If you follow the racing industy news like I do, then you can not help but notice how frequently it is written that "racing is broken". I don't share that opinion. Racing is a fantastic sport with great potential. The problem is that it takes a lot of money to make the mare go. I believe racing needs a paradigm shift if it is to grow and prosper.
For lack of a better metaphor, racing is like a big pot of stew. For many years, racetracks and horsemen controlled the taste of the stew and it was deemed palatable enough and was eagerly consumed by the wagering public. Then, a couple of little things called the internet and rebates happened. The new account deposit wagering companies wanted to spice up the pot.
Racetracks and horsemen welcomed this extra spice, but soon noticed that handle was increasing, but purses were not. Thus, the horsemen banded together in an attempt to become the head chef. The struggle continues.
I started frequenting the Paceadvantage.com message board several years ago. I noticed a constant increase in the level of dissatisfaction among horseplayers because their needs were being ignored -- mainly by the racetracks. The main complaint is that it is impossible to bet on every track from one account deposit wagering company.
Several times over the past few years I have made posts on Paceadvantage suggesting that horseplayers band together to form an association that addresses issues that affect them. Usually, there was no interest or there was a belief that organizing
horseplayers would be like trying to herd cats -- it can not be done. I do not like limited beliefs and believing that horseplayers can not organize is a very limited belief. Horseplayers have a lot of spice to add to the pot. Horseplayers have finally started to feel enough pain that they have decided it is time to join together to further their goals as well as improve the industry.
So here we are -- tracks, horsemen, ADWs and horseplayers -- all adding our ingredients in an attempt to adjust the flavor to our liking. There is just one problem. No matter how the pot gets stirred, it still tastes like shit. There are an infinite number of ways to adjust the flavor of the racing stew -- add a little track, take away a little ADW -- take away a little track and turn up the heat on horseplayers, -- cut back on THG and horseplayer -- etc., etc., etc. Nothing seems to work.
This is why a paradigm shift is needed.
I was at the 1998 Breeders' Cup at Churchill Downs with my good friend and British racing journalist Nick Mordin. I became fascinated by UK bookmaking. Nick told me many stories about them. He even wrote a book "Betting for a Living" which he wrote
about how to make a living betting on horses and against bookmakers. I also read Pittsburgh Phil's book in which he described how he made a fortune betting against bookmakers. I learned that the Mara family, owners of the New York Giants, made their fortune as on-track bookmakers, though I do not know the full story.
Well, Nick and I were anxiously awaiting the 1998 Breeders' Cup Classic because we had seen every one of Skip Away's races over the course of two seasons. I had won my biggest win bet ever on Skip Away in the 1997 Breeders' Cup Classic at Hollywood Park. By the 1998 Breeders' Cup we knew Skip Away inside and out -- maybe better than his trainer. In fact, Nick and I wondered why Skip Away's trainer bothered entering him in the 1998 BC Classic because he had deteriorated so badly. His coat was dull. He looked sluggish. In fact, he looked sick. We knew he wouldn't win, but we didn't know who would. I thought, if only I could bet Skip Away to lose.
Pittsburgh Phil said occasionally a bookmaker would lay a horse for him. But the problem for me was that I was in the United States and bookmaking was illegal. And even if it was legal how would I find a bookmaker to lay odds for me. I didn't
have the capital to move to England to become a bookmaker. It was hardly feasible to move to England for one race.
The internet was still new in 1998. One of the biggest success stories was Ebay, the auction company that brought buyers and sellers together on-line.
So standing near the paddock at Churchill Downs I had an epiphany. Using the internet and an Ebay model, it would be possible for the little guy to play the role of a bookmaker -- really not much different from shorting wheat on a commodity exchange.
The big difference is that, for as little as a dollar, a horseplayer could become a bookmaker online and anonymously. (One problem with betting with bookmakers is that they get to know you and may not take all your action.)
Even more exciting than the little guy becoming a bookmaker was the thought that it would be possible for two people from anywhere in the world to bet against each other on any event where the outcome could be verified.
I knew this idea was so big that I was trembling in my shoes as my mind was flooded by all the possibilities.
I immediately sat down and wrote up a business plan and tried to figure out how to raise capital to make this betting exchange concept a reality.
I spoke to several trusted colleagues. Everyone said it could never happen. U.S. racetracks would never allow betting on their races. They would want to control the betting. Plus, bookmaking was illegal in the U.S.
The first time I showed the idea was at the first annual racing and wagering conference hosted by Dr. Richard Thalheimer at the University of Louisville in Kentucky.
I figured academics would "get it". Well, they understood it, but they aren't necessarily entrepreneurs.
Undaunted, I started to submit my proposal to business people. I showed it to George Hofmeister, who at the time owned The Vinery breeding farm and Real Quiet. He was a successful entrepreneur and liked the idea, but was not in a position to start a new company after having just bought a large breeding farm.
I submitted the proposal to Richard Branson of the Virgin line of businesses. You can read his reply to me at http://www.hypernormal.com/html/virgin.jpg. It was a rejection.
Note the date of Branson's reply - March 18, 1999. My first son was born on March 16, 1999. I knew the best chance of getting the betting exchange off the ground would be to move to London. Having the responsibility of caring for a newborn made it very difficult to pick up and move to England. So I put the idea on hold knowing that the time wasn't right for a U.S. based betting exchange and it was not practical to move to England.
Fast forward 10 years later. Racing in the U.S. and Canada is not growing and is faced with stiff competition from lotteries, on-line poker and a proliferation of casinos.
The one thing that could turn racing around in this country is a betting exchange. Having had 10 years to think about betting exchanges and see a few of them in operation and having placed bets with the major ones, I've got some pretty good ideas on how to make them work in this country and how to improve them. The big question -- is U.S. racing ready to embrace this paradigm shift? Well, they better because they aren't going away and in the meantime U.S. racetracks and horsemen are giving up millions if not billions in revenue. This reminds me of full service brokerages complaining that it wasn't fair that they couldn't compete with discount brokers. Well, they had to learn how if they wanted to stay in business.
If we really want to sweeten the pot then we should embrace the betting exchange paradigm shift. Horseplayers have. I'm sure ADWs are interested in running betting exchanges. Horsemen would welcome the revenue. I know racetracks would welcome the revenue.
Come on, what are we waiting for? Bankruptcy? Slot machines?
Published by John Swetye, Founding Member of HANA