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Tuesday, June 16, 2015

An Illogical Conflict? Do the Math

Several people recently commented how they couldn't understand why two tracks owned by the same operator are competing against each other on Sunday afternoons, especially when they race in the same state.  Wouldn't it make sense for one track to race Sunday nights when there are fewer tracks operating, and get a larger portion of the simulcasting dollars available?

Of course, they are talking about Tioga and Vernon Downs.  Vernon Downs used to race on Thursday nights, but this year they dropped Thursdays in favor of Sunday afternoons which is when Tioga Downs traditionally races.  On the surface, the arguments presented by those who can't understand the conflicting tracks make sense; when you do the math, the decision to 'compete' makes perfect sense.

After checking, I was reminded the first premise at Tioga and Vernon Downs is to support and grow the live racing experience.  As a result, it is more important to present racing which people can attend and experience, hopefully growing new fans now and in the future.  Obviously, more people can and have been attending racing on Sunday afternoon at Vernon than they were on Thursday evenings and it is reflected in the growth in handle.

In addition, being racinos, larger racing crowds benefits the other amenities the properties have.  While few slot players become horse racing players, those who play the horses are often willing to play the slots which means more wagering on the gaming floor occurs when there are live racing cards.  Not only does it increase the amount of money played on the gaming floor, increased attendance at the track results in increased food and beverage sales be it at the concession stands or at one of the facility's restaurants; increases which wouldn't be seen if Vernon raced on a Tuesday or Wednesday evening to avoid the conflicting with Tioga on Sundays.

Now is time for the real math, wagering.  It was suggested a track would benefit by racing on Sunday nights, when few tracks are racing.  On the surface, it makes perfect sense, but when you look at the details, it doesn't.  Let's assume Vernon Downs as an example, a Sunday afternoon of racing meant an extra $100,000 bet by those in attendance.  The track and horsemen get an average of 20% combined on what is wagered, so this $100,000 results in an additional $20,000 for the track and horsemen to share.  Being the track and horsemen share 3% on what is wagered at simulcasting locations and ADWs, an additional $666,667 would need to be wagered on Vernon Downs off-track to break even when compared to what is earned by the additional $100,000 in this example wagered on track; assuming the off-track would increase this amount.  To come out ahead, even more money would need to be wagered off-track.  Being this increase would mostly come at the expense of Balmoral Park the odds of Vernon Downs being able to reach the break-even point is highly unlikely.  Hence, racing on a Sunday night, Vernon Downs would face a trifecta of losses; less money for the track and horsemen; less money in food and beverage sales; less money wagered on the gaming floor.

More important than seeing the business case for Vernon competing against Tioga on Sundays, the situation shows how flawed the current method of determining how much a sending track gets from ADWs is.  With tracks receiving so little for their signal, why should they worry about issues like too many tracks racing at the same time, especially when they are racinos which have the means to increase revenue from other sources such as alternate gaming and food and beverage sales?

When tracks (and horsemen) are able to earn a fair amount for their signals, then you will see more cooperation in scheduling racing to avoid an oversupply of product on the simulcast market.  Until then, each track will schedule their racing calendar to meet their own needs regardless of who else is or isn't racing.

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