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Tuesday, July 22, 2008

Racing Needs a Paradigm Shift

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

4 comments:

Anonymous said...

Absolutely awesome piece John. Could not agree more. We missed the boat, but frankly it is there at the dock ready to be boarded by US Racing.

Anonymous said...

I enjoyed your piece, but I am uncertain that the paradigm shift that you are hoping will occur can actually take place in the current regulatory environment. State by state regulation stifles innovation and helps to create barriers to entry for a number of potential ideas which could be mutually beneficial to the stakeholders in the industry.

I am highly suspect of federal regulation at this point as well however, and part of my concern is that if the federal government steps in, it will only be halfway, nd so instead of the patchwork regulatory framework across states that we have now, we will continue to have that with an overlay of federal regulation applied primarily to bring uniformity in just one or two aspects of the business, leaving the remaining issues still subject to the vagaries of the local "powers that be", and unfortunately I believe it is possible that; at least from a regulatory perspective, things could actually become worse instead of better.

While I agree that horseplayers would embrace another model that is less dysfunctional than the present one that continues to disappoint, I am not as convinced that the other stakeholders will embrace this possibility in the same fashion.

With history as my guide, even if a new innovative approach to transacting business for industry customers were to be introduced some would embrace it, others would be indifferent, and still others would reject it out of hand. Even if the concept succeeded with some stakeholders, those that embraced it from the beginning, along with those that came along late to the dance, would most likely ruin the experience by intervening in the enjoyment in some based on their notion of somehow being short changed in the process, to the benefit of another party.

I think it is an interesting proposition; and while the industry is screaming for a rational solution for many of its ills, common sense is not as common as it used to be anymore.

I think the prospect of betting exchanges coming to pass for U.S. based horseracing could be suggested contract in the predictions market at Intrade http://www.intrade.com/, and if the contract was approved and began trading, I am sorry to say that although I like the concept in theory, I would be a seller of that contract.

Twindouble said...

Not to put a damper on creative thinking but as an "active" player I'm more for simplification and standardization through out the racing industry nation wide. Even when it comes to handicapping and wagering.

A betting exchange may very well work in some form but that's another world when it comes to traditional players like me.

Here's some food for thought, remember that petition I mentioned that got the Twin Double reinstated? That wasn't a huge feat, we had an advantage over the track for this very simple reason, we know players wanted a shot for big playoffs. The track just wanted to "churn baby churn" for more profit.

Tracks come to realize without the big payoffs they would lose fans. The pick 6 was instituted to keep the fan base. It was mentioned here racing is losing players to poker, state lotteries and the casinos. That in my opinion is primarily result of tracks and the industry as a whole not promoting racing the way it should be.

The state lotteries promote their game in the mass media, TV, radio, news papers, online and they make a big deal when a group or an individual hits for big bucks. Poker players become over night celebrities. Can anyone here tell me "who" hit the big payoffs in the pick 6 at Hollywood this past meet or at Santa Anita? Players score big everyday though out the country but all we here is, racing is fixed, you can't win at the game and only a meager three percent win. Well I'd like to know who the hell they are because I think that's a myth. Maybe I'm one of them and never got counted, or my buddy Steve, Mario, Eddie or the little old lady that hit the big one.

Here's another interesting thought. Compare the number of winners that play the horses verses the number of winners pulling slots, the lotteries including scratch tickets or playing poker on any given day or week. I think you'll find more people won money playing the horses. I would bet on it. No bells go off at the track when someone makes a good score or online.

I'll say it again, horse racing has a lot more to offer the public than the others I mentioned. The industry has failed on every front to promote this great sport.

HANA's mission can include the above but go after what can be achieved for the players. Keep it simple and straight forward.

Twindouble

Twindouble said...

Not to put a damper on creative thinking but as an "active" player I'm more for simplification and standardization through out the racing industry nation wide. Even when it comes to handicapping and wagering.

A betting exchange may very well work in some form but that's another world when it comes to traditional players like me.

Here's some food for thought, remember that petition I mentioned that got the Twin Double reinstated? That wasn't a huge feat, we had an advantage over the track for this very simple reason, we know players wanted a shot for big playoffs. The track just wanted to "churn baby churn" for more profit.

Tracks come to realize without the big payoffs they would lose fans. The pick 6 was instituted to keep the fan base. It was mentioned here racing is losing players to poker, state lotteries and the casinos. That in my opinion is primarily result of tracks and the industry as a whole not promoting racing the way it should be.

The state lotteries promote their game in the mass media, TV, radio, news papers, online and they make a big deal when a group or an individual hits for big bucks. Poker players become over night celebrities. Can anyone here tell me "who" hit the big payoffs in the pick 6 at Hollywood this past meet or at Santa Anita? Players score big everyday though out the country but all we here is, racing is fixed, you can't win at the game and only a meager three percent win. Well I'd like to know who the hell they are because I think that's a myth. Maybe I'm one of them and never got counted, or my buddy Steve, Mario, Eddie or the little old lady that hit the big one.

Here's another interesting thought. Compare the number of winners that play the horses verses the number of winners pulling slots, the lotteries including scratch tickets or playing poker on any given day or week. I think you'll find more people won money playing the horses. I would bet on it. No bells go off at the track when someone makes a good score or online.

I'll say it again, horse racing has a lot more to offer the public than the others I mentioned. The industry has failed on every front to promote this great sport.

HANA's mission can include the above but go after what can be achieved for the players. Keep it simple and straight forward.

Twindouble