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Sunday, September 29, 2013

An Interesting Interview With Darryl Kaplan



The following interview is reprinted with permission from Harnessracingupdate.com

I was reading an article on TechCrunch this week written by venture capitalist Mike Butcher. 

He wrote:

“That’s what startups are about: thinking big. Because to my mind, not enough startups do that. Time and again I see pitches from companies that want to create, what in effect is a widget. An application. Something which simply extends an existing ecosystem, or tinkers around the edges. For instance, if I have to see another startup which wants to ‘aggregate travel experiences’ I will gnaw my right leg off.”

In racing, we don’t tend to think like Mr. Butcher, and in many cases – with government partnerships, dozens of alphabets, rules on top of rules -  we simply can’t. Sometimes we don’t even make very good widgets.

However, there are some people out there who like to think big in racing despite the roadblocks, and Darryl Kaplan is one of them. 

As Manager of Industry Communications and Business Development for Standardbred Canada he has directed wagering conferences with outside the box guests and thinkers, and through it developed the most comprehensive framework ever devised to promote harness racing : The Racing Development and Sustainability Plan.  Although the plan failed to receive funding, many of the ideals of the RDSP are currently being implemented by thoroughbred racing, through the Jockey Club. They are having some success.

Since we rarely seem to find optimism and big picture thinking in our sport these days, I thought I would call Darryl for a chat.  I left the conversation feeling an infectious optimism, and I hope you do too. 

 Back at the Canadian Gaming Summit in 2008 a professional gambler noted that “slots are probably going to be much less popular in ten years” as habits and demographics change. Reading the 2012 Ontario Lottery and Gaming Review, they hint at similar and have begun to notice it happening. Do you feel – even if governments keep slot contracts in place like they are in New York  - that by 2025 they will not be supporting purses near what they are now? If not, why?

DK: A combination of an aging demographic, increased availability and a likely explosion in online gambling will have a major effect on revenues generated from bricks and mortar slot facilities. We’re starting to see the makers of social media games entering the gambling fray, and it’s becoming very clear that the way people bet and what they bet on will change dramatically over the next decade.
The only way to ensure revenues continue to flow toward horse racing is to make sure that dollars are directed to products that rely on the live product. Short of that, at the very least, the industry should be looking at creating meaningful partnerships that leverage what’s next in gambling – not those products that are likely to fade away. 

 You have long been a proponent of enhancing harness racing’s business model through the live racing experience.  You’re one of the few people out there who believe if packaged right, the sport can charge a stout admission, and make money on the live gate. Do you believe that this is a viable model if done correctly? What did you see with Standardbred Canada’s Xtreme Horsepower and Adrenaline Festival’s that you liked, and could be built upon? What does the industry need to do to make this happen?

DK: There are numerous examples of sports and entertainment products that have been structured or reinvented to cater to the customer and generate revenues. Minor league baseball, Ultimate Fighting Championship, motocross, monster truck events, and countless other entertainment products are operated to generate excitement, attendance and drive revenues.

Horse racing, if packaged correctly, can be a huge draw. This is proven at events like the Little Brown Jug, Gold Cup and Saucer, and short racing meets like Keeneland, Del Mar and Saratoga. Xtreme Horsepower was about pushing the envelope on what the racing product can look like. With 18 horse fields and other innovations, it proved that horsepeople and management can be flexible and work together for the benefit of the customer. Adrenaline was about creating an event that focused on food, fun and racing, with multiple revenue sources that could serve as a model for future events and festivals.

The amazing thing about Adrenaline was that it generated more in sponsorship and attendance revenues for those three days than we could have if the track had generated $1 million in betting handle. To newcomers to the track, there were very few complaints about paying admission, and attendance remained well above normal for months following the event. But with all of these things, concepts need an opportunity to persevere, improve and thrive. One-offs rarely work and events that fail to generate revenues, like most of the big days currently in harness racing, will ultimately fail.  

The Pari-Mutuel Urbain (PMU) in France, as well as the partnership between Swedish Gaming and harness racing (ATG) has been, by all accounts, a roaring success for their breeding and racing industries. Do you ever see such a partnership occurring in North America?

DK: Unfortunately, in North America it will probably take a break-down of the current models before arriving at something like the PMU or ATG – but it could happen. In Ontario, such a model is now possible (although perhaps not likely) as for-profit tracks quietly bow out of racing, and government takes an active role working with not-for-profits. Racing needs to take advantage of this by creating some centralized strength in the areas of wagering, marketing and distribution. 

In the United States, in many jurisdictions, casino companies are the ones charged with operating racing, which in most cases, will ultimately fail. There will always be a cheaper way to move money to the bottom line than horse racing. This is something that is well understood in other places in the world where, in many cases, racing is run by centralized not-for-profits.

You have worked - through the planning for the Racing Development and Sustainability Plan  - at exploring the creation a horse racing lottery in Ontario, not unlike the V75 in Sweden. What has been the biggest stumbling block at getting it implemented? Can it happen?

DK: For government to implement a V75 wager through their lottery network, the sustainability of horse racing needs to be part of their overall mandate because it is easier and more affordable to determine lottery numbers by bouncing balls than by the results of horse races. It is encouraging in Ontario to hear the premier talking about integration between racing and the Ontario Lottery and Gaming Corporation. But real action will require enormous change. As it stands, many lottery corporations see horse racing as competitors not as partners. 

There are other options for these wagers that rely on the pari-mutuel network. They are more attainable and could be implemented with much less difficulty. A starting point would be a centralized jackpot wager that is available on live racing at a number of tracks. The initiative would have to be fully supported and distributed to be successful.

It’s been well documented that Bingo, Lotteries, Casinos – virtually all racing’s gambling competitors – possess marketing budgets that dwarf racing’s. Elsewhere, Canada’s milk producers have socked away $67.3 million for marketing this year alone. If I gave you a check for, let’s say, $10 million right now, how would you spend it to market harness racing?

DK: It’s very difficult to theoretically allocate funds to specific areas. There is meaningful work that would have to take place before deciding how to allocate funds to generate the greatest long-term benefits for the horse racing industry. While branding is a key, a $10 million marketing campaign that sends people to the racetrack only to have them disappointed by the experience is a failure. We have to focus on creating a spectacle that excites customers and caters to them. We need a wagering product that bettors feel they can win at. And we need to create sustainable revenue sources and have a way to measure results of our efforts.

You and others embarked on a plan to package harness racing signals in Canada, so that there is little overlap, and distribution of the betting product can be promoted far and wide. What would it take to make this happen? Is it impossible with disparate interests, all fighting for space in the betting landscape?

DK: With some co-operation, this is very achievable and would be a huge win for the sport. What we learned from the exercise is that on the demand side, there is great interest in products being packaged and sold. On the supply side, it seems to be a tougher sell as racetracks have always operated in a relatively independent way when it comes to their signals. Revenues from the export of a signal are also small, especially when put side by side with casino funds. Because of that, tracks haven’t seen the potential upside. As racing is a global market, I believe the opportunities are big. Aside from revenues generated, it is important to send a message to government that customers from around the world are watching and wagering on our racing product, and funds are flowing in globally.

Smaller tracks in harness racing are extremely important to the sport as they support a feeder system, they give a place for lesser animals to race, and also card live racing for horsemen to make a living at. Currently they tend to possess high takeouts, almost no handle, and are not very palatable to many gamblers.  Is there anything you’ve seen in your travels that you think can help smaller tracks get a foothold in the gambling market?

DK: With a branded signal, this is very achievable. If 50,000 outlets around the world carry the branded signal and a number of times per year, the featured product is from Truro Raceway or Dresden Racetrack, we could generate enormous handle, even at small facilities. Under the current model, we expect Truro or Dresden to go it alone – pay to upload their signal, sell it and promote it. They have no ability to do that, and with tracks all competing for the same space, such a scenario would be a disaster for all involved.

With a unified model, every track in North America could have an Old Home Week or a Jug week with huge betting pools and life-changing payouts, as well as paid attendance, sponsorship revenues, on track entertainment and genuine excitement in the community. But it requires vision, cooperation and implementation.

In a 2009 “State of the Industry” issue in Trot Magazine, you and your team asked industry insiders what harness racing would look like in 2050. The responses were not very optimistic. Since that time harness racing has gone through much turmoil – New Jersey racing lost their casino funding, slots money has been taken away from several jurisdictions – and one would suspect the answers today would be even direr. Can I ask you, with the caveat that many of the items you talk about above are solved in some form: What do you think harness racing will look like in 2050?

DK: If the items above, and some others, are solved, horse racing will be extremely popular in 2050. Racetracks and communities will hold events that will turn small town racing into a true tourist destination for days or weeks of the year. Revenues will flow through partnerships with corporations looking to leverage the love of the horse. Wagering handle will explode and betting exchanges will allow customers to bet horses online in a way that is responsive to their needs. Fans will come to the racetrack for the energy it provides, as it will be a tremendous social gathering in a society dominated by impersonal devices.  The product will offer tremendous variety and be integrated into a lean and efficient entertainment offering rivalling the best shows available. The public’s relationship with horse racing will also become about their relationship with the animal and to agriculture – not a sterile spot to cheer for saddlecloth numbers and colours.

The sport will be brought back to the people with racing events held during festivals and fairs, on our beaches and frozen canals. We will be exporting the racing signal as well as the breed to the rest of the world because we will be seen as leaders and we will lead global gaming initiatives to tie North American horse betting into global wagering opportunities. 

Young people tired of their online world will disengage to enjoy an evening at the races, and main event days will once again see 10,000 reserved tickets sold. The entertainment will more closely resemble Medieval Times or chariot racing in The Coliseum than it looks like anything we see today, but it will be an experience for all ages – two hours of unmatched fun!

I told you his optimism was infectious. I sincerely thank Darryl for taking time out to speak with me.


1 comment:

Sal Carcia said...

This was definitely a different type of conversation about horseracing. I don't fully comprehend it all yet.

Horseracing has an exclusive on online gambling. Why not expand it to other forms of gambling using horse-race based algorithms? At least, the racing organization can control its own revenue stream and not be dependent on another company. I believe Churchill has already started this with Luckity.com and is planning an online poker start-up as well. Online gambling is the future and this is a place for horseracing to jump ahead of the market.

The rest of Mr. Kaplan's ideas were dependent on horseracing's cooperation with branding, packaging and distribution of its product. The NTRA started this process in North America and I believe Frank Stronach basically nuetralized them. Stronach believed more in a competitive model than a cooperative one. He believed that he owned enougn tracks to go it alone. I think it was a mistake.
Cer
I have one last question. With the Kentucky Derby being the most branded horsercing event in North America, is horseracing doing enough to maximize its revenue potential and does it lead to a more sustainable revenue stream afterwards? I think not! It is a major opportunity to see some of Mr. Kaplan's ideas implemented.