IN SEARCH OF A STRATEGIC CATALYST FOR SAVING NORTH AMERICAN RACING

This is a follow-up post to:

“What if Takeout Rates on Pari-Mutuel Wagering Were Drastically Reduced?” September 6, 2013.

“The Withering of U. S. Pari-Mutuel Handle,” August 30, 2013.

“Pari-Mutuel Handle, Purses, and Yearling Auction Prices, August 23, 2013.

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Fact: Pari-mutuel wagering on horse racing in North America peaked at $15.942 billion in 2003 and fell to $11.571 billion in 2012, a decline of 27.4% without accounting for the effects of inflation. It would take handle of $20.263 billion in 2013 just to be comparable to handle of $15.942 billion in 2003. Viewed thusly, handle in real (inflation-adjusted terms) has decreased by about 43% in a decade.

Assumption: The subsidies that horse racing presently receive in racino states will eventually be ended by government officials, just as they are being eliminated in Ontario. Pari-mutuel wagering will have to stand on its own.

Fact: The precipitous decline in pari-mutuel wagering in North America has persisted long enough to be classified as a secular trend; if the trend continues, the prognosis is grim.

The Critical Issue: To what extent this trend is a result of new generations of North Americans simply not taking a liking to a centuries-old sport or, alternatively, is a result of an uncompetitive pari-mutuel product is unknown. If the sport of horse racing is becoming a cultural anachronism, then no strategy will save it.

Fact: If the perilous situation for pari-mutuel wagering can be reversed, it will take a significant strategic catalyst.

Assumption: While initiatives like improving customer service at racetracks and ADW facilities, banning race-day medication, and fostering safety for horses and jockeys, are important tactical steps in marketing horse racing, none of them, even in combination, are likely “significant strategic catalysts.”

Assumption: The most likely strategic catalyst is a vastly enhanced potential return on investment for bettors. That requires racetracks and ADW providers to offer a much more compelling value proposition, particularly to large-scale bettors who are acutely aware of takeout percentages on various kinds of gambling products. (Exchange wagering might also be part and parcel of tendering an enticing value proposition.)

Fact: Opinions vary greatly on how sensitive demand for pari-mutuel wagering on horse racing is to changes in takeout rates. In proceeding to determine whose opinion or hypothesis is closer to the truth, the observation of the late British scientist Peter Medawar needs to be kept in mind: “The intensity of the conviction that a hypothesis is true has no bearing on whether it is true or not.” Let the empirical findings decide.

Recommendation: What is needed is for a racetrack or ADW facility to conduct rigorous experiments on the effects of takeout reductions on handle for a protracted period of time, for at least two or three years. The price elasticity of demand needs to be tested for various segments, such as among prolific bettors, casual bettors, etc. (Click here for an example of the type of theory-grounded approach that is necessary.)

Describing how such an experiment could or should be done requires esoteric detail that is beyond the scope of a blog post. However, in an upcoming Horse Racing Business, a very specific organizational modus operandi for conducting the experiment is recommended, including a brief analysis of which existing racetrack/ADW is best suited to undertake the task.

Copyright © 2013 Horse Racing Business

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