RACETRACK EXECUTIVES’ UNFORTUNATE RELUCTANCE TO EXPERIMENT WITH TAKEOUT

The title of the article on the September 3rd edition of NJ.com was ominous:  “As Atlantic City casinos close, ghost town replaces boardwalk empire.”  Mark Di Ionno of The Star Ledger summarized the damage to the economy.

“The Showboat closed Sunday and next door neighbor Revel closed Monday, taking with them about 4,000 jobs, leaving the north end of the boardwalk a ghost town.  Trump Plaza, which is connected to the famed Boardwalk Hall, will close Sept. 16, after the Miss America pageant…When Trump Plaza closes, the workforce casualties will rise to nearly 6,000, about 20 percent of Atlantic City’s hospitality workforce.

The all-time high revenue of $5.2 billion from eight years ago has fallen by 50 percent, eroded by out-of-state competition, sometimes brought on by the very same companies that built up Atlantic City.”

One report estimated that New Jersey will have to dramatically raise already high property taxes to compensate for lost casino business in Atlantic City.

Horse racing has also been markedly impacted by the intensifying competition that has eviscerated Atlantic City—competition from both physical casinos and online virtual casinos.  But the retailers of horse racing have inexplicably mostly ignored the problem that threatens their very existence by stubbornly sticking with uncompetitive takeout percentages on bets, and in some cases actually raising takeout rates in the face of flagging demand.  Sure, they provide incentives to bigger bettors, but that does nothing to cultivate new players.

The frustrating aspect of the lack of action by racetracks (and advance deposit wagering firms) on takeout is that the executives in charge don’t seem to realize that they don’t have to go all in to test the effects of takeout reductions on betting handle.  Major consumer products companies routinely test market new offerings in representative cities before going national or global.  Products that test poorly are either corrected for deficiencies or aborted.

It would be relatively simple for racetracks and ADWs to experiment with takeout reductions in limited ways to discern rates on straight bets and exotics that maximize profitability.  The conclusion here is that management either does not know how to do test marketing or fear that doing so will somehow damage financial performance.  As a result, the takeout conundrum goes on, and the pari-mutuel product increasingly loses ground in the gambling market.  The downturn may not be as steep and abrupt as in Atlantic City, but the trajectory is similar.

Copyright © 2014 Horse Racing Business

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