Racing’s Target Segments, Part 2 – Gambling on Racing is Entertainment

In Part 1, we teed up the idea that racetracks – or racing associations, like NYRA – have three distinct customer segments: 1) those that are entertained by racing as a sport, or special race days as “events”; 2) those that enjoy gambling, and have fun betting on the races; and 3) those handicappers that gamble tens of thousands a year or more as a profession or semi-serious pursuit. Thus, racing has three target markets (or channels) that requires distinct strategies to reach, though there is obviously some overlap in the means industry groups might employ.

1. Racing is a Sport, Sport is Entertainment – Part 1 can be found here

2. Racing Has Wagering, Wagering is Entertainment – How does racing convert causal fans into bettors and dedicated fans?

3. Racing Has Handicapping, Handicapping Makes Wagering on Horse Racing a Viable Pursuit – How can racing attract more wagering from the serious sports betting market?

Statement: Gambling is a National Global Source of Entertainment Value

The casino industry understands its customers as well as any on earth. Big gaming companies like Harrah’s and MGM are pioneers in using data to understand their players’ habits and then tailoring their offerings to optimize (if not maximize) the revenue provided by their customers. They know that some of their customers will depart McCarran Airport celebrating their winnings while the majority will leave with lighter wallets; however, they need the vast majority of those customers to feel entertained during their stay at the casino, win or lose. Vegas is in the business of creating repeat customers, and they’re very good at it.

In the last fifteen years, too often the response of racetracks and their owners to compete for the “gambling as entertainment” dollar has been to attach actual casinos to the track buildings. That trend has benefited some in the industry but to a large extent has mostly created distortions in how gaming revenue is shared across purse accounts, tracks, and states. Little of it has been used to promote the sport because, frankly, that was the more difficult path to have taken. Why? I imagine it’s because the casino experience has been frequently replicated and is well-understood. What makes a race fan into a horseplayer is not.

Thoughts on Converting Casual Fans of Racing Into Bettors and Dedicated Fans

1. It’s hard. – I’ll put this first since I think it’s important. There is no single solution or strategy that a racetrack or industry group can employ. There’s going to need to be lots of trial and error. Successes will often take time to develop and implement while failures will be more quickly identified and subject to scrutiny, even ridicule. They won’t come without investment of both time and money and will frequently require reaching out to groups that have been in the past been held at arms length (horseplayers, horsemen). The short-term ROI of a new bank of slot machines will usually be greater than your new idea; long-term benefits are more uncertain.

2. The racetrack competes less with professional sports and more with watching sports on TV and other free/already-paid-for leisure activities. – I don’t think I’m going out on a limb saying that horse racing’s target market is “sports fans who like to gamble”. Racetrack executives have largely chosen two strategies for reaching this rather large customer segment – “racetrack as ballpark” and “racetrack as casino”. The problem with these strategies are that they describe an experience that is strictly worse than the comparable experience. When compared to professional sports, horse racing is rarely at a high enough level to appeal to sports fans alone. On most race days nationwide, the the level of racing is comparable to watching church-league softball in Fenway Park. In racing, wagering makes the sporting experience interesting.

On the flip side, racetracks have a very hard time emulating the casino experience. There are literally acres and acres of space dedicated to a one game at a racetrack. 40,000 square feet (~1 acre) of casino space features hundreds of tables and video machines for dozens of different games and bets. Bets get made and paid off in less than 45 seconds – at a track, 30 minutes is the minimum time between races. Concessions are sold in stands, like the ballpark, and little can be had for free; not admission, not drinks, and rarely information on the horses running. In racing, the sporting experience makes wagering interesting.

I’d propose an alternative vision that is more “racetrack as sports bar”. The idea here is that the best racetrack experiences feature groups of people coming together to the track that have a mix of racetrack veterans and first-timers and men and women. Tracks need to recognize, however, that their sports fan patrons face a significant opportunity cost by going to the track, especially on weekends, with regards to watching more popular sporting events. This would involve transforming one or two general admission areas – and probably one club level area – to larger restaurant-style spaces with large video screens, table service with ample wait staff, and a large bar with multiple service points. The goal is to provide a “home base” for more casual fans that improves their experience for the time between races. Right now, the alternative is usually stare at an empty racetrack for 25 minutes. Parenthetically, I believe that Churchill’s “Downs after Dark” promotion comes closest to creating this vibe – combining a social event with exposure to racing.

3. Improve the racing program – what you buy for $2 at the track –  by placing an emphasis on new bettor education. – I swear I waste $2 every time I buy a program at the track. For a serious handicapper, the program provides no additional information to the Daily Racing Form (or self-provided handicapping materials). For the novice bettor, however, the information in the program provided remains almost entirely inscrutable as a guide for picking horses and making bets. There’s a lot of info “density” but often the novice wants/needs summaries, quick comparisons that guide decision making.

My hypothetical program “detail”  for each race would be an exactly two-page summary, left and right to view as a single spread. The left page would resemble the current Equibase track detail, but with only as much info as can fit on a single sheet. On the right page would be multiple top 5-8 lists with the entries on each list rank-ordered. The lists would be typical handicapping angles like “speed last race”, “trainer last 6 months win%”, “early pace/late pace”, “jockey win%”, “sire mud/turf pedigree”, and so on. At the very bottom of the page, put in the precise language for making a bet with blanks for dollar amounts and program number, emphasizing high-churn strategies. A sample instruction:

Betting Guide

  • If odds on your horse are 2-1 or lower –> “race 1, I’d like to bet $____ to WIN on the ____ horse.”
  • If odds on your horse are 2-1 to 6-1 –> “race 1, I’d like to bet $____ to WIN and PLACE on the _____ horse.”
  • If odds on your horse are 6-1 or higher –> “race 1, I’d like to bet $____ to WIN, PLACE, and SHOW on the _____ horse.”

4. Provide “quick-pick” terminals for players who like lottery games – There is definitely segment of the gambling population – rhymes with “plots slayers” – that will eschew all interest in the handicapping side of the game but may be attracted to the large payoffs that frequently occur in racing. It would not be difficult to create terminals that generated random tickets – say, for example, 100 dime superfectas for $10 – in an attempt to hit a jackpot each race. The machine logic could even be weighted to more likely outcomes – based on current (or ML) odds – to improve the hit rate of those plays.

On carryover days for multi-race bets (Pick 6s, usually, but also Pick 5s or Super Hi-5s), these terminals could theoretically generate positive expectation bets for those willing to play them. If you can prove the concept on the track, then expansion of these lottery-style machines outside of the track could be a potential windfall, since the money from them goes into pools.

5. Bundle, bundle, bundle – Product quality is important for attracting and keeping customers, so having them witness the best racing possible is important. It’s not the top of the list for most racing observers, but stakes racing is too spread out across the calendar. A track with two graded races running on consecutive weekends may attract 6,000 each Saturday. However, a single Saturday with two or more graded races may well attract 12,000 on its own. Classier race horses get more press between races which allows for the continuation of the handicapping process for the next one – the more horses a new fan remembers, the more likely he or she will be to return to a subsequent race.

6. Keep important prices low – What are the “important prices” at the track, especially for new patrons and novice bettors? Admission, programs, concessions, and WPS takeout.

  • Admission we handled in Part1 – tracks need not raise barriers to attendance save where demand is inelastic, which are only big race days.
  • Programs are an important informational and educational tool – do everything possible to get one in the hands of all your patrons.
  • Concessions means eating and drinking – your customers are there to have fun and fun is enhanced when the track offers value compared to other outlets and extra money is available to play the races.
  • WPS Takeout – The price of placing a bet is quite important and none more so in the simplest betting pools. Lower takeout in WPS pools means that winning bets return more. The implications are not only that winning bettors go home with more money but that there are more winning bettors. Simplifying assumptions, on an 8-race card with 18% takeout betting WPS only, 20 out of 100 people will go home ahead on average; at 15% takeout, that number rises to 27%. That 20% drop in takeout results in 35% more winners – creating winners is a fantastic way to get people back to the track.

I could easily write 1500 more  words on other ideas, but they would all re-emphasize the need for tracks to focus on the customer experience geared toward producing customer growth and increasing customer spend. These are, certainly, ideas focused on long-term growth when so many in the industry are focused on short-term survival. The industry and its players cannot continue to neglect this important segment, even if efforts are concentrated elsewhere.

In Part 3,

3. Racing Has Handicapping, Handicapping Makes Wagering on Horse Racing a Viable Pursuit – How can racing attract more wagering from the serious sports betting market?

Racing’s Target Segments, Part 1 – Racing as Entertainment

Recently Chris Kay, the head of CEO of the New York Racing Association (NYRA), defended the planned admission increases at Saratoga and Belmont (from $3 to $5) by comparing the relative affordability of a day at the races to a Yankees game, placing the sport of racing into the same entertainment category as professional baseball. By extension, racing is therefore competing with other premium-priced sports experiences that includes the NFL, NBA, NHL, and NCAA Football and Basketball.

Other commentators (and one or two NYRA board members, thankfully) pointed out the obvious difference between horse races and those events is the ability, at the track and online, to legally wager on their outcome. Racing is a gambling game and, for better or worse, derives most of its revenue from the takeout on wagers. Higher admission will inevitably lead to lower attendance and on-track handle; therefore, whatever gains you planned from raising admission will be somewhat offset by lower revenues from wagering. Hard to say how much, but multiplying last year’s attendance at Saratoga and Belmont by the $2 increase in admission is not a sufficient forecast for revenue gains – it’s one or two levels more complicated.

Yet the contrary claim that racing is not entertainment is equally untrue. If gambling was not entertainment, Las Vegas would not exist – very few people can make a living gambling, and may only do so based upon the contributions of those who play for entertainment. Poker, sports betting, and horse racing are the games that a dedicated few can beat because the public likes to play for fun. I know for certain that I am one of those bettors. I track my ROI, and despite having learned a lot about racing over 3-4 years, my expected value is not much above the takeout. I play for fun (as my income allows) and the chance at the big score one day.

All this discussion led me to tweet this:

Racing has 3 “modes”.  1.”Day at Races”->Entertainment 2. Gambling->Entertainment 3. Gambling->Serious/Pro | Racing needs strategy for all 3

— Mike Dorr (@mikedorr77) December 5, 2013

I thought the idea worth exploring further with a longer series of posts, the first of which is below the fold: Continue reading