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:

1. Racing is a Sport, Sport is Entertainment – This is the mode that I believe Chris Kay is clearly operating in when recommending to raise admission at Belmont and Saratoga. What’s curious the decision to raise prices is the decision to raise them the same amount – there’s a major implication here.

  • Attending the races at Belmont has the same entertainment value as attending the races at Saratoga

You would be hard-pressed to find a racing fan that believes this is true; Saratoga is the much better experience, a true day at the races, one that basically holds across the full 40 days of summer racing. It is a premium attraction for which a premium may be paid – in fact, I think NYRA could raise general admission above $5 and see very small declines (if any) at Saratoga. The summer population in Saratoga Springs comes primarily to see racing, often paying hundreds a day for hotels, even thousands for houses. In marketing parlance, the demand for Saratoga tickets is pricing inelastic.

Demand is often pricing inelastic for sporting events in large urban markets, in popular pro leagues, or those of regional interest like college football. Thoroughbred flat racing no longer has the day-in, day-out, attendance levels to be considered pricing inelastic. Only a few big events and meets do, and can reasonably charge a premium to attend. This is a mostly complete list:

  • Race Days – Kentucky Derby, Preakness Stakes, Belmont Stakes with Triple Crown opportunity, Kentucky Oaks, Breeders Cup
  • Race Meets – Keeneland, Del Mar, Saratoga

That’s it – that’s the list. Certain other boutique meets (Oaklawn comes to mind) can afford to maintain price levels on admission but would be subject to elasticity effects. The Belmont summer and fall meets are not on the list – the demand there is pricing elastic and will attendance will almost certainly fall unless some other marketing “P” (product, placement, promotion – along with price) fills the gap to get people to Elmont. It’s important to remember that Belmont and Aqueduct are not just competing with the Yankees,Knicks, Mets and Nets games, they are also competing with taking a walk in Central Park. People’s entertainment time is equally, if not more, important than their entertainment dollar. Belmont is already a 70-minute roundtrip on the Long Island Railroad ($10 fare)  – I’d judge it unwise to put up any more barriers.

In fact, I think Belmont should be free admission on any day that they are not running a graded stakes race. A GS race is a good indicator that some attendees are there to see the sport at its higher class levels – any other day, the attendees are there to bet. With takeout and churn, NYRA will be getting a decent chunk of their foregone admission anyway. On the plus side, free admission would likely lower costs if NYRA does not have to staff ticket sellers. Clubhouse admissions might easily go up; likewise, some employees could be restaffed at betting windows or concessions.

In Part 2, I’ll look at the other two modes and what they mean for the sport. Here’s a preview:

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?

One thought on “Racing’s Target Segments, Part 1 – Racing as Entertainment

  1. Pingback: Racing as Entertainment – Part 3 | Up the Track

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s