion’s share of the money, I suggest you look at the bottom line of all the bet takers for which there is public financial information. Most are making very little money and have very low returns on capial. Some are losing money (like NYC OTB). So if you take more from them, they will go out of business and the revenue to the tracks will TOTALLY EVAPORATE.
What has to happen is there must be a drastic reduction in the number of racetracks. That way the expenses of the entire industry go way down, but the revenue stays approximately the same (because the customer will bet whatever remaining tracks are open), producing more revenue and PROFIT PER TRACK while keeping the off track bet takers in business!
Once there’s more profit per track, investments can be made to improve the product, expand the customer base etc…. The bottom line is that dozens of race tracks MUST CLOSE!!!!
December 19th, 2008 at 10:50 pm
Anyone else notice hostility emanating from the horseplayers posting on this topic? It’s a strange phenomenon, in my opinion, that we have groups who vie for the MIP (Most Important Person) in racing. So, let’s go ahead and get this out of the way — with no handicappers, there’d be no racing, but with no owners, there’d also be no racing, and with no breeders, there’d also be no racing. All three entities are “gambling” for the sport, with the owner being the biggest gambler of the three, so let’s leave the hostility at the door — we all love the sport, after all.
Anyway, it’s my opinion that you’re all right — and all wrong. It’s a combination of ALL the factors discussed here.
Yes, market to handicappers, give them free programs and parking and admission and drinks (who wouldn’t love a little alcohol loosening the wallets?). Lower takeout. Come up with something that gives lottery-like rewards. Etc.
Make racing more enjoyable to both handicappers and fans. Why on earth are we still having to make our way to the teller windows? Dump cash. In this day and age, we should buy cards that we can then use to make our bets by inserting into the slots available at every box and scattered around all the seating and paddock and apron areas, and we cash out at the end of the day.
Advertising! Every other sport lives off of advertising and television revenues, so don’t tell me we have to only live off of wagering. That’s only true because of the high volume of racing that we currently have — the vast majority of people are at work at 2:00pm on a Tuesday, but there racing is, peddling its product during the time when most of its customers can’t be there. Maybe the answer is for racing to go through a brutal downsizing in order to have a healthy product at the end.
There’s a lot of directions that racing could take that would benefit racing. But we’re the kings of talk and inaction, which brings us to racing’s biggest problem — no central governing authority.
December 19th, 2008 at 11:00 pm
Yep. The “Give Me More” solution is a bad one, no matter who the recipient is. It’s not the splits, it’s the total pool that’s the problem.
To take the steps to fix it, everyone needs to cede authority. What do the NFL, PGA Tour, NASCAR, etc have in common. It’s not advertising and television and greater popularity. Those are by-products of the structure that allows top down management for the greater good of the game.
December 20th, 2008 at 12:01 am
Hi Tori,
Horseplayers are very upset. We see it every day in our group from members.
We are trying to work together to grow handles, but we are not getting much cooperation. All you are seeing is frustration from people who love the game; don’t read too much else into it.
Hopefully one day it will be better.
December 20th, 2008 at 12:06 am
There are some fascinating and insightful comments on this thread that come from all sides of the debate. If nothing else, it shows the passion that so many people have for horse racing and for betting on horseracing
Something that strikes me is that there is a great deal of anger from horseplayers in this thread, and I assume there is good reason for that anger. Horseplayers have been taken for granted and in many cases not treated like valued customers as they may be in other consumer-oriented businesses (though some tracks are better than others).
The anger should not cause horseplayers to lose sight of the fact that without the horses they would have to find another game to gamble on, whether its through a bookie on sports, online poker or sitting on a stool playing blackjack or slot machines.
I didn’t interpret in reading Fred Pope’s article that the horseplayers don’t matter. Of course they matter. But so do the owners who invest a whole lot more than an OTB or a phone betting company, and so do the tracks that have huge investments in bricks and mortar. Horseplayers lose on average 20% of what they bet. Horse owners lose more like 50%. Tracks may be show a minor profit, but not enough to rebuild their infrastructure or invest in the future. Right now, no one seems to be winning.
In short, the game cannot survive without all three entities, but none of the three are doing very well. In fact, I think without significant change in the business model we are going to see in a very short period of time serious retraction in the number of operating racetracks and horses in training as more owners drop out of the business. I think we’ve already seen a lot of horseplayers leave the game.
The Hong Kong Jockey Club, which has a very strong economic foundation that allows it to experiment on wagering issues, is in the midst of a rebate program for horseplayers who lose a bet with a specific minimum amount wagered So far, the rebates have not generated enough increase in handle to pay for the rebates. So they have basically lost money by effectively lowering the takeout on certain bets. The HKJC does, as I mentioned, have enough economic strength to carry this program out over time to see if the pricing elasticity can make a difference. I don’t see the U.S. racetracks or horsemen in position to try a similar program.
Why does anyone think that our tracks can afford to lower takeout? Can you point to other takeout reduction programs that have generated enough of an increase in pari-mutuel turnover to justify the reduction in revenue from each dollar wagered?
I’ve enjoyed reading the ongoing dialogue here and hope something can come out of it.
Ray Paulick
December 20th, 2008 at 12:21 am
I went back and re-read Mr. Pope’s comments. The thing that struck me most on the second read through is he wants to use legislation to force customers away from ADWs and back to the host tracks.
As far as I can tell, if it weren’t for entreprenuerial businesses like Youbet, TVG and other ADWs becoming so successful, Mr. Pope wouldn’t be complaining about them. H.G. Wells said, “Righteous indignation can be traced to envy.” Hmmmm. Sounds like that might apply here.
If tracks would have taken care of their customers in the first place the customer would have continued betting with the host track. Now, tracks and horsemen want to “own the bettors” that they think ADWs own, but rather than fight for those customers by building a better business model, Mr. Pope wants to use legislation to force customers back to the track. All is fair in love and war… and I suppose in business. If you can’t beat ‘em, pass legislation to tilt the playing field in your direction.
I have no problem with tracks and horsemen owning the show, but no one is going to buy the product unless the price is right.
The role of slot revenue was never discussed. “Purses up, handle down” is a common phrase with respect to racinos. If purses are up because of slot revenues, what in the world are horsemen complaining about? If any group has a right to complain, it is horseplayers who are receiving no benefit from the slot revenue in the form of lower takeout. If handle is down and purses are up, then lowering takeout will have very little downward pressure on purses. In fact, lowering takeout should increase handle and result in an increase in purses.
Tori, there will always be owners and breeders because there will always be wealthy individuals who need to find a place to spend their money. You don’t need bettors for the game to continue. But you do need bettors to put more money in the pot if the goal is to create more owners and breeders. Owners, breeders and racetracks need bettors more than bettors need them.
December 20th, 2008 at 12:36 am
Ray,
You asked:
“Why does anyone think that our tracks can afford to lower takeout? ”
A more relevant question might be, “What happens to tracks that can not afford to lower takeout?”
The answer is simple, subversion. Bettors will bet where they can get the lowest price whether the bet takes is licensed or not. And if the track folds because their prices are too high and bettors chose to bet somewhere else, then the free market works. Why should tracks get a bailout in the form of legislation that forces bettors to bet with a monopoly whose price is too high?
I can understand the executives at thesese long existing racetrack businesses feeling a sense of entitlement. Executives at Goldman Sachs, Bear Stearns, GM, et al seem to think they are entitled to a bailout. However, having the feeling of entitlement does not necessarily mean the feeling is justified.
December 20th, 2008 at 12:51 am
“Why does anyone think that our tracks can afford to lower takeout?”
What makes Mr. Pope think the tracks can afford to effectively raise the takeout, is I think the question that he needs to answer. Does he really think this game enjoys any pricing power whatsoever? Why? I don’t think they can afford NOT to lower them.
The tracks already have at their disposal a tool to lower takeouts without reducing (today’s) revenues, they are called ADW entities. Rather than encourage them to give rebates, which would have nothing but a positive effect on handle, they withhold signals, put restrictions on what sort of rebates they can give, and to whom, and generally make a mess out of things.
And we’re supposed to think they are going to have the right ideas as a soup to nuts integrated proprietor? Once they’re able to keep the bathrooms working on a busy day, maybe we can revisit whether we want them in control of “the internets”. Until then, get out of the way of the ADW, let them do whatever they hell they can to drum up business (especially rebates)…and charge them around 6 or 7% for the signal.
December 20th, 2008 at 12:58 am
Racing has no product. They should start there. Aside from a handful of traditional races that peak the interest of the general public, racing’s customer base is dwindling, dying and going broke due to onerous takeout and the application of punitive processes like breakage even when players win. The fact is that if the industry’s leaders really knew how to fix (pun intended) their game and grow their revenues, don’t you think they would?
Revenue from alternative gaming in some markets is providing a temporary respite to the continuing drop in handle. That will end when the general public and pols figure out that money being provided by the general public is being used to subsidize special interests while social benefits like education, police protection and infrastructure maintenance are being curtailed due to “budget considerations”.
And since there’s no room in Pope’s new model for customers why don’t they just run their eight or nine or ten races each day, week, or whenever, in a few hours and hand out the purse money. A minimum number of employees would be needed since there would be only the important owners in attendance. And, with no tote system, expenses would be further pared. The owners would get all the money which is what they want. No ADW’s to split proceeds with and no whining customers to put up with. And they will be participating in an industry that will contract by half which is what it needs. Then we can revisit the “model” issue.
December 20th, 2008 at 1:08 am
I have to ask this: Do any of you who are complaining about track takeout similarly fume about the “takout” from slots and in Vegas?
December 20th, 2008 at 1:26 am
“I have to ask this: Do any of you who are complaining about track takeout similarly fume about the “takout†from slots and in Vegas?”
A: I don’t play slots, or any other game like that, and I’m guessing no one else talking about racing’s takeout does either.
B: If racing’s takeout was as low as Vegas slots, there wouldn’t need to be a discussion about it.
C: It’s not complaining. It’s customers explaining to a producer why they aren’t buying their product. Usually, companies are interested in that sort of thing all on their own. Just not in racing. Here, apparently, customers are a “crutch” to the industry. That is a very odd idea.
December 20th, 2008 at 1:52 am
Death Spiral, according to this article (http://www.hotelinteractive.com/article.aspx?articleID=6854) it seems that the Vegas casinos have about a 9-10% profit. It appears that the state got another 4-5%, and I can’t even venture a guess the costs and how that translates to a percentage. But based on these numbers, doesn’t it appear that Vegas has a higher takeout than racing? It’s just that I’ve never heard of the takeout complaint regarding anything but racing, and I’m not understanding why this is, and why gamblers don’t mind that Vegas has to pay for its expenses and make a profit.
And please don’t take my posts the wrong way. I truly wonder, though, if lowering the takeout is the answer handicappers seek. Isn’t the real problem the payouts caused by A) the wealth of information that can be easily had now, and B) the lack of “fans” betting, giving the handicappers fewer opportunities to take candy from the baby?
What is it that really needs to happen for handicappers to make a profit?
December 20th, 2008 at 1:53 am
Tori,
You wrote: ” I have to ask this: Do any of you who are complaining about track takeout similarly fume about the “takout†from slots and in Vegas?”
Easy answer: What Mr. Death Spiral said
He is correct, I believe. First, did you know that takeout in Vegas-slots in the 1970’s was much higher than now? They knew they needed to send people home winners for them to grow. Takeout now on slots is around 10%, and you can find it as low as 4%. Some video poker machines have zero takeout as an incentive to come play. Mt Spiral is right, if takeout was the same in racing as slots, there would be no discussion. Furthermore our handle would be $30B or more, instead of 14B.
Second, slots players are not your market. They never were. It is a brain game. That is why when rebate shops offer good rebates, the brain game becomes easier and those people bet millions. Ask any racetrack executive about takeout. He’ll say “keep it high because it does not matter”. Then ask him about rebate shops. He will say in the next breath “of course they bet lots of money, they give lower takeout”. Mr. Track can not have it both ways, he knows takeout matters.
As for Ray’s question we explain it with simple math. As Steve Zorn mentioned above, there is a price point with takeout where revenue is maximized….. note that is revenue and profit, not handles. Every business uses it. Why does Burger King charge $3 for a Whopper? Why not $4? Because they can make the most money at that price point. We bet $14B a year at 21.8% takeouts, realizing $3B of revenue. Studies suggest that (using racings own numbers from the HBPA and others) takeout should be 13% - that is with a seven churn rate. Australia studied takeouts and found they could make the most money for purses with a 16% takeout. It is mandated by law there - takeout can not go higher than 16% - because the game shrinks if it is higher than that. Other studies have shown 10% or 11%.
Of course I guess the biggest example is betting giant betfair in the UK. 5% takeouts. There was 3.2 million US bet on a single UK race today.
The point is: No one knows the exact takeout rate needed to maximinze revenue for purses and profits. But everyone agrees it is less than 21.8% and it should not be going higher like we have seen three times this year.
Sorry for the long response, but we take our game seriously. HANA members like myself are horse owners too. We are trainers. We are bettors. We want the game to grow. We are getting our asses kicked using last century models in a 21st century world. If anyone wants to lend a hand and get involved, please do. Educating via takeout and other proactive ways to grow, trying to get the business onside with respecting that we can make racing a great betting game again, so purses will be there for generations is our goal.
We try, but people seem to want to fight a lot this year. Maybe it is the pressure of falling handles, I dont know. But we can not raise handles without asking these questions and coming up with answers.
Have a good weekend and sorry again for the long response.
December 20th, 2008 at 7:20 am
Ray, horseplayers are frustrated. We want growth. We want more people to become horse race bettors. We also know why people have left the game, why people bet lots offshore, why people are betting at exchanges etc.
“Why does anyone think that our tracks can afford to lower takeout? Can you point to other takeout reduction programs that have generated enough of an increase in pari-mutuel turnover to justify the reduction in revenue from each dollar wagered?”
***********************************************************
Why do you assume that lowering takeout will cost tracks money? Look at it like this, racing has players who will devote X amount of dollars today to bet at the race track during the year at the current takeout levels. Raise the takeout, and less money will be devoted by patrons collectively. Lower takeout, and at least people will still lose what they would collectively have lost during the year anyway, but people will last longer in action. This will cause them to devote at least a little more time betting and handicapping, and may result in some hot streaks where players start gloating, and perhaps, get their families involved like the good old days. Maybe even bring friends to the track again (MORE PLAYERS are bound to result).
But what the game is in dire need of is winners who do it without rebate, or do it where rebate is common place, and something that can be advertised by the game.
That is why online poker took off. More players were created because the game looked beatable, if you are good and lucky enough.
As for your question regarding successful reduction programs:
If you are talking about Laurel’s minor experiment, I can pretty much guarantee that the extra money won by bettors didn’t go to new suits. It was most likely bet off at other simulcast tracks.
Canadians didn’t have access to bet on Laurel as Woodbine dissed the experiment and didn’t take bets there for that meet. I also think Youbet didn’t carry the track that meet.
There have been no real experiments to answer your question. Most bettors aren’t cognizant of takeout, they just realize overall if their bankroll lasts longer or not, so if they bet into a reduction at one track, they will use the extra money cashed at another. In the end they will lose the same amount of money they would, and the track would have got exactly the same in the end, it would just take a little longer.
Unless it is done across the board at many tracks for a lengthy time, takeout reduction experiments cannot be judged as successful or not.
But what we can look at is action that happens offshore that mainshore is missing. Why, because of lower takeouts offshore. We can also look at betting per capita in places like Hong Kong and Australia (both have lower collective track takeouts than the US and Canada). Both countries have higher numbers in that regard.
If racing was invented today, takeout would be 10% tops.
Another thing. Slots. Slot operators know that 10% takeout or less gives the player the illusion that they could win, that they last long enough to think the game is beatable if they get lucky next time. That they will lose the optimum amount over time at 10% or less. That is why it isn’t 20%.
With horse racing, there was a time most horseplayers remember (because most of us aren’t young anymore) when you had to go to the track to bet. You had 9 races to bet on, and if you go back long enough, just one or two exotics a day to bet on. Takeouts were even lower back then.
People kept coming back. Grandstands were full. Many people would actually leave the track with a wad of cash they didn’t have to begin with, because they didn’t have enough races to give it back.
Nowadays you can bet 30-50 races a day. Triactors in every race. It is set up so that you are lucky to last 10 races. The frequency of racing is more on par with slots or blackjack. All a takeout reduction will do is give most players more action, and perhaps the same thing that makes slot players have the illusion they can win will occur with new horseplayers and existing horseplayers as well.
Meanwhile, being a price sensitive player myself, I am betting around 2000 a day. It would be zero without rebates.
Ray if you get a chance read the Cummings Report:
http://www.nationalhbpa.com/resources/Cummings_report7-17-04.PDF
I suggest Pope read it too.
December 20th, 2008 at 9:34 am
I think Pope is dead on. The ones putting on the show must get the lion’s share of the off track money. The numbers may need tweaking (maybe otbs with a physical presence get a larger percentage and the adws with no physical presence a smaller one), but essentially the live meet track must be rewarded for their efforts, without resorting to ‘gaming the system’ of source fees, hubs, etc.
I thought this was obvious to everyone, but I guessed wrong.
I am a horseplayer and a consumer. I don’t wait in long lines at any retailer. I have walked out of Home Depot a zillion times. I put my merchandise down and buy it another place, at another time. This whining from horseplayers is bs. You don’t like the way you are being treated at one venue, find another that treats you better. This is how we vote, with our money.
Tellers are an anachronism (and I was a teller for awhile). They need to be eliminated at all off track sites and replaced by machines.. Tourist bettors dont “drop” into otbs. Otbs should be souless betting machine halls with comfortable seating and personal tvs with beting access on them. Reducing overhead should make the 6-8% rake a viable economic model.
All others should bet online, and they will continue to grow the adws, reducing the cost per account and making the 4-6% target take an economic success.
December 20th, 2008 at 11:14 am
The above speech didn’t address customer service or a zillion other issues in racing. Instead, it focused on one core issue — the off-track business model. More specifically, the fact the people putting on the show are getting nothing out of it, while in the rest of the country those taking your bets on the host track’s product are making all the money.
Now, how some of you got the impression that I am against lowering takeout and don’t care about bettors, is hard to understand. But, I have a wife, so here it is: I apologize honey for not considering your feelings and I promise to never do it again. I was trying to get the front door back on and should have thought about the fact you are feeling a chill.
In the mid-nineties I wrote a very comprehensive plan for a major league in this sport. Racing is the only sport without one, and since the major league is the only segment of every sport that works, it seems logical one would work for racing. I called it the NTA and just when it looked like it was a done deal, some guys took it over and turned it into the NTRA and we know how that has turned out.
We still need the major league structure in racing. It will give us a central authority and allow us to package and present racing products that will appeal to the public. But, the first step to starting a major league, or anything good for this sport, is to have a business model than makes it possible. The changes I am proposing to the IHA will give us the base model we need, but it doesn’t involve takeout rates and customer service.
I value bettors greatly. We have somewhere in the neighborhood of 100,000 handicappers in the America and we are losing some every day. They are not being replaced, so time is of the essence. We have about 3 million people who go to tracks each year and have a generally good feeling about racing, but they don’t know how to handicap, so betting isn’t much fun unless the color they picked wins.
Its like going to a bridge tournament and not knowing how to play. The card game and the people playing it might make the game look like something you want to do, but without knowing how to play, you don’t participate.
The horse part of handicapping starts with the premise the horses will run to their past performance. Cheating, by any means, destroys handicapping. Horses that are infirm or have never raced makes handicapping difficult. So, before we reach out and teach these people who generally like racing how to handicap, we need to make sure the racing product lives up to their new ability to make an educated bet. We need to package and present races with horses that run to their past performances. I think current handicappers will like a better product as well.
You can read my thinking about how the racing product should be packaged and presented in an Op/Ed piece I wrote in the Thoroughbred Daily News (TDN). On their web site, click on Archives, October 10, 2008. I would like to hear your thoughts.
Regarding ADW’s. They, or something like them, are the future for taking bets. When I talk about the host tracks going direct to the customer, I am talking about them using an ADW-like unit. An ADW should be able to take the bet for a very low cost. As bettors become more and more familiar with technology the costs will further decline. Racing must control its product and its distribution.
Some people like to drink beer in bars and some like to drink at home. There is going to be a mix of OTB’s with monitors and service, receiving track setups and new, mobile means we cannot imagine. The core issue is will the people putting on the show control the distribution system, or are we going to continue to allow people with no connection to racing bleed the sport dry?
I don’t care if the takeout in a state is set at 16% or 22%. I just care that those putting on the show start getting the lion’s share of the money instead of those taking bets in another state. Now, that said, I’m willing to jump into a discussion on the philosophy of takeout rates in parimutuel wagering versus other gambling.
The little old ladies playing the slot machines are virtually guaranteed they can spend the whole afternoon at the slots because of the low takeout the house sets on the machines. Racing isn’t like that, you can lose every race regardless of the takeout. Or, you can win every race, regardless of the takeout.
What you receive from a winning wager is more about the bets placed by other bettors in the parimutuel pool than the takeout rate set by the track. When your odds drop from 10 to 1, to 7 to 1 (especially after the gates open) what is more important to the amount you receive, the takeout rate or the other bets into the pool?
I agree, when all wagering was on-track, the a lower takeout rate kept the money in the system churning. But, now off-track wagering means one guy in Barbados can take all the money out of the pool and there is no churn. I will never set takeout rates, so just for fun, educate me on this issue.
I think everyone on here cares about racing. It is in the deep trouble right now. I think we have identified the core problem being the off-track business model and the way it can be restored for live racing is by correcting the IHA.
December 20th, 2008 at 11:18 am
Angelo, horseplayers are voting with their money. That is why betting is down. And lets not blame the economy either. When the economy was moving, betting was stagnant.
ADWs would be forced to shutdown if Pope’s plan is implemented. There just isn’t enough margin in it for them. And even if there was, they would not be in a position to reward players. So price sensitive players will leave or bet a heck of a lot less.
And what about track to track. Does Mr. Pope think that tracks should sell their signals track to track for 15%? If not, there is hypocrisy going on. If so, I could see tracks reducing their menus considerably and just focus on their own product.
On a side note, I would wait in line for a half hour if I bought something that saved me $50 or more.
December 20th, 2008 at 11:37 am
Fred Pope said… “What you receive from a winning wager is more about the bets placed by other bettors in the parimutuel pool than the takeout rate set by the track.”
Are you serious?
You have now removed all doubt that you are 100% clueless about the wagering side of the business and the effects of takeout on handle.
Just incredible!
December 20th, 2008 at 11:42 am
Fred Pope said….” when all wagering was on-track, the a lower takeout rate kept the money in the system churning. But, now off-track wagering means one guy in Barbados can take all the money out of the pool and there is no churn.”
You are so wrong on this it’s scary.
The guy in Barbados is a million times more likely to churn the money than the avg on-track patron.
December 20th, 2008 at 11:49 am
Cangamble, my suggestion is for tracks in 2009 to trade 50-50. So, each would get 8-10%, with every wager contributing to purses somewhere.
Regarding ADW’s, if they gross 5% on the $2 billion in handle next year, that’s $100 million. Don’t you think that is enough for taking the computerized transaction? ADW’s can compete on the costs per transaction.
The difference if the IHA is corrected, is the ADW’s would no longer have to figure out the amount to kickback for Source Market Fees and all of the gyrations they have to go through trying to do business under the current upside-down model.
December 20th, 2008 at 12:05 pm
“Death Spiral, according to this article (http://www.hotelinteractive.com/article.aspx?articleID=6854) it seems that the Vegas casinos have about a 9-10% profit. It appears that the state got another 4-5%, and I can’t even venture a guess the costs and how that translates to a percentage. But based on these numbers, doesn’t it appear that Vegas has a higher takeout than racing?”
The revenue numbers they report are their “keep”, saying they have a 10% profit margin means they end up with around 1/10 of the takeout as profit when all is said and done. The actual wagering numbers for 2007 Nevada casinos was around $170 billion wagered, of which they “took out” around $12 billion for themselves (around a 7% take), of which they end up with around $1.2 billion in profit.
http://www.casinogamblingweb.com/gambling-news/casino-gambling/nevada_casino_revenue_up_in_2007_but_still_lowest_in_five_years__48113.html
“It’s just that I’ve never heard of the takeout complaint regarding anything but racing, and I’m not understanding why this is, and why gamblers don’t mind that Vegas has to pay for its expenses and make a profit.”
It is because a lot of gamblers feel that racing having the highest takeout of pretty much any game around has an overall detrimental impact on racing. I think that is a reasonable thing to examine. Takeout is essentially what you are being charged for the product. Racing charges more for it’s product than pretty much any competitor they may have, other than most lotteries. All the arguments that takeout doesn’t matter, are arguments that price doesn’t matter. Price always matters.
December 20th, 2008 at 12:09 pm
Fred Pope said…”my suggestion is for tracks in 2009 to trade 50-50. So, each would get 8-10%, with every wager contributing to purses somewhere.”
Please answer this Mr. Pope…….
Sunland Park and Santa Anita race at the same time. A bettor goes to Sunland Park and wagers $1000 a day ($500 on Sunland Park and $500 on Santa Anita simulcast)……Another bettor goes to Santa Anita and wagers $1000 a day, all of it on Santa Anita because Santa Anita does not offer simulcast wagering on Sunland Park.
How is “trade” fair for Sunland to now pay 8%-10% (or 15% as you really want) of money that they have no chance of getting back?
December 20th, 2008 at 12:12 pm
“Pope: Regarding ADW’s, if they gross 5% on the $2 billion in handle next year, that’s $100 million. Don’t you think that is enough for taking the computerized transaction? ADW’s can compete on the costs per transaction.”
ADW’s target making around 5%. What they do with a very large portion of the rest of it are advertise, build their platform, give out data, give video, give perks, hold contests, and give rebates. Customer Service. This whole discussion of ADWs “keeping” the lions share is bunk, and everyone knows it. It seems to me you are grossly double counting this money, by presuming racing will get to spend the rest of it on purses and track maintenance if they could only bypass ADW.
Either the money is spent with a customer centric focus, or it is spent in purses. And if it is not spent on the customer, then it won’t be there to spend on purses.
December 20th, 2008 at 12:34 pm
Why not have a national meeting on a business model for the future?
Lets have all segments (fiefdoms) represented, including the horseplayers.
Who would chair the meeting,and be the final judge?
I think we need a national central office and perhaps a czar.
December 20th, 2008 at 12:44 pm
ITB, if Sunland Park and Santa Anita do not trade products it is mute.
Every bet taker would receive a commission on the bets they take on the host track’s races. The amount and percentage of those commissions would be established by the host track and racehorse owners there. If they, decide to pay high percentages to a receiving track that is on a circuit beneficial to them, that’s what they can do…. it’s their product. It they don’t want to send their product to restricting them to 3%, they can withhold it.
I don’t know the perfect percentage for takeout. Do you? I don’t know how to repair a quarter crack either. The issue I am talking about is whether the people producing the racing show get the lion’s share, or whether it continues to go to the bet takers. Where do you stand on that narrow issue?
December 20th, 2008 at 1:24 pm
The point I am making is that all sides need to be represented, and someone needs to make a decision in the interest of the industry as a whole.
You are a lobby for a specific point of view. You have come to your conclusions. That is fine, but the other side needs to be represented also.
Who is looking out for the “big picture”, the future of the game.
All special interests say their view is best for all. we have been told this over and over, and the evidence says it has not worked out too well for horseracing.
We are in trouble because each segment is trying to gain when the gain causes another segment to lose ground.
The answer is not to get a bigger piece of a shrinking pie, the answer is to come together and plan how to GROW the pie.
We need a national central office.
December 20th, 2008 at 1:36 pm
Death Spiral said:
“ADW’s target making around 5%. What they do with a very large portion of the rest of it are advertise, build their platform, give out data, give video, give perks, hold contests, and give rebates. Customer Service. This whole discussion of ADWs “keeping†the lions share is bunk, and everyone knows it. It seems to me you are grossly double counting this money, by presuming racing will get to spend the rest of it on purses and track maintenance if they could only bypass ADW.”
You are clearly a gambler in our sport. Well said.
Mr Pope do you know how much cash they put into marketing and rebates? Some places give back 50% of their revenue to the player and up their bet. Do you know this? Do you know youbet spends 30% of their revenue on marketing and biz dev? I asked you that before.
Once again: If all that cash is given to the host track and horseman group, will they put it back into the sport or keep it for themselves? Both of us have been in this game long enough to know that if you give a track $100 and a horseman group $100, don’t expect getting change.
Do you realize what a capital expenditure and marketing siphon your plan has on wagering and handles? Did you account for this?
December 20th, 2008 at 1:39 pm
by the by, I am all for the industry running it’s own ADW, if it’s done right. Youbet can be purchased for $30 million dollars. The industry should look for ways to be more efficient, and by capturing some ADW profits they can do this. But if they are providing the same level of customer service as existing ADW, all they are going to capture is the NET PROFIT of the displaced ADW, not the gross take.
Using the gross take as the amount that is going to be captured, it is ipso facto an admission that the same level of service will not be provided. Saying your speech did not address customer concerns is an oversight, because it did, it is embedded in the numbers used. Profits cannot be conjured out of thin air.
If the industry is seeking to provide a higher level of service to it’s customers than current ADW are providing, then changing the pricing structure is not required. Simply open an ADW, provide a higher level of service, and you will get the customers. Voila. It’s such a cash cow of a business, with such fat profit margins, that this should be easy.
If, however, the only way these industry ADW will be profitable is by making it impossible for any independent ADW to provide a reasonable level of service, if the industry plans on monopolizing the business, what exactly, based on their track record of not understanding their customers to begin with, is there to make any of us think they will provide a reasonable level of service, once there is no competition?
Statements that handle does not matter, only profit margins matter is a pretty clear indication of where this whole experiment would be heading.
December 20th, 2008 at 1:50 pm
A note: Once again, a sincere thank you to Mr Pope and others responding here to this. This is a very good conversation. I do not know if you realize it Mr. Pope, and I do not know who some of these people are, but I can assure you they make up a significant portion of this sports handle - and more apparent, they represent the thinking of bettors who have left us.
Online alone there will be $500B to $700B of betting on other sports and games in 2009; this is a huge market that racing can take a chunk out of. Heck if we took 0.1% of it we’d be doing well!
In the past the contact in this business with customers was nada - zip. Nowadays we get information from them. For example, in a recent article in horseplayer magazine a bettor relayed a chat with a track executive. he said to the exec “wow, how about that 26% takeout on exactas?” The executive replied “I know, it is a shame they won’t let us increase it!”
if you get one thing out of this conversation, I hope it is that pricing is a very real thing in this game that needs to be looked at. The old way of doing things has failed. We need a new way.
Thanks for reading.
December 20th, 2008 at 1:53 pm
i am an interested horse owner and trainer. Innovation from Pope! To be continued, I hope.
Yet, I’m failing utterly to understand the notion that Pope wants to open up that potential giant can of worms in the IHA. Why would you want to endanger what was barely granted in 2000 in a largely democratic congress? That seems insane.
I strongly disagree with Pope’s implication that the sky is falling. We have the reason for optimism, for the corrections that we all know need to be made have yet to be made. We just need to get there.
As to Pope’s proposal, of course the ADW’s should get less and the tracks more, and I am astonished that the betting takeout has been allowed to reach 20% even while in the present climate that is necessary for survival. I continue to be astonished given the deep doo doo of the lack of advertising to bettors. We should be going after those video lottery players and the world wide internet betting masses. Ain’t happening.
The point that Pope makes that I am unable to fathom, and maybe he will explain, is his stating on the 3% track takeout “this is because HORSEMEN DICTATE THE 3%”.
Something got lost there Fred. If it’s the horsemen are causing the problem, how about just correcting that problem instead of going to the government? And, I know you said they’d never go for it. But, why. Who is it that’s declining. I’m a horseman. It’s someone other than me.
While I’m even stronger than Pope that the negative influence of the trainers and those that presently compose the HBPA needs changing, why would we riskily leap frog to the government when all we have to do is look at that seemingly stupid institution called the HBPA, and then get them real with these negotiations.
December 20th, 2008 at 2:31 pm
The host tracks hire the ADW’s now. That will continue if the ADW is providing good service and the amount they pay them doesn’t matter if they are generating business. I like the idea of the host tracks having their own marketing department that is also looking out to build on-track attendance as well. That where the sport is gauged and it is where we get support from government. If the track cannot provide good marketing then they can farm it out to ADW’s, but most likely if they do farm it out, that will come out of their side of the split with the racehorse owners.
The problem with the current model is something not being discussed — where the ADW’s have to kickback to people in the receiving states (source market fees, etc). That money doesn’t go to incentive programs, it goes to an obsolete protectionist system favoring the state where the bet is made.
Some of you are obviously angry with the tracks and there is good reason. My position is the growth of off-track and the upside down business model makes it impossible for them to change. They cannot afford to promote their own races, just promote other tracks’ races.
You know, anyone who ever proposes anything in this industry better be ready to hear “let me tell you what is wrong with your idea” and occasionally “what is wrong with you”. I accept that and I understand many want to keep things just the way they are. What I have not heard is anyone give a good reason for the bet takers getting all the money?
But, I think most people were not aware the bet takers were getting the lion’s share and now most want to change the IHA to restore live racing. What I would like to hear is from some young folks in marketing about what this change could do for the host tracks and the sport. There are going to be a lot of innovative ideas when we switch back to favoring where the show is produced.
December 20th, 2008 at 2:33 pm
rwwupl gets it. Competing faction in our sport/industry is a likely root cause of our problem. Lets all work together to create a win-win.
December 20th, 2008 at 2:34 pm
I think you will find near absolute support from horseplayers on getting rid of source market fees. All of us would rather have that money go to the host track.
December 20th, 2008 at 2:49 pm
“Pope: What I have not heard is anyone give a good reason for the bet takers getting all the money?”
Is that seriously your real response to the issues brought up here? They spend the money, the same way the host tracks would have to, to support the business. There is no massive loot for anyone to get their grubby hands on. Youbet for instance, last quarter, $120 million handle, $23 million revenue, $2.7 million income. They kept $2.7 million.
2.2%
December 20th, 2008 at 3:11 pm
With the size of the Takeout Horseracing is a POOR GAMBLE!
A POOR GAMBLE! say It with me again A POOR GAMBLE!
That Is why Horseracing Is Dying.
December 20th, 2008 at 3:15 pm
Fred, we are listening. perhaps I personally am missing a point. you declined to address that since the rates and fees are matters of negotiation why we are unable to renegotiate these fees to correct the present imbalance. Nothing more that I’d like to do than change the IHA and cut out the trainers–that gangling loud mouthed group at every track that, being unable to really train, seeks their success by funneling money, to themselves, of course.. But, is changing the IHA really necessary??? Any other way to do the same thing?
December 20th, 2008 at 4:10 pm
Steve (and others who insist the takeout is too high and the real problem here)…I’ve been playing the horses for 30 years or so (not professionally), and I’m not aware that the takeout has gone up that much, especially on win place and show.
What has gone up is the access to exotic wagers (multiple types of exotics on every race, which wasn’t the case 25 years ago). With that increased access to exotics is an increase in the blended takeout, since players invest more in exotics than in lower takeout WPS wagers. Did racing make a mistake in offering too many exotic wagers, or should the higher risk-reward bets have the same takeout as WPS, which most serious players don’t seem to play?
A few years ago (n an effort to appeal to sports bettors, I guess?), there were some low takeout odd even bets that were meaningless to me and I guess to everyone else, too, since they didn’t last very long.
A final question for you, Steve, if you’re checking back to look at comments, and it’s a serious question: If it’s such a poor gamble, what keeps you in it?
Thanks
December 20th, 2008 at 4:26 pm
A while back I did some thinking about what a new model could look like, and that I thought made sense from a revenue sharing point of view, but also made explicit the sort of investments that needed to be made for this business to exist. It allows for both more money for the tracks, and for a flexible and vibrant reseller relationship.
I do think the industry can afford to pay more than 3% on a 20% signal to the host track. Part of that is the elimination of the subsidies in the form of source market fees. So in the following, we are assuming all fees paid for the signal are going where they belong, to the host track. And of course, the total fees already paid are well above 3%, so that is a moot issue.
I’d like to get anyone’s thoughts on a structure somewhat like the following.
So lets start with the baseline fee structure, this is where we start. We are using a 20% takeout number for all of this, after tote/taxes, that is what exists.
Payout:
Track: 5.5%
Purses: 5.5%
ADW: 9%
This represents a significant increase in revenues for tracks and purses. This is however only payable by an ADW that has one severe limitation, a significant reduction in takeout in the form of rebates, a key driver for a large percentage of our business, is not possible under this fee structure. But however, for some customers, this ADW would be able to provide a great experience, and can and should exist just fine, under this fee structure.
But what we need is some flexibility, we want a wide variety of ADW’s out there, and here is how we get it.
1.) Rebates can be made solely at the discretion of the ADW.
2.) The design of their rebate program is likewise solely up to them.
3.) And, they can rebate any amount the want, up to a certain limit. The limit exists, because the funds for the rebates will be coming equally from all 3 parties share. This is the key point.
What this engenders is an explicit admission on the part of all three parties that reducing takeout in the form of rebates is important, and that reducing takeout has a benefit to all involved. This is a true partnership.
The ADW can rebate up to a total of 6%, by an equal reduction in all parties share. At this maximum rebate level, this gives us:
Payout:
Track: 3.5%
Purses: 3.5%
ADW: 7%
For each party reducing its share, they are rewarded with a higher handle. Everyone shares the costs, everyone shares the benefits. The ADW can, at their own discretion, rebate beyond this 6% level, and some would, but the remainder of that rebate would come from their share alone. So for instance an 8% rebate regime would see tracks and purses stay constant at 3.5%, and the ADW operating funds would drop to 5%. This would be on the most price aggressive side of the spectrum.
Rebates are not the only form of flexibility this kind of sliding scale, co-investment structure allows for, the host track and the ADW could, if they come to agreement, offer any sort of innovative features they could come up, with an equal investment from all parties to cover the costs.
The only key distinction is that rebates, if the ADW chose to make them, are solely at their discretion. Everything else is collaborative.
The other thing about the model is that it is the same structure offered to every ADW. There is no need for a multitude of different models, one dynamic one will do. We want competition amongst the ADW, we want them to do the sort of experimenting that will ultimately find the best product mix for the customers. Wide signal availability, under a single unified model that has specific protections for the entire spectrum of business models to exist. Let the market tell us which one is best.
This is a model that returns more money to the tracks, encourages a reduction in takeout, and allows for a vibrant and thriving ADW community. In other words, this is the kind of new model racing should be looking into. Something much more dynamic, and something that actually encourages the kinds of actions that will increase handle, than what has been proposed here.
December 20th, 2008 at 4:29 pm
Ray,
I know this was ,not addressed to me, but what is the justification for charging more for one type of pari-mutuel wager over another type of wager?
The only thing I have heard is because “We can”
I do not think that is fan friendly.
December 20th, 2008 at 4:40 pm
Death Spiral just made a most excellent post.
Can we steal it for a blog piece at the Horseplayer Association? Please email.
That is as forward thinking a piece that I have seen in our business in a long, long time. it does not split a pie, it grows a pie.
Well done!!!!!
December 20th, 2008 at 5:10 pm
feel free to use however you’d like.
For any horseplayers who might look at the above plan and say a 6% or theoretically 8% maximum rebate program won’t get the job done, remember this would be an average amount. An ADW running a tiered program that offers low to high rebates on handle would subsequently offer more at the high end. But they would have a strong incentive to bring in lower end (lower rebate) players to help subsidize the high end, which is exactly the sort of process that needs to take place. We need to bring as many players as possible into a world where a monetary incentive exists to bet more.
No horseplayer has any vested interest in protecting any bloated ADWs out there, there should be tremendous pressure on them to run lean operations. The point obviously is to target whatever fat may exist, while protecting the best aspects of what they can offer. As there is no other avenue for real price experimentation to take place other than with the resellers, it needs to be sacrosanct, and encouraged. The market in the above scenario will reward those that are doing the best job.
I have run this price structure by some ADWs…it works.
December 20th, 2008 at 5:23 pm
Ray, 25 years ago you had to go to the track to make bets. You were limited to 9 races a day. Today, I’ve bet 33 races so far. The amount of bets one makes in a day is closer to blackjack these days (which has a house edge of around 1.5% I believe).
And definitely, there is no good reason for exotic takeouts to be higher than WPS takeouts. As rwwupl says, the reason for the difference is because “they can”
December 20th, 2008 at 10:30 pm
Cangamble makes a good point about the excessive takeout on exotics. Sure, a Pick 4 with a 25% takeout (as at NYRA) is better than a four-race parley, with 14% taken out each time, but it’s still too high. If you look at how popular the high-risk-high return exotics have become even with obscene takeout levels, you can’t help thinking that they’d draw Hong Kong style handle with reasonable takeout levels.
And how did you find 33 races to bet today? On a good day, going through the whole DRF, I’ll maybe find six that are worth betting.
December 20th, 2008 at 11:11 pm
[...] « PRIORITY 1: RACING’S BUSINESS MODEL [...]
December 21st, 2008 at 3:33 am
Mr. Pope wants to see the tracks get most of the money for putting on the show. It seems to me they already do. I might not understand the simulcasting model correctly. So please feel free to correct the following scenario.
For example, hypothetically, let us suppose $100,000 is bet on-track in a given pool. The track gets its full cut of money wagered by the on track bettors. Call it $18,000. That is 18%.
Next, suppose the track sells the signal for 3% to 10 other ADWs. Collectively, those 10 ADWs send $200,000 to the track. On average, each of those ADWs is handling $20,000 of wagers of which they keep 15% for themselves. That is $3,000 for each ADW.
The track then gets 3% of the $200,000 ADW handle. That is $6,000.
So the track makes $24,000 on one bet type from one race. An ADW makes $3,000.
The horseplayers who bet with the ADW are not going to attend the live event. In fact, they are probably betting several tracks from home or at an OTB.
It seems to me the surest way for tracks to DECREASE their simulcast revenue is to raise their rates. Of the 11 entities involved in taking bets, the track gets the largest share of any entity.
I admit, this example may not be correct. If someone would break it down more accurately it would be appreciated.
December 21st, 2008 at 6:17 am
Maybe that bettor at the paddock was tapped out and the only alternative was his account balance at the ADW.
I’ve never met anyone who plays 4 horse parlays nor anyone who plays pick fours with a singleton in each leg.
December 21st, 2008 at 7:31 am
Mr Pope is correct. Never has there been a surviving industry that gives away their product. This system is flawed. The content owners were hoodwinked into rediculous percentages back when the internet was in its infancy. The same goes for the OTB’s. If memory serves, the original idea of the simulcast networking plan was to link it up to existing live venues.
The tracks must be able to control their destiny. The only way to do this is to eliminate the ADW’s. Period.
There is a patented software and method for doing exactly this. It is called VirtualTote. This system puts the internet wagers directly on-track. The ADW’s can stay around and act as brokers. this is the correct model. The ADW’s will recieve a commission for hustling the internet players exactly like all other successful models. The commissions would be paid based on the amount of on-track handle generated from the respective sites. The tracks now have all the money. The ranters at the THG go away, the rebate whiners can deal directly with the track without the middle men, RGS,PTC getting their chunk, and everyone is happy. It comes down to the show. What track can put on the best performance.
Handle will increase. the ADW’s will no longer be ADW’s. This will open up the good old boys club to marketers that never envisioned being in the racing game. As the new marketers (yahoo, google, firefox, MSN etc) get in the game, here come the new demographics. It is simply a link and they get paid.
Churchill and Magna will fight this as they have sunk millions in their on line platforms to essentially get this same result. But for the rest of the tracks this makes total sense. It is time they get to stand up to the monopolies. Turn the model 180 degrees and the game will grow.
December 21st, 2008 at 8:39 am
“the rebate whiners can deal directly with the track without the middle men”
*********************
Us whiners want the game to grow. And your idea has already been implemented in Canada (the don’t use Virtual tote though).
We are not seeing growth in Canada however, because of the greed of HPI and WEG. Dealing directly with the track might get us a 2% rebate on a 28.3% triactor takeout.
We are seeing growth in gambling in Canada though, but horse racing has been left in the dust thanks to retarded race track execs who just don’t get it:
http://cangamble.blogspot.com/2008/11/will-global-recession-wake-up-horse.html
December 21st, 2008 at 9:16 am
Cangamble
What you have in Canada is not a virtual bet. It is Woodbine controlling the ADW. Exactly like CDI and MEC here. The premise of the VT bet is to eliminate the monopolies. This will open up the whole system. Yes Woodbines ADW does allow an on-track wager but only to their venue, much like a bet on Santa Anita with Xpressbet or a bet on Fairgrounds with Twin Spires. VT allows any bet at any track from any computer in a legal jurisdiction to be placed directly with the track putting on the show. If you are a pro and deserve a rebate the tracks will come around. Do the math
20% blended rate.
VT bet = 20% to the track minus taxes, and “broker commission” (4%).
this would leave roughly 15%. they split 10% with overhead and purses and still give you a 5% reward.
MUCH better than no reward and splitting the 5% max they are getting in the signal fee.
December 21st, 2008 at 9:46 am
The Woodbine ADW allows you to bet on almost every track. On track you can also wager any track. The monies go into the pools. They are doing exactly what your VT concept does, except they pay signal fees for content.
And again, they don’t give 5% rebates even with your math, and maintain one of the highest collective track takeouts in North America.
December 21st, 2008 at 2:03 pm
yeah I love that argument.
I know we don’t do the right things now, and in fact we constantly argue that the right thing is the wrong thing, and call the people who even think it is the right thing “whiners” and “complainers”, but once we kill off the people who are doing the right things, and have a monopoly over the delivery, trust us, we’ll do the right thing.
uh huh.
December 21st, 2008 at 4:07 pm
You know, it is hard to have it both ways.
You want a better racing product, but the money from a better product is now going to the bet takers who give you a discount.
The host track racing secretary needs $30,000 a race for maidens and claimers. That’s a $270,000 purse nut. He has $100,000 in the purse account he got as a receiver, kickbacks, etc. Race card product runs in the off-track market and doesn’t do well with less than $1 million in handle at 3%, less signal expenses purses get $120k and few show up at the track to see lousy show, contributing only $30k to purses while concessions, etc. down. Track loses money. Purse account loses $10k on day. Racing secretary, not wanting to stick his neck out again, cuts product further. Death spiral.
Or, host track averages $55,000 a race, mainly allowance horses. The purse nut goes up to $495,000 for the day. On-track brings out a few more people, but still gives him only $100,000 for purses. Race card product gets good share of off-track market with $6 million in handle and at new model blended rate of 13%, less signal expenses delivers host track and purse account each $380,000. Receiver funds (no kickbacks) contribute only $40,000, but more people come to track and bet from host. Phone bets contribute like on-track. Results: purse account ahead $25k, track makes enough money to start marketing its races. Racing secretary bullish and schedules better product.
Which way do you want it? Do you really want a better product, or do you want your discount.
December 21st, 2008 at 8:48 pm
you guys are going to do whatever it is you are going to do, and it will either work or it won’t. It’s my personal opinion, that on the product side, the bottom necessity that people want are full fields. They don’t particularly care if they are plow horses that get sent out there. In fact, I’m pretty sure I’ve bet on a few, out on the fair circuit in California.
Easy access and reasonable prices, and you will get the revenue you need to fund the rest. Difficult access or unreasonable prices, and you will have a hard time scraping together the feed money for the plow horses.
December 21st, 2008 at 10:02 pm
I think a bunch of these responses (see ITP, death_spiral, cangamble) are coming from ADW stakeholders (probably offshore ones) who are highly threatened by Mr. Pope’s proposal. If the whole industry wants to get it right (tracks, horsemen, owners, breeders and, yes, bettors) then the tracks themselves should own ALL ADW outlets and prohibit absolutely anyone other than themselves from carrying their signals. They could increase total handle which would enable them to cut takeout, maximize profitability and thus sustain protracted purse increases. To hell w/ any ADW’S that do not benefit ALL stakeholders, here defined as tracks, horsemen, owners & bettors, all of which I am willing to recognize as EQUAL stakeholders in this great sport and busines. You want these stakeholders to prosper? Then shut down
December 21st, 2008 at 10:05 pm
I think a bunch of these responses (see ITP, death_spiral, cangamble) are coming from ADW stakeholders (probably offshore ones) who are highly threatened by Mr. Pope’s proposal. If the whole industry wants to get it right (tracks, horsemen, owners, breeders and, yes, bettors) then the tracks themselves should own ALL ADW outlets and prohibit absolutely anyone other than themselves from carrying their signals. They could increase total handle which would enable them to cut takeout, maximize profitability and thus sustain protracted purse increases. To hell w/ any ADW’S that do not benefit ALL stakeholders, here defined as tracks, horsemen, owners & bettors, all of which I am willing to recognize as EQUAL stakeholders in this great sport and busines. You want these stakeholders to prosper? Then don’t sell the signal to ANYONE. Let’s fill the ADW space ourselves so we can direct the ADW profits to each other…
December 21st, 2008 at 10:17 pm
Hey Dougie, I have no interest in an offshore ADW. I’m all for racetracks to cut out ADWs too as long as takeouts are drastically reduced across the industry, and that I have a choice as to where I can bet, and they can provide the same service and content as ADW’s perform today.
Your idea that tracks have their own ADWs is fine if they can pull it off. No skin off my nose….as long as they drop takeouts significantly or give out substantial rebates.
I’m threatened by Pope’s proposal because historically when the tracks and horsemen get more, bettors wind up getting the shaft. It happened in Canada with Woodbine and HPI, and it happened in Philadelphia with slots (30% takeout on triactors), etc. etc. etc.
My guess is you are a horse owner and a $2 bettor tops. You are part of an industry that works on entitlement instead of catering to customer growth. That is why racing is getting whipped by all other forms of gambling.
December 21st, 2008 at 11:15 pm
like I already said, I have no problem with the industry running its own ADWs either. My concerns are the same as CG’s…if the industry wants to monopolize that part of the biz, they are taking on an awful big responsibility to do it right. Because if they don’t it’s game. And they don’t exactly make the right kind of noises…most of the time, to give one much confidence.
Be careful what you wish for, said the Zen Master….
December 22nd, 2008 at 8:26 am
cangamble
You dont get it.
“The Woodbine ADW allows you to bet on almost every track. On track you can also wager any track. The monies go into the pools. They are doing exactly what your VT concept does, except they pay signal fees for content.”
The VT eliminates the ADW in its current model. The Woodbine ADW is no different than the rest of the unecessary “middle men”. The punter plays directly with the track putting on the show. Straight line theory if you want to simplify. This will happen eventually. It has happened in every other business since the web evolved. If you disagree go ask a full service stockbroker!
December 22nd, 2008 at 10:18 am
What is the difference to the track if they pay the company you are promoting the equivalence of a signal fee so you can bet directly with the track. In other words that company does pretty much what HPI does for the customer with fees currently being around the same.
That is if I understand correctly.
December 22nd, 2008 at 10:32 am
I don’t think this has been a good discussion. I think it has been a comical one because it illustrates how stupid the industry is! Perhaps the greatest collection of idiots the world has ever known! s
This is the only industry that thinks it can escape from consolidation to change the economics.
The problem with racing is that there is WAY TOO MUCH capacity in this industry relative to demand for the product. Sure a little marketing might help, but that’s a side show to the core problem. Close about 50 tracks and I guarantee you that the handle at the remaining ones rises rapidly without anywhere near a corresponding increase in costs. Then when all the reaming tracks are flush with profits, investments can be made to try to increase the size of the pie.
Until this industry accepts economics 101, it is doomed to failure. Racing can’t have its cake and eat it to. It has to right size for the realities of its market and live with the fact that that means there will be fewer horses, breeders, tracks, jockeys etc.. needed. Once we are past all the delusion and fighting over a shrinking pie, THEN maybe we can stop some of the bleeding.
December 22nd, 2008 at 7:50 pm
Ray said,
A final question for you, Steve, if you’re checking back to look at comments, and it’s a serious question: If it’s such a poor gamble, what keeps you in it?
Lack of discipline.
My gambling on Horseracing is down about 70%-80%.
My gambling on Poker is up about 70%-80%.
There are many like me at the Poker tables.
From your comments I’d say your happy with the current takeout in Horseracing.
My Question to you.
Is Gambling on Horseracing(or any other sport)with a 20%-30% takeout a Poor Gamble?
Thanks
December 24th, 2008 at 8:32 am
[...] the recent past and let us know how this list strikes you in the comments section below. 10) Priority 1: Racing’s Business Model – We start our list with the most commented story of the year with 107 and still counting. [...]
December 29th, 2008 at 12:27 pm
Ray,
I hope you’ll take the time and answer my queation.
Is Gambling on Horseracing(or any other sport)with a 20%-30% takeout a Poor Gamble?
Thanks
December 29th, 2008 at 3:58 pm
Steve…Sorry that I didn’t answer this previously.
I don’t think it is necessarily a poor gamble if the takeout is between 20 and 30% if you are talking about a game of skill that puts you against other people who presumably are not as savvy, disciplined or well-informed as you are.
Would be it a better gamble if the takeout was less than 20% or less than 10%? Of course it would. Is it tough to make a living gambling when takeouts above 20%? I assume it is, because I’m not aware of that many people who make their living gambling on horses.
I am surprised at the number of people who bet on horse racing in Japan, with large amounts of money, when the takeout is 25% on all bets. And I am astounded at how many Americans waste their money on state lotteries when the takeout is around 50%.
Therefore, while I would like to see takeout reduced, I don’t think we can blame racing’s current state entirely on the takeout.
January 3rd, 2009 at 8:49 am
[...] AND HORSEMEN FIND COMMON GROUND? A recent guest editorial by Fred Pope entitled “Priority 1: Racing’s Business Model,” brought forth a vigorous discussion among Thoroughbred owners, breeders and horseplayers [...]
January 5th, 2009 at 8:12 am
[...] simulcast revenue, the poll run in conjunction with an article by Fred Pope on what he calls “Priority 1: Racing’s Business Model” found 63% agreeing with Pope that host tracks and owners where the live race is run should [...]