Thursday, March 12, 2009

John Roark - The Fan Matters

A recent article on the Paulick Report that spawned a heated discussion was called “Priority 1: Racings Business Model”. The author, Mr. Fred Pope asserted that changes should be made to the Interstate Horse Racing Act so that the tracks putting on the show get most of the revenue, not the ADW who is distributing the racing to their customers, and the customer themselves. In the comments section of the piece, horseplayers found this solution, although noble, to be not only bad for the customer, but bad for the business.

Particularly, Mr. Pope’s thesis seemed to hold handle static if ADW money was taken away, and customers who play from home know that this will not happen - handle will fall. They know that if they do not get player rewards, mobile betting, new interfaces, online video and the rest of the conveniences that ADW offers them, they will not go to the track to play the races, or play them as much. In fact, some will simply stop being a customer. Lower prices, convenience, 21st century marketing, and investment directly into the customer is the reason ADW is the only growth segment this business has. If we prohibit it, fight about it, or take most of the revenue away from it, there will be an opposite and measurable horseplayer reaction.

At HANA we are very fortunate to have members with myriad expertise in all levels of the business, from training a horse, to betting a horse, to being an executive at a track, and much more.

One such HANA member is John O. Roark. Mr. Roark’s resume is long, and industry people from both sides of the shedrow would know him. John served several terms as President of the National HBPA, and was also on the board of the NTRA. During this time he was a big believer that something should be done with the IHA, and something should be done with ADW, but such changes must be cognizant of the customer. Because of his expertise in these matters we asked him to review Mr. Pope’s piece and offer up some thoughts. In the following, John speaks about a ‘non-profit player based ADW’. We thank John for his input and opinion, and thank him for his membership in HANA.

It has been my pleasure to talk to you and discuss the plight of the horse player today. As you know, I served several terms as president of the National HBPA and was on the board of the NTRA. During that time, I was involved with some of our horsemen’s groups in negotiating with their race tracks so that they got a fair share of the simulcast wagering and live wagering at their tracks. I also served on various committees involving many racing groups and believe that I have become familiar with not only the problems the horsemen and tracks face concerning simulcast wagering at ADW’s, but also the plight of the player.

Several years ago, I wrote a white paper concerning simulcast wagering for the National HBPA. As a part of that paper, we used the Cummings report extensively. I know that you have used that report also. He and I have discussed this issue on many occasions and both agree on the type model that would be beneficial for everyone.

As you know, when simulcast wagering started, the norm was for the host track and horsemen’s group to be paid three percent of the simulcast revenue from a guest or receiving site. That model has been tweaked so that the percentage no longer applies except in a few cases.

First of all, we had advance deposit wagering companies which were owned commercially and provided large fan bases to our industry and provided a large portion of the simulcast wagering money to horsemen and tracks alike. Because the ADW business was so lucrative, both Magna and Churchill Downs have helped form ADW’s to the exclusion of horsemen. Many horsemen’s groups are not equipped to negotiate with ADW’s nor with their race tracks and so the thoroughbred horsemen’s group was founded as an aid to each group that wanted to become a member and assisted in negotiating the fairest amount for the horsemen.

Unfortunately, instead of working together, the ADW companies, the tracks, and the horsemen have remained at odds over who should get what portion of the simulcast revenue. All of that has been to the detriment of the player who seems to have been left out of the equation when track signals have been shut off without a reasonable explanation to the players.

It seems as if both the tracks and horsemen have forgotten the idea that the player is the “engine that drives our train”. Without the player who grinds it out daily or weekly, our industry would be in a more serious position than it already is.

During my third term as president of the National HBPA, I formed an ADW called International Horsemen’s Wagering Assurance Group (IHWAG) along with a fellow horseman. It was our belief that there should be an ADW which was not-for-profit that paid all of the net profits back into the industry in the form of host track and horsemen’s fees and fair rebates to the players who were willing to risk large amounts of money. As we attempted to successfully launch this ADW, there were many barriers put in our way. For a number of reasons, our endeavor did not get off the ground.

I have listened with interest to the speech Fred Pope gave at the Racing Symposium and must say that there are portions of the report I agree with, but not the final results. I think that there is a middle ground that should be met by the players, horsemen, and tracks so that all can thrive in this climate. You are right when you say that there needs to be an open and comprehensive price model adopted by the industry. If tracks and horsemen will not agree to a not-for-profit ADW, then the players need to form their own.

Imagine an ADW where the players knew that the horsemen and tracks were getting more than anywhere else and the return to the player based on his wager was more also. How many current players would migrate to this company for pure business purposes and how many out of loyalty to the industry?

Part of the profits of this company could be used to help police the industry, as well as get legislation passed that would be fair and reasonable to the horserace bettor.

The main argument I have heard against forming a not-for-profit ADW is that track operators such as Churchill and Magna will refuse to let that ADW have signals because it will be competing with their ADW’s. My response to them has been that there is a Federal law which would prohibit Magna or Churchill from refusing to send a signal to such an ADW. In 1936, the federal government passed the Robinson-Patton Act. This is antitrust legislation that prohibits price discrimination by a seller where the affect is to injure the competition. If we build an ADW that is willing to pay the same or more to a host track and horsemen’s group than they are getting from anyone else, and our site has been vetted as being legitimate, then litigation would ensue if a horsemen or track refused to give signals to this site.

I have a business model for such an ADW which we helped originate on behalf of TOGA several years ago. At that time, they did not have the appetite to open such a company. Also, as Reynolds Bell said in his recent article in Blood-horse, the magazine, he felt that the TOGA members did not understand the ADW business well enough to invest in such a venture. (I can well understand that because I only know a handful of people that really do understand the problem.)

Let me say that I do not know all of the answers to the problems, but I do know that someone needs to build a non-commercial ADW. If that happened, then the business model could be created that was beneficial to not only the horsemen and tracks, but the horse players would see a change in attitude about their problems and would receive a better share of the wagering dollar in return for their efforts.

John O. Roark

If you’d like to join John and others at the Horseplayers Association of North America, please visit us here.

1 comment:

Anonymous said...

I bet you could buy Xpressbet if you can gather $30 million together. If you halved the profits through rebates to the players, then doubled the subscriber base, you could repay the debt in under 7 years. Or let the community own it and create a hybrid commercial co-operative.

Before you say "where the $#%* do I find $30 million", consider that this would represent the equivalent of about 1 week of takeout out of the hides of all the horseplayers across the continent. Sure, you can't access all that money, but what about the ~$280mil that went to the big 4 ADWs in the 3rd quarter of 2008? 20% of that is $56million, which gives you an idea of the volume of money out there.

Let's say you can get 25% of the total ADW pie. That would be around $325 million in handle for a full year. If you can slice off 2.5% to repay the debt used in the purchase, you pay off the $30M in 5 years, factoring in a healthy interest rate.

The question would be how much you'd have to spend to remain competitive with respect to technology. And if the remaining 3 started lowering their rates (or boosting rebates), could a Horseplayers ADW still be competitive. On the plus side, Xpressbet has done alright with the hand they've been dealt, so you would inherit a decent management team.

Anyways, just throwing it out there as something to chew on. Or laugh at.