How to Help Horse Racing Industry Sustainability in the US and Canada (Part 2)

The first post in this series, which can be found here, provided an introduction to racing's problem with just relying on an influx of cash (subsidy) to keep racing afloat as opposed to measures that have the promise of actually increasing racing's consumer base and pari-mutuel handle.

A key problem with the industry is the declining and aging base of racing enthusiasts, particularly in the US.  The assumption I make here is that Canadian racing is facing a similar problem.  With regard to US racing fans, the following statistics are frightening.  Horse racing fans are declining at 4% per year, with half of those due to death. The average age of horse racing fans is 51, expected to increase to 57 by 2020 (Lamb & Singer, 2011).  This is not new information to the industry.

The industry is trying to market to a younger generation, with dubious results.  With regard to tracks, some have offered low cost beer and hot dogs, entertainment, etc., which can get more people to the venue, but I haven't seen evidence of appreciable increases in pari-mutuel handle and haven't seen evidence of the addition of this younger demographic to the base of horseplayers.  Offer music, cheap beer and hot dogs and you'll attract a bunch of folks that will eat, get drunk and party, but probably won't do much for the pari-mutuel pools.

Advertising has also been attempted, with inconclusive success.  The measure I'm using to determine success is if the secular declines in pari-mutuel handle and horseplayer demographics slow or even reverse.  I don't think that is happening.  Could advertising have some positive impact?  Absolutely.  There is no argument to eliminate advertising.  Could it be improved.  Yes.  There is an earlier post that discussed various racing ads.

Another approach to expand the sport's awareness is the television exposure of racing's biggest events in the US - the Triple Crown races and the Breeders' Cup.  They get decent ratings but there are only a few of those big days per year, with racing not being top of mind for the rest of the year.  Compare the highs and lows of racing TV viewership and interest compared to the NHL, NASCAR, NBA, MLB and of course the NFL.  Enough said.   There is a post discussing the details of viewership of the 2012 Kentucky Derby which can be found at this link.  The post exposes the spin of the racing industry that reports items accurately but doesn't report the whole story.  By omitting information that doesn't fit the "rah rah" template of the racing industry, they avoid inconvenient truths.

Overall, the industry's approach to improving their economics via advertising and exposure of racing isn't successful enough to stem the tide with regard to horse player demographics and resulting pari-mutuel handle.

From Part 1 of this series, for the purposes of this discussion, view subsidy as a separate revenue stream for racing that in of itself does not contain the promise of cultivating new horse players and generating any incremental pari-mutuel wagering.  The desire is for racing to be able to survive without subsidy.  Slot/casino revenues and direct government funding support are subsidies as they are cash infusions that don't have the promise of cultivating new horse players and increasing pari-mutuel handle.

In addition, a solution that produces a great result would accomplish the following:

1. Get more people of a desirable demographic to the tracks, OTBs and ADWs
2. Get those people to place pari-mutuel wagers
3. Get all people to increase their pari-mutuel spend per visit
4. Have that increased pari-mutuel handle help sustain the racing industry

If you offer cheap hot dogs and beer, will you attract a desirable demographic?  The results speak for themselves.  Do they place pari-mutuel wagers in material amounts?  Probably not.  We won't need to deal with 3 and 4 as it is driven by the results with regard to 1 and 2.  You have television exposure of racing's biggest days, but that increase in awareness lasts only as long as the event.  Why aren't these approaches effective?

Remember this from marketing: Attention, Interest, Desire, Action?

Racing marketers' advertizing and television exposure can get attention, but what about their interest, desire and action (see the 4 items above)?  Not much success.  What typical racing marketing accomplishes is pretty much what Homer Simpson accomplished when he tried to get more customers for a local bowling alley.  Just exchange the words "horse racing" for "bowling:"



Racing might get people's attention for a while, but not their interest, desire or action to come to the tracks and bet.  Also, the marketing efforts are mass market focused, not focused on a desirable demographic.

What would be a good demographic for racing?  One that had the following characteristics:

1. Younger, naturally...
2. Cerebral (handicapping is an analytical exercise)
3. Affluent (you can't bet money you don't have - preferably)
4. Willing to risk money (that's the ultimate desire - someone has to place a bet)

 What kinds of people would fit this demographic?  I'd look toward the following as a start:

1. Poker and blackjack players
2. Sports bettors
3. Fantasy sports players

The final post in this series will take a look at these with regard to the desired demographic as well as the ability to bring them to the track and convert or increase their pari-mutuel spend.

References:

Lamb, M. & Singer, D. (2011, August). Driving sustainable growth for thoroughbred racing
and breeding. Paper presented at the Fifty-ninth annual Round Table Conference on
Matters Pertaining to Racing, Saratoga Springs, NY. Retrieved from
http://www.jockeyclub.com/resources/selected_exhibits_1.pdf

How to Help Horse Racing Industry Sustainability in the US and Canada (Part 1)

That horse racing has been in serious decline in the US and Canada for years is not new.  That commentators, consultants, industry leaders, regulators, et. al., have been prescribing their solutions is also not new.  Some of these solutions have helped keep racing afloat but none have shown any promise or potential of generating new horseplayers.  In particular, the only solutions that have kept the industry afloat have been some form of subsidy, either a direct infusion of money from a government or the addition of slot machines or other casino gaming at racetracks, with a portion of that revenue being used for racing.

Subsidy might seem like a pejorative term, but with regard to racing, it's fairly accurate.  For the purposes of this discussion, view subsidy as a separate revenue stream for racing that in of itself does not contain the promise of cultivating new horse players and generating any incremental pari-mutuel wagering.  The desire is for racing to be able to survive without subsidy.

What is wrong with a subsidy, you may ask?  Fair question.  The problem with a subsidy for racing is that long-term, it won't last.  If the revenue stream doesn't have the potential of generating new horseplayers, the provider of the subsidy will eventually want to have the entire revenue stream for itself and no longer provide this "gift" to racing.  What has happened recently in Ontario is proof.

With regard to the situation in Ontario, there are those that will say that slot revenue was a fair rent for having slots at racetracks.  Well the provider of the slots (OLG) is going to move the slots (at least a sizable portion) elsewhere, so all racing has been doing is whining and crying and trotting out rural people to say how their great agribusiness has been hurt by the mean and evil casino people.  The racing industry did nothing to help make itself sustainable when they were receiving this revenue - they kept doing what they had been doing for years, allowing the subsidy money create the illusion of sustainability - "letting the good times roll."  The industry did nothing when this money was coming in, not reorienting itself or its economics.  When the subsidies were cut, all they could do is cry and whine.

What is a key problem for racing is the racing industry itself.  One of the most popular posts on this blog analyzes the racetrack industry, which can be seen here.  The post discusses how various industry players impact the tracks, but the reference has value here in that the assertion I want to make for this topic is the industry overall has challenges and the various industry constituencies don't really cooperate - they fight amongst each other for the same or larger slice of a pie that is decreasing in size.  When times are good, they do nothing to improve or fix problems.  When times are bad, they whine for everyone else to bail them out while they do nothing to improve themselves.  When legitimate problems are brought up (like doping in US racing), the industry circles the wagons, blames others, denies a problem exists - anything but address the issue.  This only invites government intervention which brings its own perils to any industry, not just racing.  I won't talk about what's wrong with the industry players any more than this as that topic could fill a book.

So what can be done?  To start to answer, let's define what a great result would look like.  A solution that produces a great result would accomplish the following:

1. Get more people of a desirable demographic to the tracks, OTBs and ADWs
2. Get those people to place pari-mutuel wagers
3. Get all people to increase their pari-mutuel spend per visit
4. Have that increased pari-mutuel handle help sustain the racing industry

Whatever solutions are put forward for racing, they should be evaluated against these four results to determine their potential efficacy.  Let's look at how slot machines at racetracks match up.  Do slot machines at racetracks:

1. Get more people of a desirable demographic to the tracks, OTBs and ADWs?...NO, the typical slot player isn't really that much younger than the typical horseplayer...OLD
2. Get those people to place pari-mutuel wagers?...NO, slot players don't play the horses
3. Get all people to increase their pari-mutuel spend per visit?...NO
4. Have that increased pari-mutuel handle help sustain the racing industry?...(see answer to #3)

But slots helped, right?  Yes, in that the money was used to keep purses at a certain level or to an extent inflate purses beyond that which could be supported by wagering alone.  Where slots appear at racetracks, it helps mask the secular problems of racing with an infusion of cash, but the net result is that the industry then becomes "addicted" to slot revenues, with massive withdrawal experienced in case of removal, as is the case with the racing industry in Ontario.

The next post in this series will discuss attempts to attract a younger demographic and why that hasn't resulted in the success hoped.

Other States File Legal Briefs in Support of New Jersey Sports Betting

The briefs regarding the appeal of the recent New Jersey sports betting court ruling are continuing to flow in.  NorthJersey.com reports that the attorney generals in four states, Virginia, West Virginia, Georgia and Kansas, filed amicus briefs in support of New Jersey's efforts to offer sports betting within the state.  The briefs were specific to mention that they did not take a position regarding the sports betting laws under dispute but attacked the US Government position and District Court opinion on sovereignty grounds.

This is an interesting argument.  It appears that this was studied beforehand and coordinated.  Obviously, these states think they have a very good argument on this point and don't want to cloud the issue with details specific to sports betting.

Their point was that by having Congress pick and choose what states can do what, it tramples on the sovereignty of the states.  More than that, the briefs attack the premise of the District Court judge that upheld the sports betting ban (which allow some states to offer sports betting but not others) due to the fact that Congress merely prohibited the states from performing an affirmative action in allowing sports betting.  The four states view this legal position as an error as this court ruling will allow Congress to infringe on state sovereignty by using the tactic of preventing states from performing actions like licensing and permitting as a means of control - an indirect method of federal control over state activity.

The blog puts forward a simple example regarding fishing licenses.  I am sure when the case is heard by the Court of Appeals, there will be better examples ready by the states.  Again, what I find interesting is that the states are very much avoiding the issue of sports betting.  They must feel the issue of federal vs. state sovereignty is quite strong and that the federal side will have difficulty countering.  The Court of Appeals will now more likely take this case under even more consideration as it is not now just a single state (New Jersey) wanting sports betting.  The court will need to decide a larger constitutional issue and if this argument is sufficient, the sports betting ban will have to fall as a natural consequence.

My view is that when this case is ultimately decided by the Supreme Court (the loser here will no doubt appeal), there will be constraints on Congress' actions that will ultimately allow each state to decide for themselves if they desire sports betting.  Nevada's sports betting monopoly days are likely coming to an end.