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