Lexington advertising executive Fred Pope has come up with an intriguing proposal for a race between Rachel Alexandra and Zenyatta, one that would help explain how racingâ€™s business model for simulcasting is broken and needs fixing. Will any one listen or act on the suggestion? â€“Ray Paulick
By Fred A. Pope
In an effort to deliver what everyone wantsâ€” Rachel Alexandra versus Zenyatta â€” NYRA recently hooked up with off-track bet taker TVG to supplement the purse of the Beldame Stakes by $400,000.
NYRA was reduced to this weak position because the premier track operator cannot make $400,000 from off-track wagering on the race.
Thatâ€™s because of the upside-down, off-track revenue model, where casinos and off-track betting companies pay as little as 2% to the host track, while they keep up to 18% of the wager themselves.
If $20 million were wagered off-track on the proposed race, the purse account would have only gotten $300,000. The off-track bet takers would have gotten $3,400,000. That's right, ten times more money just for taking the bet, than for the racehorse owners putting on the show.
Trying to put on a show for racing has become the Theatre of the Absurd. Host tracks cannot make the fillies' owners “an offer they can't refuse”. Perhaps the racehorse owners need to step in with some common sense.
Inside the Box Thinking
You are about to read a outrageous proposal for how the owners of the star attractions, Jess Jackson and Jerry Moss, can focus the sporting world on Thoroughbred racing and deliver the Filly Race of the Century.
When you do a Situation Analysis on racing today, you come to the painful conclusion that the host event gets nothing from off-track wagering on its product and nothing from the television networks for its product. Since the basic objective of providing the owners of the racehorses with a valuable purse, the strategy becomes crystal clear:
If you can make 20% from the wagers made on-track, but only 2% from the wagers made off-track, then you need to see how you can maximize the on-track wagers.
No off-track wagering and No televised coverage
Sheer madness? Maybe not, it seems to work for the NFL when they haven't sold out a studium.
To make a statement for all racehorse owners about the upside-down, off-track revenue model that bled $500 million out of purses this year, the owners of these two magnificent fillies have a timely opportunity.
Jess Jackson knows how to market a product and Jerry Moss definitely understands the entertainment business, so letâ€™s explore how these two racehorse owners can achieve for their sport what the industry around them cannot seem to grasp — You either control your product and its distribution, or someone else will control it.Â You can increase demand for your product by limiting supply.
We are about to revisit the revenue model of 1938, when Seabiscuit was a star.
Let's Go Retro
Hell, Jess Jackson even saw Seabiscuit race at Santa Anita, so he knows the excitement and electricity that fans feel being on the grounds at a closed sporting event.
There are three tracks big enough to handle the crowd â€” Belmont, Churchill Downs and Santa Anita (I know the surface problem for Jess, but this is a different consideration).
I would go to those tracks and offer the race, with these conditions. The track would get all admissions, concessions, parking, programs, etc. The track and local purse account would get the on-track takeout from a quality-packed under card of races.
For the big event, the filliesâ€™ owners would agree the race would have no set purse amount, but instead they would get 100% of the takeout from on-track wagers on the race. In effect, the racehorse owners take the risks.
By locking out all off-track wagering and televised coverage, if we can get a crowd of 80,000 and drive the on-track handle to $20 million, the takeout for the purse would be $4 million gross. If we paid back to 6th place, there is a huge incentive for the owners of other good fillies to enter the race and drive the handle higher.
To publicize the race, the two major owners could take the satisfaction of the winner being named Horse-of-the-Year and dedicate their share of the winnings to charities like the Susan G. Komen Race for the Cure and the Race for Education. A ban on cell phones and computers at the track will further boost the on-track handle.
A replay of the race the next day will allow fans to see the great race, but the attraction of a great sporting event would be live attendance.
The tracks would need their racing commissions to pre-approve a non-traditional day, similar to Breedersâ€™ Cup days.
With all the advances in technology and expanded distribution of wagering, the host track should be able to make a lot more money today than they could in 1938. But, because the off-track revenue model fails to pay the host event for its product, the stakeholders of racing are back where they started.
The real “True Blood”
Last July 2008 the industry was â€œshockedâ€ by a series of articles I wrote on this subject. But, obviously not shocked enough to fix it.
As a result, more than $1 billion has been sucked out of racing this year. The money is lost forever to the tracks, racehorse owners, trainers, jockeys and everyone in between. The lost money has not flowed down to breeders through the sales as reinvestment in racing prospects. The lost money will not be spent at the upcoming September Sales
This past year I have traveled to Arizona for the Racetrack Symposium and throughout the year presented the problem and solution to the heads of every organization in racing and breeding. To date, not one of these organizations have done anything to change the off-track model or push for the corrections to the IHA.
Each month about $100 million is bleeding out of our sport and the rate is accelerating very rapidly through the cannibalization of bets previously made at the tracks and now increasingly made through phone and Internet companies with no connection to racing.
The Future of Racing
If we can get quick passage of the correction to the IHA and the host event starts getting 50% of the takeout from bets made at other tracks; then gets up to 75% from non-racing bet takers, and finally the future of racing is when the host event can start accepting wagers direct from customers for a virtual “on-track” revenue model. We could have 15% of the wagers going to the host event.
Then on big race days, if we have $50 million in off-track handle, the revenue at 15% to the host event would be $7.5 million for the day. That's how you bring Rachel Alexandra and Zenyatta, or Curlin and Big Brown together in races.
That's when you have the star power to fill the seats and make racing a viable sport again. So that no matter where the bet is madej, or how the bet is made, the majority of the revenue goes to those producing the show.
Once the IHA is corrected, the opportunity for creative, innovative thinking on how racing is packaged and presented will abound, because the host event can make money on the show.
But, until then we will continue in the Theatre of the Absurd, where the off-track bet takers walk off with all of your money and your sport.
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