FROM BLOCKBUSTER TO BROKE

Blockbuster Inc. was founded on October 19, 1985 and became a resounding success.  Nearly twenty five years later, the Wall Street Journal headline was attention grabbing:  “Blockbuster Reel Nears End On Its Bankruptcy Filing.”  The first paragraph of the ensuing article read:  “Blockbuster Inc. is in the final stages of preparing a long-awaited bankruptcy filing, marking a milestone in consumers’ shift away from brick-and-mortar video stores to films delivered by mail and the Internet.”

Blockbuster, staggering under a mountain of debt, has closed 1,000 stores and plans to shutter another 500 to 800.  Its stock has been delisted and trades for pennies on the Pink Sheets market that is the financial equivalent of the old wild west. 

The company’s proposed turnaround plan in Chapter 11 bankruptcy is to keep open a small number of stores in certain attractive locations and otherwise to concentrate on digital distribution.  With heavyweights like Netflix and cable television providers in the fray, this may be too little too late.

In the days before there was a Netflix and mass access to the Internet, a local Blockbuster store was a convenient way for a consumer to pick up a movie and return it in a couple of days.  Now most of those stores are vacant, vestiges of the not-too-distant past, and a reminder of what can happen to any business whose core product can be delivered electronically.

Racetracks have been similarly disrupted by the Internet.  On-track attendance at physical locations has generally plummeted, as bettors opt to watch on TVG or on an advance-deposit-wagering Web site.  Betting is usually possible from anywhere there is an Internet connection.  The New York City OTB found itself in a similar situation to Blockbuster–vulnerable to ADW companies.

Fortunately, there is a fundamental difference between the outmoded Blockbuster business model and the traditional racetrack model.  Blockbuster never provided entertainment; the only reason a customer visited a Blockbuster store was to rent or buy a movie.  By contrast, racetracks can offer entertainment to fans preferring to experience the sport up close.

Del Mar, Keeneland,  and Saratoga are exemplars of entertainment-oriented racetracks that can draw an on-track “sporting” crowd as well as cater to gamblers, both at the racetrack and via phone and the Internet.  However, many and perhaps most racetracks do not have the ingredients to become entertainment magnets for fans. 

For this reason, such racetracks will continually have to make their signals attractive to remote bettors or else go the way of the vast majority of Blockbuster stores.  Just as customers no longer need to visit a tangible store to rent a movie, bettors need not set foot on a racetrack to consummate transactions. 

The end game almost certainly will be a market-dictated downsizing of the number of racetracks.  Market equilibrium will be reached when there are just enough racetracks to feed the demand for remote wagering. 

Copyright ©2010 Horse Racing Business

Republished by permission from the Blood-Horse

Comments

  1. Bill,

    Another insightful analysis of the components that make racing fascinating but also a very complicated game.

    The racetracks that survive will need to step up their game in serious fashion, but this is something they can do. Just think of the number of potential fans and gamblers who simply cannot go to a track for the afternoon, and the track or racing-entertainment company that can put together the best package one can enjoy from the office, the boardroom, the golf course, the farm, the cockpit, or the gas station will reap the benefits in years to come.

    The Racing Form has migrated much of its demand onto the internet through interactive services and immediate delivery of past performances. Gone are the days when a racing fan was shut out because his local Form outlet sold the last copy 15 minutes before. They never run out online.

    Best regards,
    Frank

  2. Concerned observer says

    This is a very complex discussion. There is a large group of racing people that think we must have fewer tracks, fewer days of racing and higher quality races. The assumption is that the bettors will bet more per race on the remaining races and thereby make tracks more financially stable. But the data from last year, 2009 vs 2010 shows Racing days down 7.8%, Handle down 7.2% and purses down 6.2%. Many of the less racing days came from medium or high quality tracks like Monmouth and Churchill Downs. The real data suggests that the “less is more” strategy may not work as well in real life as in theory. By the way, it appears that Monmouths big handle increases did not cover the extra cost of larger purses….not a sustainable business model.

  3. Bill,

    It’s certainly a plausible scenario that many of the current second and third tier tracks will eventually go away, with or without gaming subsidies. Many advocates of broad contraction consider this a positive development, perhaps related to the “less is more” strategy.

    But I think the scenario is sobering. As it is, Thoroughbred racing exists on the fringes of public awareness. A sharp reduction in the number of racetracks represents far fewer opportunities for a potential customer to make contact with the “brand”.

    I would speculate (because I doubt any hard research exists) that most core fans and customers today were introduced to the sport through a live racing venue experience. If the industry cannot create customers with the live racing venues that we currently have, how will they do so with far fewer?

    It’s a big subject (and probably best saved for another day) but I must wonder if management at racetracks with eroding live attendance have tried everything in their arsenal to convert their deserted grandstands into appealing social venues? While aspirations to become like the big-3 destination racetracks of Saratoga, Del Mar, and Keeneland are unrealistic, maybe taking steps to rebrand as a social venue is not too far-fetched in many cases.

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