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Friday, March 16, 2012

The Racino Era is Drawing to a Close

Here ye, Here ye, "The Racino Era is Drawing to a Close".  Remember when we told ourselves that we needed slot machines as a temporary band-aid to fix the racing industry?  Many of us forgot the fact it was to be temporary assistance and we are now being reminded of it.  With Ontario, perhaps the most pro-racing state/provincem, declaring the end of the Slots at Racetrack program; Pennsylvania looking to redirect some of racing's share for their own use; casino companies and your fellow racinos pouring money into neighboring states to prevent non-racino states from approving new racinos as they realize we have reached a saturation point to prevent dilution, it is clear to those who can look clearly that we have past the peak for racinos.  Granted, there may be a few victories for racing, but it is akin to buying a house just past the peak of  the housing bubble, before anyone realizes the bubble has completely burst; any victory will be short-lived.

This being said, it would serve well for those who do not have the slots to abandon their pursuit and prepare for living without them.  It would also benefit those who have the machines to start planning for a so-called divorce from them.  Racinos as far as racing is concerned, are going to become casinos.  Some horsemen may be tossed out of their 'slot machine marital home' but this will not be avoided.  There may be some short term avoidance of the divorce but sooner or later you're going to get kicked out of the house.

So what does the racing and breeding industry need to do?  First, accept the fact your meal ticket is being revoked.  Times are going to get tough.  As employees of the Meadowlands had to accept a 20% cut in their salaries to maintain their jobs, horsemen, breeders and owners need to recognize there will be sacrifices coming, some of it painful.  Some people are going to be displaced from the overall racing industry.  It can't be avoided as it like a patient who has been recently diagnosed with cancer, you need to remove part of the body in order to save the overall life of the person.  However, the coming end of the racino industry does not need to be the end of racing; in the long run there can be a healthy, vibrant industry if we are willing to work at it.

As previously discussed, there needs to be some fundamental organizational changes; there is no need to discuss them again.  Let's look at some additional things need to be done.

  • Time to compete against the slots - Get rid of the attitude that we can't compete against the slot machines.  We can compete against them if we want and are willing to.
  • Takeouts need to be slashed (aka Handle Matter) - The only way you can seriously compete against slots and other casino games is by reducing the takeout by slashing them.  Hialeah Park had the idea this year when they reduced their takeout rates to 12% across the board.  No need to have different prices for different types of wagers; the gambler is still buying the same product.  The only way to win back gamblers from casinos is to offer a product which is similarly priced.  Yes, I realize we can never get to the same price they offer on slots, but we can certainly try to get as close to them as possible.  Do we have to get to the final pricing overnight?  No, but we need to expect to get there within five years of starting.  In order to do this, there needs to be shared pain which means...
  • Cut purses - Initially, purses are going to have to be cut, deeply.  Day one of the takeout cuts, a slew of gamblers are not going to come running back to the track; we need to win them back which is going to take some time.  As a result, the handle will not increase day one to recover the cuts in the takeout, but as time goes on and people see that racing is becoming a better value than it once was and it is not a temporary gimmick, people will start to return and bet more.  We need to remember we acted like we were the only game in town so there is ill will with the gambler; we need to earn their trust back.
  • Cut (not eliminate) breeder awards and sires stakes purses - Remember shared sacrifice?  If you look at what makes up your takeout rate, you will see that a percentage of the handle is dedicated to these programs.  We can't get takeout rates where we need to get them without cutting contributions to these programs.  Once the business begins to recover, they will be able to share in the upswing as well.  Volume (churn) will make up for it.
  • Prices paid to supporting industries will need to be cut -  The cost of vet services, feed, blacksmith, horses and equipment will be forced into price reductions.  It is plain math; if you earn less you must pay less.  Those who refuse to cut their prices will be forced out and those who cut their prices will be able to prosper.  It will require consolidation, doing things smart (economies of scale), institute technology where possible, and creativity such as breeders developing a non-racing market for horses that are not race worthy (pleasure and show horses).  It will also mean trainers will be forced to use more horsemanship than 'alternative therapries'.  Basically, all industries supporting racing will experience a deflationary period, but in the end, those who remain should do better.
  • Embrace new wagering platforms - Hello exchange wagering.  No sense fighting it.  Get those individuals who do things like day trading involved in the game and permit in-race wagering where people can bet up to the time the results are declared official.  Churn is a wonderful thing.
  • Embrace longer races - It is quite simple, with in-race wagering, the more time a race takes to complete, the more wagering can take place.  Volume and churn matters and you need to do whatever you can do to stimulate wagering volume.  Brokerage houses make money on those $9.99 trades because there are a lot more of those trades than there are of traditional retail trades.  The concept applies here.
  • Alternative Entertainment Options - Tracks have bills to pay.  They need to expand into alternative entertainment options.  Look at what the NJTHA is trying to do with Monmouth Park; they got the idea right.   
  • Not Every Track Needs to be a Palace (Studio Racing) - With the majority of wagering being done off-track, there is no need to have all those fixed costs.  There is nothing wrong with some of those minor leagure tracks razing the grandstand and cater almost exclusively to the off-track gambler.  Have a small open grandstand and a few betting windows and concessions for those who want to come to the track for racing must always welcome a live audience (think Goshen's Historic Track).  The fact remains, racing has primarily become a studio sport.  If you can't offer all the alternative entertainment options, go bare bones.

The future of racing is not that gloomy for those willing to adapt and survive.  Jobs will be lost, there is no doubt about it.  It may become harsh for a while as the shakeout begins, but let's not kid ourselves, there are some trainers and drivers out there who probably wouldn't be able to survive talent-wise if not for slot fueled purses.  Those with ability will be able to remain in the business while those who are not as good will be forced to alternate careers, or will choose not to be in this business if they don't have the natural gift.  This may sound harsh, but does everyone who wants to be a professional ballplayer get to do it?  Why should racing be any different?

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