Tuesday, August 31, 2010

California Horse Racing Committing Suicide?

California is in the final stages of approving two major changes to the horse racing industry in the state. The first is an increase in the takeout on pari-mutuel wagers known as "exotics." To simplify, wagers that include more than one horse (e.g. exacta, trifecta, etc.) will have the takeout increase by a couple of percent. I'm not sure how bad or good that change is, but my personal bias is that takeout is high enough already, and increased takeout (think tax) is likely to decrease handle (wagers), thereby making the net takeout revenue unchanged or perhaps reduced.

The second change is the most controversial and in my opinion could spell the demise of racing in California if not squelched. That is the allowing of exchange betting. Although touted by its major proponent, Betfair, I haven't seen a definitive study that shows how racing is benefited in any jurisdiction where Betfair can offer exchange wagering on races.

The way in which this bill added exchange wagering is highly suspect. One surmises that behind the scenes hanky panky was at play. This again is refuted by Betfair - equally and vehemently claimed by opponents that said the addition of exchange wagering only was inserted in the bill just two days before the deadline for amendments. Very fishy if you ask me. In my opinion, the Betfair doth protest too much.

If exchange wagering operates similarly to how it operates in other jurisdictions, the result will likely be the cannibalization of wagers from the pari-mutuel pools (at approximately 20% takeout) to the exchange (at approximately 5% takeout). Good for bettors, but bad for the industry. You see, if the industry now has problems distributing the revenue from 20% takeout, how can it survive dividing up 5%? Doesn't make sense.

Here's one way to describe a potential future. Assume that all the takeout on California racing now is 5 bets of $1 each. At 20% takeout, that gives 5 20-cent takeouts to divide up among tracks, ADWs, horsemen, purses, taxes, etc. Also assume a typical distribution of bettors where the high-rollers are conducting 3 of those bets, with the rest of the horseplayers conducting the remaining 2 bets.

Enter exchange wagering with a 5% takeout. For a $1 bet, only 5% is retained. Given that scenario, it is more than possible that the high-rollers will transfer some of their wagering activity from the 20% takeout pari-mutuel pools to the 5% takeout exchange pools. Let's assume 2 of their 3 bets move that way. What will result is that the 5 20-cent takeouts are replaced with 2 5-cent takeouts and 3 20-cent takeouts. An overall reduction in revenue to the industry by 30%. How in the heck does that make any sense?

For exchange wagering to provide MORE money, overall betting would have to increase by around a factor of 4 times just to be even. Do you really think that will happen? If it did, Betfair would have had that information published all over the place, and this legislation wouldn't have to been snuck in at the last minute.

If the Governor signs the legislation as I think he will, the only way to save California racing is to make sure the tracks and horsemen stick it to the exchange wagering companies to increase their takeout on exchange betting to EQUAL amounts to the current pari-mutuel pools. This way, any cannibalization of pari-mutuel wagering won't hurt the industry - the money will just be coming in from a different source.

Let's see how cooperative Betfair is then when faced with that takeout structure...

Update...the California Horse Racing Board has a press release discussing the bill here.

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Wednesday, August 18, 2010

Singapore Casinos Not Content Limited To Asia

The new casinos in Singapore are doing quite well. You can see my previous posts on the Singapore casinos here and here. The UK Independent has an article that states that Singapore is doing so well they already the 2nd largest casino market behind Macau after barely 6 months in operation.

What is amazing is that they may actually surpass Las Vegas as the 2nd largest casino market behind Macau in the next few years. This is great news for Singapore and bad news for Las Vegas. Las Vegas is getting losing business that formerly came from Asia, making its current economic slump even worse.

To put numbers behind the popularity, Resorts World Sentosa is quoted as guest numbers are now exceeding 1 million per month, with an expectation of 13 million visitors per year. Great news for Singapore. I've said before Singapore is a great locale.

Las Vegas needs to be concerned.

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Monday, August 16, 2010

Horse Racing Looking to Fantasy Sports?

BloodHorse magazine in their July 24, 2010 issue had an opinion piece titled "Fantasy Sports: An Opportunity - and a Competitor." The article described the size and growth of the fantasy sports market, the typical demographic, a warning about the potential threat and the potential opportunity. I think the author pointing towards fantasy sports isn't that bad, but his findings are off.

The quote from the article takes recent information from the Fantasy Sports Trade Association's research. There are approximately 27 million Americans and approximately 3 million Canadians that play fantasy sports. That's a pretty good size group of people. With regard to the American player, he is male, 37, college-educated, and has a household income of $94,000 - a great demographic that the horse racing industry would love. As is well known by the typical horseplayer demographic, you would think you need an AARP card in order to place a bet.

Here's where the author is off the mark. The author lays out a decent overview of TVG's Fantasy Horseracing product, which allows players to create a league of horses, trainers and jockeys. He thinks that horse racing would be a great fantasy sports vehicle, which would attract fantasy sports players, who may then become horseplayers to some extent. Wrong, wrong, wrong. No chance.

Why? Super simple.

As anyone who knows fantasy sports (i.e. me) can tell you, fantasy enthusiasts are primarily FANS OF THE SPORT. If you are a fantasy baseball player, odds are you are a baseball fan, then you got into fantasy baseball. The same is true for football, basketball, NASCAR, etc., etc. Fantasy sports players play fantasy sports to get more out of the sport they enjoy. Only the most geeky would have statistics be an attractant. For those, baseball is king...and in my opinion cricket probably isn't far behind - but cricket isn't as popular in the US.

What will not happen is horse racing fantasy being a big draw and sucking in new fans like Washington DC sucking in your tax dollars. Nope. Fantasy horse racing players are horse racing fans who got into fantasy horse racing. If you're not into horse racing, you're not going to play fantasy horse racing. This is where the author is way off.

The author is correct that the demographic would be very attractive to horse racing. They are younger, affluent and intelligent - exactly the kind of new handicappers the industry needs. I've got an idea of how you get these folks, but it's not this way. More on that in a future post.

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