Technology and the Racing Fan - By Eugene Chistiansen

(Originally published in the October 23, 2010 issue of The Blood-Horse magazine. Feel free to share your own thoughts and opinions at the bottom of the column.)

Once upon a time, racetrack clubhouses and grandstands were filled with bettors. Offtrack betting, advance deposit wagering, competing forms of gambling, and broad changes in American society emptied them. In California and New Jersey a new wagering technology looms: exchange betting.

Going into what might be racing’s final turn, tracks and horsemen instinctively circle the wagons, but will opposing exchange wagering restore racing’s lost attendance?  
It will not.

Wagering away from the track, bitterly opposed by racing in the ’70s and ’80s, is now its only growth engine. Those numbers say people want to bet where it’s convenient for them to bet. Emulating the “Party of No” isn’t going to bring anybody back to the track. Making racetracks special places will. This year Monmouth offered a great experience—a short meet in the fresh summer air with high-quality horses running for large purses—and people turned out in record numbers. Saratoga has been a great experience since 1863. It was packed this year. A lot of the folks who filled Monmouth and Saratoga this summer bet through their computers all year round, but these tracks were selling something websites and OTB offices and casinos and lotteries can’t match. People logged off and went to the track—not to a casino, not to a racino, but to racetracks conducting live racing and nothing else. Good racing and Internet betting are synergistic, not competitive. Racing doesn’t have to be a zero-sum game.

What else do people want? They want convenience. They want low prices. They want a game that is easy to learn and involving to play. And they want it online.

Exchange wagering fits that description. 

Betting exchanges are similar to stock exchanges. People who trade stocks get it right away. It’s easy to get started, and there’s a lot to keep you interested. Exchanges offer bets pari-mutuels don’t, including in-running betting, which is popular, and betting horses to lose, which is controversial but likewise popular. And exchanges are cheap. Betfair, the world’s largest exchange, charges a commission of 2% to 5% of winnings on accounts held in the United Kingdom: This pricing structure doesn’t easily equate to percentages taken out of pari-mutuel handle but is cheaper than betting with rebate shops and moves the price of betting horses closer to the price of betting sports such as American football.

It works like a house afire. Exchanges rejuvenated horse race betting in the United Kingdom and in Australia. They drew new consumers into both markets—without reducing pari-mutuel Thoroughbred handle, which rose in both countries following the opening of Betfair’s exchange.

Racing is at a crossroads. One road gives up on racing and stakes the industry’s future on casino games. Many industry leaders are walking down this road. Is it the right road? That depends. If the goal is revenue in the short term, VLTs do the job. But if the goal is making new racing fans, this road leads to extinction. Betting horses and playing casino machines are unrelated activities. VLTs mean empty grandstands.

Finding ways to attract new horseplayers is the other road. Racing’s business model is broken. Pari-mutuel machines built racetracks, but pari-mutuel machines are no longer able to support the racing industry. Last year casino gaming funded almost 29% of total U.S. Thoroughbred purses. That money is a reflection of consumer demand for casino games, not betting on horse races.

Pari-mutuel betting is complicated. Its learning curve is long and steep and discourages beginners. Its language is arcane, and its statistics are impenetrable to all but seasoned handicappers. And it is very expensive: its effective average takeout of 21% is twice the price of offshore rebate shops and five times the price of fixed-odds sports betting. Outside of a dwindling hard core of dedicated horseplayers, people aren’t interested in it anymore, for reasons that are hard to do anything about.

More than anything else, racing needs something that re-ignites interest in betting on horse races. Betting exchanges break through the wall of indifference that separates racing from the mass of ordinary people. Consumers like exchanges. In the United Kingdom and in Australia, exchanges have stimulated new interest in betting on the sport. Making new horseplayers should be racing’s first priority. It’s an investment in racing’s future. That is the best argument for exchange betting.

Eugene Christiansen is the founder of Christiansen Capital Advisors. He is also an adviser to Betfair.

14 Comments

Leave a Comment:

Patrick

Does this count as a paid advertisement?

19 Oct 2010 2:40 PM
patti d.

I am amazed that we have this great race mare making history and not more has been made of her accomplishments.  And I think the so-called "sports media and horse racing specialists" are largely to blame for what has gone on during her fabulous career.  

Penny Chenery said it best after the Lady's Secret when she said to the Mosses "I had the boy and you have the girl".  At least she recognizes greatness when she sees it.

And when Zenyatta blows by all the boys in the Classic this year, maybe she will finally get her due.  We won't see one like her for a very long time, if ever.

19 Oct 2010 4:01 PM
patti d.

sorry, posted my comment to the wrong article.

19 Oct 2010 4:23 PM
Brian Russell

As I gambler I would absolutely welcome exchange betting.  How many times have you seen a 7-5 shot that you knew for a near fact could not win but took the wrong one or ones to beat him?  However, the UK comparion is not a good one as even their traditional sources of funding are flawed.  How would you like to win a straight maiden at Saratoga and get $8,000?  That's about what you get at Newmarket.  The commission needs to be SLIGHTLY higher in order to give more to purses but this is a good idea and will produce incremental handle as half or more of the bets placed would not bet in the pari-mutual pools anyhow and, remember, this is only straight betting.  Therefore, the exotics pools should not negatively impacted.

19 Oct 2010 7:02 PM
Ted

While I have no argument with the essential theme of the article being based in Australia and monitoring the UK, can the author answer if betting exchanges are the saviour of the industry why is the racing in the latter struggling and why is it showing similar signs in the former with the whole fabric of prizemoney, and hence a major driver of breeding and employment, under attack by low margin operators and those who support them ignoring the fact that as substitutes they can never replace the funding vomumes from  pari mutuel. Also the prices faced under pari mutuel are not determined until after the race is run so what does this say about demand for the products in particular the products which are not offered by the low margin bookies and exchanges?

19 Oct 2010 9:29 PM
John H

Thanks for the ideas but racing in the USA needs the following:

Want to solve racing's "newcomer to racing" issue? Simplify!

* Make all bets $1.00.

* Simplify the Totalizator board. All odds should be replaced with the payoff on a $1.00 bet. How many people these days can divide fractions in their heads? That's so 1940 anyhow.

* Simplify the bet types (names). Take a survey of non-bettors. Go with the consensus names for straight and exotic bets.

Want to solve the loss of repeat bettors?

* Trim the takeout to 10 per cent for all payoffs! Churn is your best friend. Ask Las Vegas.

* Payoff to the nearest dime or better yet, a nickel! The current 20 cent "breakage" adds to the takeout and reduces churn.

Want to stop turning off the younger bettors when horses die on the track?

* Stop using pain killing and performance enhancing drugs. Yes, that includes Bute and Lasix. Run a thoroughbred through the pain on those spindley legs and it's crash and burn.

What's the chance of all the fiefdoms (tracks and states) doing any of this?

* Nada. That's too bad. Racing in the USA HAS to change to survive.

One other thing. When I have to handicap horses based upon the trainer's ability to drug horses without being caught, it puts a bad taste in my mouth.

How about a second thing? When I see a Kentucky Derby winner (Ferdinand) being carved up for pet food in Japan and I see old thoroughbreds being sent to slaughter houses here and Mexico, how can I feel good about supporting the racing industry by betting on their horses?

And don't even get me started on inconsistent steward calls or allowing "permanently" banned jockeys to return to racing. Where's that barf bag?

Knowing the players in this game, the rebuttals to these ideas will be to maintain the status quo and that will be the end of USA  thoroughbred racing, sooner rather than later.

19 Oct 2010 11:16 PM
Joseph A. Pardi

The Race Tracks in the United States have a big problem because it is like everything Else in this United States that we live in. We have the (Haves) the Tracks with Slots and the (Have Nots)Tracks that have none. And once the Tracks get them,Racing become something they now want to go away. Now I hear a lot about BetFair and I can see there point about pari-mutuel because I have been doing business in Mexico and  Lima Peru and manny other place where THE Company that books all of the Track in the USA can give the Betting Shops more money than betting through the pari-mutuel system. We all know that if a big player put $10,000.00 to win on a horse the ODDS go down and if That same player bet with a Bookie the ODDS stay the same. And the Player is happy because of the bigger payoff. So lets give the Player a choice pari-mutuel or book. And put  a take out on the winning amount. OK now I have many thing to say about Racing I just gave you one and this is my last one. Lets put people from our Industry in Management because it is what you know not WHO you know so lets keep Laywers and Accountanta OUT of The Genneral Manager Job and you will see things change.(dont mind the spelling I dont have my glasses)Joe

19 Oct 2010 11:50 PM
David

Churchill Downs attempted a few bets back in the 90’s most everyone got a chuckle – “even/odd” and “roulette”.  The Kentucky Derby “Future Book Wager” projects were (and are) no more than conversation pieces.  Perhaps these concepts weren’t flawed as the system they were forced to adapt – pari-mutuel.  Mr. Christiansen makes the point the only ‘price’ of implementing exchange betting is possibly a few points of otherwise dwindling profit during ramp-up (though cannibalization of dollars that would have gone into pari-mutuel pools).  In fact that would be the only logical reason to object to something that could help stem and reverse steady declines.  Most in racing are so punch drunk, however, that even a near guarantee of incremental gain won’t justify even short-term exposure to make it happen.  Maybe a new philosophy should be “if you ain’t got nothing, you can’t lose ‘nothin . . . let give it a go”.  The reality is that the racing industry is contracting which, while traumatic, is inevitably what many other industries have similarly dealt.   Is it finally time to get over the anger and resignation stage and move on to possible solutions?

20 Oct 2010 1:18 PM
Longacres 1988

Ignoring Mr. Christiansen´s major conflict of interest here, there are some major fallacies in his piece:

A) Exchange betting is hardly "easy to learn" and is counterintuitive to the American handicapper brought up on pari-mutuel. Exchange betting took off in the UK and Australia because they have a bookmaking trading, not pari-mutuel. If you don´t believe me, try explaining the concept of Back and Lay to someone.

B) There is no negation of the learning curve of handicapping with Exchange betting. User still need to do their homework.

C) Exchange betting requires liquidity unlike pari-mutuel , which can exist with very small pools. Small tracks especially will be affected by a lack of liquidity. Unlike pari-mutuel, all funds must be matched (you need some other player to take your bet, not the track).

D) Exchange betting is mostly dominated by very sharp players, and "amateurs" quickly get eaten up in this environment. I have personally seen this with the advent of Betfair in Australia, where a few bookmakers became the largest players in the Betfair markets.

The answer is technology (the Racing Industry´s snail-pace acceptance of online betting), but silver bullet may not be Betfair.

20 Oct 2010 1:28 PM
Barry Meadow

  Exchanges offer the possibility of increasing handle.  In many races, I can bet on an exchange despite having nothing to bet through the tote.  A few examples:

  1. I like three horses in a six-h race, but they're 9-5, 2-1, and 5-2, so no edge in any pools.  But I can play against the other entrants.

  2. I don't like the 8-5 favorite but I have no clear opinion as to who might win.  I can bet against him.

  3.  I need 3-1 to bet a particular horse to win.  At the track, he's 5-2, so no play.  On an exchange, he's 4-1, so I can bet him on the exchange.

  I can give many more examples, but the point is that my handle would grow exponentially if a legal, nationwide exchange with sufficient liquidity were available.    

21 Oct 2010 3:30 AM
David

I think even less seasoned players not in the early adopter category can appreciate why segments would (and do) embrace the Exchange model.  The issue is to get a platform used to paying virtually nothing for content together with an industry accustomed to producing a product requiring higher margins.  Looks as if each will have to give a bit to see if actual behavior will match the forecasts.  Good luck on that one.

21 Oct 2010 3:02 PM
AgnesWorld

I'm sorry....but I am the only one that feels like their intelligence has just been truly insulted?

Typical for someone who is a "adviser" to one of the largest exchanges in the world, Mr Christiansen has failed to mention a couple of points about exchange wagering, in particular Betfair.

Betfair, and for that matter any other exchange has not paid a fee remotely close to helping sustain the industry that it relies on. Mr Christiansen mentions Australia and the UK as industries "rejuvenated" by exchange wagering. Nothing could be further from the truth and he should be thoroughly ashamed of himself for making such a statement.

UK racing is on its knees and about to drop dead through the lack of funding from bookmakers and exchange operators who have shown no interest to date in paying what is a fair price for the product that they bet on. Sure they pay something, but they refuse to pay what the people that put on the show want them to. Sort of like walking into a store and saying "I know you want $5 for this but I am giving you $1" taking the goods and walking out of the store. Since when does a customer set the price they pay for something? Now to avoid payments all-together bookmakers and exchange wagering operators in the UK are moving offshore to avoid paying anything!

Equally, when Betfair launched in Australia they made a big song and dance about how they would support the racing industry and found the weakest link/state to do it (Tasmania). They started with a 10% gross profit payment (they should be paying on turnover), but this year they renegotiated a new licence to reduce the tax on betting exchanges to 5% of gross revenues. Basically they said to the Tasmanian Govt, we are only going to be here if you give us 5% or we are moving to another state to do business. The decision to renew coincided with an ongoing legal case begun in October a year ago when Betfair issued proceedings in New South Wales against two racing bodies, Racing NSW and Harness Racing NSW, claiming that the 1.5% product fee imposed on the turnover of wagering operators wishing to cover racing in the state is anti-competitive! When a state board set the price for their product, Betfair took them to court!

Betfair do some good things like bring in decimal odds which is great for the younger crowd but don't for one minute think that they are going to rejuvenate racing here. They will find the weakest state, that needs the money the most, and do a deal which suits them and their bottom line and suck racing until purses are so anemic that owners just give up (if they haven't already!) and if they don't get their way, they will sue. They are litigious as it comes, make no mistake about it.

Looks like it is a race between CA and NJ as to who lets them through the door after TVG proved the trojan horse to open it. Good luck trying to get them to pay their way.

25 Oct 2010 10:14 PM
John August West

  Whatever legitimate arguments Eugene Christiansen had to advance about exchange wagering were undermined by his untruthful characterizations of pari-mutual betting.  

  He claimed it's complicated with a long, steep learning curve.  What? A win bet is complicated?  Or, even an exacta, daily double or Pick 3?  Sure... about as complicated as third-grade addition and subtraction.

  He also said pari-mutual betting's "statistics" are impenetrable to all but seasoned handicappers.  Huh?  That may apply to picking winners, but has not a thing to do with placing a bet -- whether on an exchange, or pari-mutually..

  I would think an adviser to Betfair -- which Mr. Christiansen admitted he was -- would have been able to come up with a much more professional -- and factually grounded -- promo (which is all that column was).

26 Oct 2010 2:52 PM
Kathy Kranz

I keep remembering Mr. Christiansen's article every time I see continuing updates on the events surrounding Life At Ten.  I also remember a letter someone had written to the editor in recent years:  You can't make sure a horse wins a race, but you can definitely make sure one loses.  I'm NOT inferring such goings on with Life At Ten, not by any means.  Hers seems to have been a case of bad judgment.  The bottom line is, a lot of money was wagered on her and wasn't lost in the usual manner.

Betfair...odd name.

24 Nov 2010 10:52 AM

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