Friday, January 16, 2009

The Customer is Always Wrong!

This article, from a series, was originally written for "Time In Harness" -- a twice monthly publication from Harrisburg, PA starting in March of 1998. When the first one was posted, the average stay on the site went from just over 6 minutes to just under 18. They also went over 1 million hits for the first time ever. The series made the list of highlights on the 10th anniversary of the magazine.


Part one in a series
The customer is always wrong!
An address to track management on betting on horse races in North America
by Fraser Rawlinson

Fraser Rawlinson, 54, has been handicapping horses for more than half of his life and gambling at a serious level since 1979, mostly in Vancouver, B.C. Fraser consults for various clients in areas of applied mathematics, dealing in decision science, risk analysis and assessment, and systems theory. He develops computer applications in the artificial-intelligence areas of expert systems and neural networks (the latter field is breakthrough technology in the fields of prediction and forecasting).

Rawlinson spent seven years working in the gaming business in Nevada and the Caribbean in the late '60s and early 70s. In 1996 he was the only serious horseplayer to be invited to the Race Tracks of Canada conference, which elected him to its marketing committee.

The opinions of Rawlinson in this series are not necessarily those of the magazine, its editors or sponsors. We invite comments, criticisms or questions to expand on various points. --Editor

Horse racing doesn't understand my needs. What's worse they're unwilling to listen to my complaints. Why am I special? Because I'm what every other industry in North America routinely kills for . . . a daily, repeat, loyal customer! But my needs are ignored by an industry where expert observers report the annual turnover rate in its fan base at 20 percent.

Horse tracks in North America routinely ignore what could pass for the mission statement of any business in the world--"The customer is always right."

By the beginning of the 1980s North American horse racing fans saw conditions deteriorating visibly. Back then, horseplayers weren't all that worried. The track owners were businessmen and weren't stupid, right? Surely they could see the major, fundamental changes required. Today, two decades later, the industry's best customers give virtually every track in North America a failing grade. Many big bettors, professional handicappers and serious amateurs in Canada and the USA, myself included, are increasingly critical, if not downright angry.

Like me, they don't want to tear down the industry. Like me, virtually every serious player has complaints that are nearly identical. Like me, most have offered constructive criticism to their local track manager. Like me, we've all felt, and may as well have been, invisible. Constructive criticism from both track employees and repeat customers has been treated the same. Both have been reviled for merely explaining things from their perspective. Punishing your employees when almost all work directly and completely with customers is counter-productive. Punishing your best customers is insane and suicidal.

For years the racetracks had a monopoly on gambling revenue, and therefore never felt the need to learn anything. They were the only game in town. Consequently they never identified their core customers or what they wanted. Horse racing's best customers feel the only thing track managements have successfully managed is to remain adamantly deaf to our complaints. The monopoly is long dead and today people wanting to gamble have choices. Increasingly, horse racing's frustrated fans make that choice by voting with their feet and marching away in droves to play other games.

So my impression is that track managers seem genuinely puzzled by cause and effect. They seemingly don't grasp that status-quo approaches can only lead to status quo results. To compound racing's problems, today state and provincial governments are in effect, bookmakers and casino part owners. Governments are our direct competitors and in the ultimate indignity, they regulate us. The industry has managed to put itself in the unenviable position of a one-legged man in a butt-kicking contest.

Horse racing has long coveted young techno-wise men and women as customers, yet has no idea about how to attract and win these people. Based on my personal experience and observation, the industry lacks the ability to solve its problems. Horse racing has a long tradition of treating symptoms and not causes. Predictably the disease afflicting us has spread ominously. Symptoms are more plentiful and severe.

Horse racing's attempts to evolve are encouraging because they represent willingness to change. Yet, from my perspective, industry leaders don't know where, or how to start. Attempts at change certainly lead me to conclude they think they are just barely missing with the shots they fire in the gambling marketing wars. Horse racing's promotional campaigns give me the impression marketing directors feel they just need to correct their aim a bit. I've reached this conclusion because each new industry attempt varies so slightly from the last. Clearly they feel their mission is roughly equal to lobbing an artillery shell at a stationary, visible target. The horse industry's aim is so bad they may as well be using legally blind gunners firing straight up on a cloudy, moonless night, during a hurricane. No, I don't find it funny.

You want the aiming point? The industry is making almost all it's decisions for the wrong reasons. Horse racing in North America is not even close to being reality-based and results oriented. The litmus test is very easy to apply. Just head for the executive suite at almost any horse track, on either side of the 49th Parallel. When you get there, stop the first person you see (managers, just go straight to the washroom and look in the mirror) then ask, "Have you bet, more than $10 more than 10 times in less than 10 years?" If the answer isn't a quick, resounding, emphatic "yes" then you've never consumed the product you're selling. If that's true, it's odds-on you don't know what you're talking about. It's that simple. Very few horse management types have ever consumed the product they sell. If you can't share the customer's perspective, how can you serve him? I've met dozens of track execs who have never placed a bet and many can't even read a horse program.

Discuss handicapping with a track manager and you may be told "Hey whatcha talking about, we're wheel-chair accessible!" Yes, it's damn near that bad. So before you say these are merely subjective opinions, let’s examine the industry's numbers.

Fatal attraction Since the 1970s attendance, horse ownership, foal registrations, and daily handle on track have all been declining. But there is a ray of hope. Guess what's been the only number rising steadily while the aforementioned factors were declining? Per capita handle.

The average daily amount bet per person advanced steadily. If this was increasing while total attendance was shrinking like an ice-cube at Pompano, what should this have told the industry? For 20-odd years handle has been driven by an ever-increasing percentage of a continually smaller number of attendees. So clearly we can assume these players knew what they were doing.

Unlike casinos where the odds are set by mathematicians or steely-eyed professional gamblers, at racetracks the customers set the odds. They do this by the way their bets are distributed among the horses in a given race. A casino knows the correct odds for all their bets and pays off at less than correct odds. It doesn't matter how smart their customers are, if casino patrons play long enough, everyone loses.

Racetrack customers have varying levels of skill and understanding of the art of handicapping. The greater the number of amateur bettors or the greater the amount of money they bet on a particular race, the more likely they've made a mistake in the odds their bets have created. The payoffs will be skewed. Since the track and the state act as brokers extracting a fee and collect the same amount on a race regardless of who wins, tracks don't care who wins or what any horse's odds might be, or should be. Track managers do tend to cheer for favorites, because the more winning favorites there are, the more the fans re-bet their own money and create "churn." Just ask stock brokers about churn.

So while customer success hurts casinos, customer success at playing the horses greatly helps the tracks. And it helps them even if the success of their less knowledgeable customers is entirely due to luck. On nights when favorites are doing well pros will be in the exotic pools, or serial pools, but will find a way to win. If favorites aren't doing well, beginners will either need beginners luck or to find someone else's wallet in order to come out ahead. Undeniably then, success at laying the game is good for both the track and the customers.

Market focus
The Stock Market has been a "bull market" for the last several years and is directly analogous to horse racing. On Wall Street brokers and customers are doing very well, because both brokers and customers are doing very well. Horse racing should function the same way, but they don't because the industry doesn't appear to grasp this rudimentary fact.

So where should tracks focus their marketing efforts and budgets? I would certainly stop trying to sell entertainment. Handicapping at any worthwhile level, is about gambling. Gambling is about ego and money. If you think gambling is about entertainment, find a fan down $100 and ask how he's enjoying the show.

Someone whose net “entertainment account” balance is minus $500 won't be as entertained and is far less likely to return for more entertainment.

Someone who is down $50 or dead even is also a possible repeat customer. Anyone winning $50 or up is much more capable of returning, to say nothing of how much more entertained they no doubt are.

Since this is about gambling and not entertainment, stop calling us "fans." I hate that word. I'm not a couch potato and this "ain't no spectator sport." You don't watch this game, you play it! So market playing the game, not watching it! Market the possibility of winning money, not the possibility of being entertained while losing money. This often doesn't happen because, surprisingly, many tracks are sort of embarrassed to be in the gambling business. A significant number of track managements look down on gambling and gamblers. It's sort of like a cocktail lounge owned by a teetotaler who considers all his patrons, no matter how much or how little they drink, to be winos.

Your repeat customers come because they've learned to play the game profitably or at least break even. Given this, what conclusions have been drawn by horse marketing executives? Clearly not the correct ones. They're all still searching for that miracle promotion that's going to turn it all around. Forget searching for "Magic Bullet" promotions. Stop the goofy Wallet Days, Umbrella Days or French Fried Ice
Cream Days.

Watching Horse tracks chasing customers is like watching dogs chasing cars. Neither would know what to do if they caught what they were chasing. This isn't about attracting butts to fill the seats, it's about attracting bets to fill the tote board.

Repeated success at gambling is seen as ego boosting by men and women I've taught to handicap successfully. Several have said their friends think it's sexy. A large number now attend daily and others would if work schedules permitted. Women make better pupils because they are better at thinking intuitively or laterally. Because handicapping can be a profitable, tax-free hobby, women still often paid less then men, really take to handicapping. Handicapping is a competitive sport women play on
completely even terms with men.

I tell smart people, "Stop staying home and playing Jeopardy and beating the TV contestants for make believe money. Come to the track where being smart wins you real money!" Your overriding message must be "Come and learn to play a game smart people can beat." Thousands do it daily. Several hundred win substantial sums. Handicappers can and do make a living at this.

Racetrack managers, who never gamble and therefore don't know what they are really selling, hire ad agencies. The agency people believe what the tracks tell them. It's hardly surprising their campaigns completely miss the mark. Whatever you do, don't copy the thoroughbred industry! The National Thoroughbred Racing Association (NTRA) was launched with much enthusiasm, even more hoopla and still more money. Did they have a nationally recognized handicapper on their start-up board? Originally every sector in the industry except the customer was represented. The oversight has been
corrected and now the question I have is, "Will he be heard or merely listened to?"

The NTRA's "Go Baby Go!" campaign has had mixed reviews. For me, the issue about the young woman's appearance and arguments about her eye color or makeup are irrelevant. The premise behind the campaign was very much off the mark. The young woman has been replaced; better to have sent a more targeted message in the first place. NTRA's initial purpose was right on the money. Horse racing needs to develop a twin. Hopefully the marriage of Axcis and the USTA will start us in the right direction. Without the input and constant advice of our most important shareholders, any new plan will also quickly unravel. Systems only work when feedback loops are taken seriously and corrections or adjustments are made quickly. A perception from outside the industry inner circle is desperately needed.

Albert Einstein, discussing nuclear proliferation and how to slow the arms race, said, "We can't use the same kind of thinking that got us into this mess, to get us out of it." While true in many North American industries, nowhere is this truer than horse racing. Back when I mentioned attendance I can guarantee several track managers said, "Live attendance is down but simulcasting has replaced that." Even if this is true, why shouldn't both be increasing? Population is increasing and we've had almost a decade of both substantial and sustained economic growth.

Managers in Delaware, West Virginia and most recently Ontario are rubbing their hands gleefully about their slots business. Indiana collects a "head tax" on riverboat casino admissions, which flows directly to the Indiana horse industry. Others locales have, or shortly will have, slots or casinos. This will almost
certainly lull some into resuming the "ostrich mentality" of recent years. If you do, and ignore the serious structural weaknesses in this industry, "outside gambling" funding sources will turn on you and consume you. If racetracks even wobble once slots are established there, look out. You want to bet on a lock? Bet that politicians can do gambling math.

Do you see slots or casino revenues as the Golden Goose? How about simulcasting? If so, stick around for the next few installments in this series. Given current industry beliefs I will describe in gory detail several possible scenarios which will turn your Golden Goose into a Trojan Horse.

Future parts of this series will contain several ideas for racetrack boardroom discussion and debate.

Among the things I'll talk about:

-- How do I sell this game to newcomers?
-- Why you'll win by wooing women (to handicapping).
-- How "construct validity" invalidates all your existing research.
--Why it's fatal to try and look like a lottery.
--How to model the evolution of a successful horse handicapper.
--What one thing the entire industry should make their goal.
--How a 10-percent increase in win percentage can triple a
handicapper's profits.

This industry is not reality based or results oriented. After this series you'll have no more excuses. You think I'm arrogant? Not at all. Weighing the evidence of the last 20 plus years, customers are the targets of arrogance, not its source. So, on the off chance it might be valuable, look at your industry from my perspective. Alternatively, at least consider the message in the final paragraph.

Right now you think I couldn't possibly prove I'm right. Maybe not. But horse racing's sorry performance and singular lack of success for the last 25 years does shout one thing from the top of grandstands. The ghosts of the tens of thousands of "gone-forever" horse fans definitely prove you're wrong.

1 comment:

Anonymous said...

The one thing that is universal in the industry is that track executives are dolts.

The best story I have is that my handle accounted for 2% of of a track's total handle and over 10% of their on-track handle to which the general manager told me "it's a privilege we let you play here".