Is Incremental Change Enough? - By Nick Willet

(Originally published in the April 9, 2011 issue of The Blood-Horse magazine. Feel free to share your own thoughts and opinions at the bottom of the column.)  

A recent article by Tom LaMarra noted a third consecutive yearly drop in gross purses due to declines in handle  (The Blood-Horse of March 12, page 616). The percent change bar graph accompanying the article shows a large number of positive green bars followed by three troubling negative red bars that coincide with a steep recession that began late in the last decade. Given the concerning numbers, one would hope as the country’s economic outlook improves the outlook for racing would improve as well.

If you look closely at all the figures, however, and adjust them for inflation, you find that current gross purse figures are well below those of the earliest year cited (1989). Given the advent of slot revenue and an explosive growth in online wagering, it seems horse racing’s percentage of a growing pie is getting continually smaller.

As noted in the article, the industry must pull out all the stops not just to save the game—for I am sure horse racing will be around in the decades to come—but to ensure it remains a viable sport in the eyes of most Americans. It seems, though, that the remedies discussed never involve disruptive change.

Twenty years ago we were talking about the complexity of the game and the need for racetracks to promote fan education. Today you hear the same argument, and I believe you’ll hear it 20 years from now. In the meantime, millions of new baseball, football, and basketball fans have educated themselves on the complexities of statistics in the mushrooming pastime of fantasy sports.

If you create a compelling game, your fans will educate themselves to gain an edge. Anyone who has adjusted starting pitching for team defense and the effects of ballparks realizes this is as complicated as anything in racing. Millions of poker players pore over an endless array of strategy options in a game that has attained an unexpected explosion in popularity. Twenty-year-olds have played millions of computer hands to gain the kind of betting experience that once took decades.

For generations, horse racing has enjoyed the unique protection of being almost the only legal way to gamble in most states. Technology continues to change this in meaningful ways, but anything that is new or doesn’t look like a small incremental improvement is seen as a threat to be driven away.

In looking at the threat of betting exchanges, wouldn’t it be in the best interest of racing’s players to find a way to make it work? A chief complaint I hear from friends who are sports gamblers, day traders, or poker players is there is not enough action in horse racing. Anyone who has bet on an exchange realizes it allows you not only to fix your odds but to generate a profit during the entire betting period through the end of the race. You can win before the race is even run. It is complex and appealing. Isn’t this the fan whom racing is looking for? Haven’t people who gamble just to gamble gravitated to slot machines and lotteries?

Steven Crist has lamented each year the inability to bet every possible entrant in Kentucky Derby future pools. He has even joked there is probably a glut of teenage programmers with the technological ability to make this happen. As a database programmer, I have no doubt this is true because I have seen almost nothing that can’t be done programmatically. As a lifelong investor, I know in order for an expanded future pool to happen it must be economically feasible for the parties involved to make this kind of change.

As an industry, horse racing has to ask itself if a technologically advanced futures pool is worth the effort. Financial firms such as Cantor Fitzgerald have embraced the concept of applying financial technology to gambling. Technological approaches will rule the future of all forms of gambling. Will they be embraced or ignored?

I am well aware many of the participants in racing struggle to earn a living at a job they devote seven days a week to. I know that change for many people in the past has meant making do with even less and has made them wary. If the game is to grow again, however, it will take more than incremental steps along a well-beaten path. 

Nick Willett is a database consultant based in western New York who has followed Thoroughbred racing for more than 30 years.

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