Round Table: Jockey Club Preparing To Invest In New Industry Projects Per McKinsey Suggestions

by | 08.12.2018 | 2:32pm
Dan Singer, Leader of Global Sports and Gaming Practice, McKinsey & Company speaks at the Sisty-Sixth Annual Round Table Conference on Matters Pertaining to Racing held by The Jockey Club at the Gideon Putnam Hotel August 12, 2018 in Saratoga Springs, N.Y. Photo by The Jockey Club

Could the Jockey Club one day own racetracks in America? According to the 66th Round Table Conference, held at the Gideon Putnam Resort and Spa in Saratoga Springs on Sunday, it's possible.

Jockey Club chairman Stuart Janney concluded the conference with an outline of action points the organization plans to tackle in the coming years, based upon an updated report on the state of the racing industry by international consulting agency McKinsey and Company.

Janney said the organization would explore being the buyer or lessor of last resort if, in future, tracks may come up for sale and be in danger of closing. Janney cited the format of the Jockey Club in Great Britain, which began doing the same thing in the 1960s and now owns 15 courses which host four of British racing's five classic contests.

“This is a long-term strategy. It could be 10 years before you read about anything we may be involved in,” said Jockey Club president/CEO Jim Gagliano.

Jockey Club ownership of racetracks would also put the organization in a position to create house rules for its own facilities which align with its recommendations from past Round Tables.

“It certainly puts us in a different position,” said Gagliano. “Instead of suggesting things from a lectern, we could walk the walk.”

Although likely some years away, the initiative was driven by McKinsey's observation that on-track experience is important, yet many people don't have easy access to a racetrack. Dan Singer, leader of global sports and gaming practice at McKinsey, revealed 45 percent of lapsed racing fans indicated in surveys they stopped going to the track because they moved and no longer live near a track. Just five of the 35 major cities in the country have what McKinsey considered a 'major league' track, based upon TripAdvisor ratings from the public. Twelve cities have no track nearby at all.

The Round Table opened with a look back at what has changed – and what hasn't – since the last McKinsey study in 2011. Handle, which had declined for five years at the time of the 2011 study, has stabilized at just under $11 billion. Foal crops and numbers of races continues to shrink, however.

The sport has improved somewhat in areas of public perception. According to figures presented by Gagliano, 22 percent of people have a positive impression of racing, up from 19 percent in 2011. New fans who are coming into the sport seem to be drawn in by the social, experience-focused marketing put out by America's Best Racing, as 45 percent of new fans go to the track in large groups. Only 17 percent of established fans identified themselves as likely to go to the track in a social group.

Among the top concerns for fans surveyed were aftercare, quality of horse care on the track, and doping.

Horse racing has lost some market share since 2011, going from 4 percent of gaming nationwide to 3 percent, while the overall gambling market has grown. Unsurprisingly, McKinsey found tracks rated highest by number of graded stakes races, total handle, and purse money per day are seeing their handle increase, while second and third-tier tracks ranked by those parameters have seen handle shrink. McKinsey also noted advance deposit wagering has grown 14 percent per year since 2011 and comprises about three times as much of handle as it used to.

Singer and colleague Mike Salvaris, senior external advisor for McKinsey, outlined a handful of focus areas racing should target to stimulate growth in the coming years. One of Singer and Salvaris's chief interests was in taking advantage of changes in the way people consume media.

In 2011, the average adult spent 24 minutes per day on mobile digital media, and the average is now over three hours. For the younger generations, this increased focus on phone and social media content has detracted from use of cable television, which means racing needs to find alternate ways of reaching customers beyond cable.

“Consider the NBA,” said Salvaris. “NBA leads all sports in terms of building online fans. They have 36 million followers on Facebook, double that of the NFL. And that's just the NBA accounts. Players and teams have much more.”

Salvaris said the NBA accomplishes this by providing lots of content for its channels with its team of 30 content creators and capturing contact information to improve follow-up marketing by individual teams.

Currently, Salvaris said racing videos on social media get comparatively low engagement alongside other sports and there is comparatively little volume of racing-related content on social media. Tracks are also not particularly good at capturing contact information for on-track attendees in order to encourage them to visit or wager later.

Salvaris said it's critical not to overlook television, however, as the older portion of racing's fan base is watching more television than they did seven years ago. Less than half of the tracks sending feeds to TVG (24 of 74) broadcast in high definition, many of them citing high equipment costs.

In his concluding remarks, Janney revealed the Jockey Club will organize a grant program which could provide up to $150,000 to a track looking to purchase or lease equipment to broadcast a high-definition signal. The organization will also expand America's Best Racing, focusing on video content which can be provided to customers or television networks for use in highlight reels or sports analysis programs.

As racing struggles to figure out whether sports betting will help or hurt its wagering products, Singer and Salvaris remained optimistic, but echoed the sentiments of experts at the Saratoga Institute on Equine Racing and Gaming Law last week that racing must integrate its offerings with sports betting operators.

“Racing has continued to prosper in countries that have legal sports betting, for example Hong Kong, Ireland, Australia and France all have legal horse racing and all have legal sports betting,” said Singer, who noted takeout for sports betting is higher in those places than for racing. “It's clearly possible for racing to generate legal handling in competition with legal sports betting.”

McKinsey also suggested more advanced data gathering and use can improve the outlook for racing. The company spent four weeks in April this year testing a system to eliminate conflicting post times (with modest success – they were only able to reduce the number of races in conflict from 53 percent to 50 percent). It also used several statistical analyses to compute an optimal takeout rate for win/place/show wagers which would provide the best revenue to tracks without decreasing wagering. The model suggests optimal takeout for these wagers is 15.8 percent, which is lower than the rate at roughly 89 percent of racetracks.

Janney announced The Jockey Club would soon be funding a permanent office to address race day scheduling, will advocate for tracks to experiment with lower win/place/show takeout, fund a pilot study to explore single pool wagering, and lobby for a study on the potential impacts of fixed odds betting.

“We think that the best Thoroughbred racing is going to be exciting forever, or at least for the foreseeable future,” said Singer. “Largely that's because of the people who love racing, who are passionate about racing, and the experience we have together at the track. That's unique, that's special, and that's exciting.”

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