Thursday, December 10, 2009

The Pie

Handle Pie

One myth that the racing industry repeatedly expresses is that the customer’s wagering dollar is like a pie, and every threat to racing is a threat to pilfer away some of our precious pie. Arguments supporting new ideas are immediately met with an accusation that it will take a big greedy bite.

The problem with this mentality is that it assumes the pie is fixed at a certain point, and that the status quo owns that much pie at any given point in time.

Racing though - like any industry - will rise and fall like a balloon based on simple economics; how many customers they have and how much money each spends. Economists call this demand. As most readers of this blog know, the primary demand influencer is price (in this case takeout) and the price of substitutes (in racing these would primarily be poker and sports betting).

I love logic so here’s a simple equation:

P1. The price of a good or service is inversely proportional to quantity demanded

P2. The price in the racing industry is the price of your bet, which is takeout


C. Increasing takeout will decrease wagering

For years the racing industry has acted as though takeout has minimal effect on demand. In other words the pie is fixed. In the past this would have been fairly true, because another influencer of demand is the price and availability of substitutes. Nowadays however, access to poker and sports betting is as simple as turning on your computer. The price of poker: 5%. (And you can even get a rebate on that.)

The racing industry talks in terms of takeout and customers, but it’s often as if they’re not even connected. If Betfair moves to a country and lowers the price, it not only results in more customers, but means an existing customer’s wagering dollar lasts longer. Getting hung up over a reduced price and not taking into account an increase in demand makes no sense.

And for those that say that most horseplayers don’t know or care about takeout, here’s this from CanGamble:
Horseplayers, like all gamblers realize when they come home with less money or more money. Lower the takeout, and bettors will come home with more money more often. This will be less discouraging than it is today with takeouts that average around 21% in the industry.

Lowering takeout allows bettors to last longer, and their desire to come back more often and play more often will increase.
If that increases, the likelihood that they expose friends, family, and/or coworkers to horse racing greatly increases.

This post isn’t saying lowering takeout or letting Betfair into new markets will be racing’s savior. Simply that the current attitude (looking at racing in terms of fixed revenue) is flawed.

Jules Boven is the Marketing Manager for Harnesslink and also runs a search engine marketing firm


Anonymous said...

There once was a caveman named Bobo. He lived inland and hunted Caribou. One day he had extra Caribou meat and his wife said "why don't you trade it for some fish, Bobo". Bobo thought it was a good idea, so he went to the village by the sea with his caribou steak to see if he could get some fish.

At the sea he traded his Caribou steak for three nice fish. He brought them home and his family ate the fish. "Way to go Bobo" they said, "but we have four people in our family, you should have got four fish!" Bobo was sad.

The next day Bobo decided that he would take more Caribou to the sea and get four fish. He traveled.

He found when he was there that everyone wanted to pay three fish for his steak and they would not give him four. Bobo went home with no fish.

He never went back to the sea to get fish and he blamed it on the economy.

Bobo's decendants are currently racetrack executives in North America.

And that is the story of Bobo.

Jules said...

Great story! Should be a post in itself, illustrates the point far better than I, thanks.

Douglas Amos said...

Steve was a Vegas regular. Horizontals were his game with a daily in the $20k range. He had pics as many as 30 & 40 x's. Steve is famous around town for the toughest beat in racing history. Alive with the only 2 covered in the last leg of a SA carryover ($8 million), he was 1, 2 at the 1/8 pole, the next horse another 6 back. The horse in front snapped. You can guess the rest. Steve has been gone for over a year. Some say his opinion wasn't tight enough. Others, obviously, think it was the slice. He hated drugs; felt the stewards were incompetent and knew plenty about what actually happens under the surface. He was most certainly not compulsive and owned a successful business; it was all about $ for him. How can racing get him back? Shouldn't there be a limo out front every day?

Richard_R said...

The horseplayers' pie isn't the only one being stressed. Take a look at what's happening in Delaware with their casino operations and this is BEFORE Pennsylvania gets table games and Maryland gets their casinos.

As I've said before, "When everybody has slots it will be like when nobody had slots." Ultimately, the game needs to survive on its own, for its own, and to do that it needs to give its customers a better deal than they're getting today. If racing execs think 2009 is bad, wait until this time next year.