Friday, January 8, 2010

Waldrop on Pricing - The Not-So-Merry-Go-Round

Alex Waldrop responded to some of the infighting happening in racing, including the Tracknet/Mid-Atlantic difficulties.

Two parts we believe miss the boat:

You see, the reason for these disputes is almost always the same. Racetracks, because they spend millions to operate live racing venues, and horsemen, because they understandably need higher purses to cover at least a portion of the costs associated with owning, training and racing their horses, all want a larger share of the fees derived from wagering at remote distribution outlets such as other tracks, ADWs and OTBs. But distributor tracks, OTBs and ADWs likewise have costs associated with their operations leading to their desire for a significant share of the fees.


Just this week, 3.1 million Cablevision subscribers in New York, New Jersey and Connecticut have been denied access to celebrity Chef and noted Thoroughbred owner Bobby Flay and “Design Star.” At issue is the price Cablevision will pay to Scripps (owner of the Food Network and HGTV) for the right to distribute those channels. Scripps says it costs money to produce these channels (sound familiar?), and it is demanding an undisclosed increase in fees.

What HANA, and horseplayers who live, breathe and study wagering economics want to get through to the people who run racing is the following: The share of the fees going to ADW's, allow ADW's to offer lower takeout (at some ADW's you can get lower effective takeout at many tracks to help your bankroll last longer, and contribute more to racing), better prices (like Youbet's 10% increase on pick 4 tickets when you hit one), and other customer-centric benefits to keep us engaged, and betting. The short-sightedness is not on "greedy players", the short-sightedness, as we see it, lies on horseman groups and places like Tracknet that are cutting off their nose to spite their face (you used to be able to get a decent takeout reduction at Magna and Tracknet tracks - now good luck. The prices have increased the past two years).

Second, using a cable television example, we believe is specious. We are not fighting over broadcast rights, or anything of the sort with set pricing. We are setting margins. When margins are increased, bettors go away. This is not selling a widget, or a cable TV show. We're bettors, not consumers of a product with a finite amount of money to do so. Our bankroll grows, decreases or falls apart based on margins. When we last longer, racing makes more money. Until we start pari-mutuelly betting if Bobby Flay's souffle will be overdone, or just right, it is comparing apples to oranges.

We are on a death spiral, and the business continues to roll with this specious premise, only making it worse. When these groups ask for a bigger slice of the shrinking pie and fight about it, they lose wagering dollars, because less is given to the player, and players have less to rebet. Handle then goes down.

It's why it is a Merry-go-round, and it is not so merry, it is maddening:

Track asks for more from horsemen, horsemen ask more from tracks
They decide to ask more from the horseplayer by going after ADW's and OTB's
They pat themselves on the back when they get a deal done
They think they have more for purses and more for the track

Then over the next 12 months (surprise, surprise) handle goes down because they increased margins on the player and/or signal availability. Then when they count the chips, they have less money than they started with.

Then we hop on the little horsey at the head of the Merry-go-round. They do the same thing over again (fight over signals, ask for more money and end up with less), unable to see they were the problem in the first place.

Albert Einstein said that doing the same thing over again and expecting a different result is the definition of insanity. Disputes like this prove that to be the case - handle has been down every year in real terms since the early 2000's - no it is not the economy. When will the spiral end? When will they stop increasing margins and expect more money at the end of the day? Your guess is as good as ours.

Regardless, Alex, please give the game some help; we think you care about racing. Do not fight about gambling economics without having an expert on gambling economics at the table with you - try Eugene Christiansen, or Wil Cummings - I am sure they can help. Maybe we can stop the handle losses and the infighting. It is becoming painfully hard to watch.


Anonymous said...

You forgot the part about them getting a slot money subsidy while horseplayers continue to get only the shaft...

Steve Zorn said...

Do you think the average horseplayer is going to get better rebates/lower takeout when/if the Twin Spires/YouBet merger goes through?

I agree on the desirability of lower overall takeout, provided the folks who put on the show get a fair share of what's bet. I'd be fine with 10% on WPS betting, split three ways, among track, purses and ADW. The additional churn would give us, I suspect, at least as much as we're now getting from those 6-7% (out of a total 20% takeout) deals that some horsemen's groups have managed to get.

Perhaps with major ownership changes coming in Maryland, Florida and California as a result of the Magna bankruptcy, you might see some track management that's willing to experiment with what's now heresy.

Cangamble said...

Increasing handle at at a lower rate doesn't mean if it just means existing customers will bet more.

What horse racing needs is a higher bottom line. Having rebate players just make more bets at an ADW doesn't improve the bottom line. All that is happening is the tracks are getting the same money from the same players over a longer time.

The actual thing that happens though is the longer a player lasts: 1. The more money the are likely to lose each year as they will focus most of their gambling dollars on horse racing. 2. The less likely they are to just bet with offshore bookies where nothing gets into the pools.
3. The longer they last, the more likely they are to expose others to the game.

And if winners result from this, the winners can brag about it because and the fact they are getting low prices...then more new blood might be attracted to horse racing and in the very least the existing horse players will stay.

The major negative point that happens when signal fee increases occur is more existing customers leave, and existing customers are the best asset horse racing now has when it comes to growth because they are the ones capable of bringing others to the track....and that is how most people become horseplayers to begin with.

Anonymous said...

When my lights go off I call an electrician. When racing wants to fix wagering, they don't call for a gambling expert to help, they call a guy who works for Churchill Downs (who has presided over wagering losses for years) and a guy from a horsemen group who can muck a stall and saddle a horse. Is it any wonder wagering is in the tank?

Anonymous said...

I enjoy reading prose that says "it's complicated". What that means is it is f&*#$# up.

I am sure in 1960 the owner of the Steelers fought with the owner of the Eagles and they both lost. But there was a commissioner who un-f#($)@ it up.

It is only complicated because we make it complicated.


The Cowboy Squirrel said...

Great comments...HANA blog should be required reading for RT execs.