Thursday, July 31, 2014

Why Big Day Revenue Gains Work & What It Says About Horse Racing

In April, CDI raised takeout at their flagship track, Churchill Downs. It was suspected at the time by many industry analysts that this was a way to grab more money from two big days - The Derby and the Oaks - to make the bottom line look better to shareholders.

Those analysts were probably correct. In the recently concluded World Cup, if ticket prices were doubled if Brazil made the final, revenue would be increased. Derby and Oaks day would see a gain over a regular day at the track, too.  It's common sense, really.

Why would it work for those days?

When casual fans go to the racetrack, they expect to lose. On big days like the Derby or Oaks, it's a once a year occurrence. Those days, Joe from Queens, or Susan from Lexington say "I am bringing $500 to the track to take a shot at the Derby". They don't bring only $400 because the rake was raised. They aren't bet sizing or looking at longer term ROI. They are just bringing what they planned, fully expecting to lose it all.

While those folks are good for Churchill (or other tracks on big days with lots of casuals), what they are saying about horse racing drives a stake into its heart as a gambling game.

Joe and Susan are saying this is a game (handicapping) that can not be beaten. They don't care if the takeout is 18% or 22% because they don't plan to come back. They don't plan to buy a DRF book to learn the art of handicapping, read the Horseplayer Monthly for tips (August's issue is out today, by the way), or go out of their way to come on a Tuesday for the regular races. They drink mint juleps, lose all their money and go home.

Churchill, and other tracks who wish to, can happily raise takeouts on big days and probably escape unfazed. However, when they choose to do the same thing in the other 364 days, they are hurting the game of handicapping in untold ways. They are saying to Joe and Susan and everyone else, "you're right. This is a sucker game. But thanks for your cash. We'll see you next year."

I was vacationing this week with an old friend who used to play the races as a youngster. He's a fund manager now, busy with 12 hour work days and two kids, so he doesn't have a lot of time for horse racing. He asked me if horse racing was still hard to make money at. I told him yes, and relayed that takeout was even being raised, not lowered, to make it even more difficult. He said "the math isn't there to begin with, and they tilt the wheel even more against you?"

No business can grow like that; especially a gambling business. The horse racing industry needs to understand that to have a thriving gambling game, at least some winners must be sent home to come back tomorrow. They must have a chance to win, or at least perceive they have that chance; to tell others about the opportunity of the game. Until that happens, racing will be relegated to trumpeting increased "EBITDA" one day a year with blaring headlines, while in the fine print everyone knows how bad the other 364 are.

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