ALTERNATIVE GAMING IS A MISNOMER

The phrase alternative gaming is commonly used in the horse-racing industry to refer to forms of gambling besides pari-mutuel wagering, and in particular to the addition of video lottery terminals at racetracks, or racinos. The term is a misnomer.

What base or core service do racetracks provide to customers? Not horse racing. What fundamental or core service do casinos provide? Not blackjack, or poker, etc. The answer is gambling.

Whereas some customers prefer pari-mutuel wagering, others stick with slot machines, while still others are partial to sports betting, or casino table games, or whatever. But the typical person’s main motivation for engaging in any of these is to become involved in a game of skill and/or luck for possible gain and entertainment.

If horse races were held without the opportunity for customers to gamble and if casinos offered no payouts, but instead customers played for fun and recreation, the number of patrons would be relatively small. Consider the sparse gatherings for the preponderance of horse shows.

Without a doubt, some people go to the races for the sheer enjoyment they derive and they do not wager at all or bet very little. But the vast majority of patrons are drawn by the challenge and excitement of gambling.

A product line is a grouping of related offerings. For example, Procter & Gamble has five: Personal & Beauty; House & Home; Health & Wellness; Baby & Family; and Pet Nutrition & Care. Each encompasses numerous individual products and the five product lines together constitute P&G’s product mix. Similarly, a big Las Vegas casino has multiple product lines: Gambling; Entertainment; Food and Liquor; and Retail Shops. Each line entails related offerings. Gambling, for instance, encompasses table games, slot machines, sports betting, and pari-mutuel wagering.

The strategic concepts of product line and product mix account for why so many racetracks are presently in trouble. For many years, racetracks prospered with a very limited product line for the simple reason that they provided the only legal form of gambling. Racing insiders wrongly concluded that the big crowds were at the racetracks because the folks were crazy about horse racing. In fact, most were there to gamble.

As long as racetracks maintained their quasi-monopoly, they were able to do well with a narrow product line, which was win, place, show, and daily double wagering on horse racing. Once competition became increasingly prevalent at casinos and later online, racetracks’ plain vanilla product line was an impediment, although racetracks did add some variety with exotic wagering. It was like Procter & Gamble selling a single brand of soap or Anheuser-Busch tendering only one brand of beer.

Observers rightly concluded that horse racing was stagnant or in decline, but they were wrong about the predominant reason. Customers had not lost interest in the sporting aspect of horse racing; many were never that enamored with it in the first place. They were at the racetrack to gamble…it was the only game in town.

Erstwhile racetrack customers gravitated to other items in the gambling product line, which were only available at casinos. Casinos had a tremendous advantage in that they offered a full line of gambling products (including pari-mutuel wagering), all of which had a much smaller takeout than pari-mutuel wagering. Racetracks were left with pari-mutuel products to take on the casinos, which is like going to a gunfight with a knife.

Had horse racing been a normal industry, unfettered by strict government regulation as to what products its members could offer and when (dates and times of day) they could do so, racetracks would have immediately expanded their offerings to include slots and table games. Racetrack managers are often criticized for their lack of creativity, but it is difficult or impossible to be innovative when you have government telling you what products you can offer. Not even marketing-juggernaut consumer-product companies could compete effectively if they could not update and expand their product lines and product mixes.

It is to be expected that racinos and casinos would do better financially than stand-alone pari-mutuel racetracks. Give consumers a choice between a narrow product line and a multiple-item product line, and the latter will usually prevail. A married couple can choose between going to Churchill Downs to bet on horses or travel across the Ohio River to Caesars in Southern Indiana, where an assortment of gaming options are available. Advantage casino because it has more to offer to both spouses.

Government prohibition of competition for racetracks stimulated racing’s halcyon days and government restriction of expanded gambling at racetracks caused hard times today. The racetrack managers of yesteryear were no smarter about operating than the managers of this era. They were just lucky that their micro product line had little competition.

The staunchest supporters of horse racing do not want to hear it, but the product at racetracks  is not horses racing around an oval. The underlying offering is not so much sport, but rather, is the sporting proposition of having the chance to win some money. (To a large degree, the same can be said for professional sports like the NFL, NBA, and soccer in Europe.)  Not even Del Mar, Keeneland, and Saratoga at their finest would draw anywhere near the crowds they do now without their customers having the opportunity to collect cash.

In reality, there is no such thing as alternative gaming.

Copyright © 2009 Horse Racing Business

Comments

  1. Interesting proposition and presented well as always. However, do you have any data to support your premise that its Only about gambling. It may be, but the data would be nice to see. Regarding your product line comparison, do the companies you offer as support combine products in a line that compete with the other? I think not. I think they most likely compliment each other in order to boost company sales and profit. If this true (and I don’t know) what would be the products that racetracks should offer that would compliment each other. Data show that with little or no crossover between slots/VLTs and pari-mutual wagering, these are not complimentary products in a product line. Are they? I am interested in your thoughts and continued discussion on this critical issue for our industry.

  2. bill shanklin says

    Insightful questions, Michael. Companies definitely offer products within product lines that compete with one another. For example, Procter & Gamble (many soaps), General Motors (many similar cars, maybe too similar), and pharmaceutical firms (multiple drugs for the same application). Goodyear offers both the Goodyear brand and the Kelly brand, plus they make tires for many private branders. Will write a follow-up article in the future addressing your other questions.

  3. ratherrapid says

    mr. amo if your will google the attendance at Ak Sar Ben(Omaha) pre and post casino gambling in Council Bluffs you will have your data. 10-20000 per weekend day down to 3-4000 and thereafter on down.

    I hope that Mr. Shanklin will continue with this line of analysis since it is so patently obvious, although I’d want a copy express delivery to the NTRA.

    Can we possibly look forward to a post concerning internet betting on horse racing, and whether that is the future, and if so, some suggestions on promotion. Seems to me this is the path since we have a sport made for that medium.

  4. Michael Cusortelli says

    Bill, thank you for sharing your insights with us.

    However, I have to disagree with you on one point. Governments don’t tell racetrack operators what products they can offer. Track operators come up with the ideas, then go to the state racing commissions to get their approval.

  5. Nick Skias says

    Great article, however I disagree with the one response that the state racing commissions give their approval for any ideas the track operators come up with. Although they can give their approval, it is only with the “guidance” of the state governments, which can be somewhat burdonsome.
    Would love to see followup on this article.

  6. sydney nignog says

    (part of comment edited out)..the large crowds drawn to see the ky derby, BC, Rachael Alexander, Zenyetta are not there just to bet. they are attracted to an upscale presentation of the sport and relish the pure competition. The writer doesn’t realize that we have attracted many new bettors and have lost fans due to the seedy presentations under the guise of sport. Europe enjoys the true form of the game without a crutch.

  7. bill shanklin says

    To the writer sidney nignog: I did not say that people are there “just to bet.” I qualified what I said with the following sentence: “Without a doubt, some people go to the races for the sheer enjoyment they derive and they do not wager at all or bet very little. But the vast majority of patrons are drawn by the challenge and excitement of gambling.” I stand by that statement because it is supported by the evidence. The examples you give , “the Ky. Derby, BC, Rachel Alexander, Zenyatta,” are exceptions that prove the rule. The point of the article is that racing’s very narrow product line is a distinct competitive disadvantage. That is no doubt why Churchill Downs has launched an entertainment division with former track president Steve Sexton in charge. This division has already lined up some named entertainers for concerts.

    Your views are always welcome. Thanks.

  8. Your point underlines the lack of unified vision that has plagued this industry for years. Until this problem is solved, there will be too may horses pulling the cart in different directions at the same time. Let us hope time does not “run out”.

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