A Horse Racing Article That Is Right But Wrong

BloodHorse.com has an article that discusses various means by which racetracks can counter declines in handle. I took a look at the article, penned by a couple of authors known in the industry. There are a couple of decent points made, but nothing in the article is that innovative or new. Stating conventional wisdom may fill some pages in a magazine, but doesn't do much if you are a racetrack executive looking for sage advice.

The secondary headline - how to move beyond a broken model - isn't really a "news flash." The decline in handle and the profitability pressures being endured by tracks are well known. For those so inclined, my "critically acclaimed" analysis of the racetrack industry can be found here. The revenue model for horse racing doesn't work anymore given the explosion in competing forms of gaming available to US consumers, compounded by the stupidity of the horse racing industry to not see the threat or even react to it, other than complaining, whining and fighting among the various industry constituencies for an equal or larger share of a decreasing pie.

There really isn't anything wrong with the pari-mutuel wagering method. It's been used in the US and around the world for around a century. If there was some kind of flaw, it would have appeared by now. If the argument is that takeout is too large, perhaps there is an argument. I am of the opinion that takeout should be somewhat lower, on the order of 15% for all types of wagers, straight and exotic.

The article discusses three concepts: reduced takeout, new pari-mutuel wagers and betting exchanges. Again, some decent points are made but miss the mark and in and of themselves aren't likely to be the "killer app" that will save the industry. In addition, some of these concepts have been discussed before in other industry venues, such as RTIP. Nothing new.

The biggest error in the article is the argument that betting exchanges will supplant the pari-mutuel betting model. Not a chance. The reason is obvious. If the industry can't survive with tracks, horsemen, ADWs and state and local governments fighting over how to split a quarter, how is it going to survive with the same folks fighting over how to split a few pennies? If handle, which is declining, would have to double if takeout was reduced to 10%, what about requiring handle to increase by a factor of 7 to obtain the same takeout with betting exchanges? Yeah, right.

Betting exchanges for horse racing aren't a high probability. Betfair can hope and pray and lobby all they like, but I think a snowball has a better chance in the nether regions than betting exchanges for horse racing being approved in the US. Couple that with their purchase of TVG with its ADW operation, what makes Betfair think that the purchase of an ADW would make them more endearing to the tracks?

All these approaches miss the salient point which is that bettors have other options and options they know. They are not horseplayers. The core attractant is the event, not the betting method. Do you really think that people will flock to horse racing just because of a betting method? Hardly. People bet on SOMETHING. It's the SOMETHING that attracts them and they bet on it. If the SOMETHING isn't interesting, they are not going to bet on it given the other SOMETHINGS that exist that have proven to be interesting to bettors (e.g. sports, poker, lottery, casino).

The final paragraph is classic stating the obvious. It reads, "imaginative strategic thinking, multiple tactical approaches, calculated risk-taking, and perseverance in the face of barriers are the ways forward. No single line of attack is a panacea, but maintaining the status quo is untenable." Wow, such wisdom. Too bad the authors didn't mention any of those in the article. I guess they're saving that for the racetrack operators that hire them as consultants. I sure hope that their clients get their money's worth.

References:

Shanklin, W. & Christiansen, E. (2010, July 10), Beyond Pari-Mutuel Wagering, BloodHorse.com.