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.

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