Wednesday, September 05, 2007

Power Politics, New York Racing Association Big Winners In Franchise Derby

Saratoga Springs, NY--Pete Townsend, of the legendary rock n roll band, The Who, said it best: Meet the new boss, same as the old boss.

And so New York States new Democratic governor, Eliot Spitzer, made a recommendation to have a reconstituted New York Racing Association run racing for the next 30 years.

In exchange, the NYRA would irrevocably relinquish any present and future rights to the ownership of the land upon which Aqueduct, Belmont and Saratoga stands.

As franchise agreements go, 30 years is a lifetime. But before any of that happens, of course, NYRA must clear Chapter 11 bankruptcy so it can pass on clear title of the tracks to the state.

The process, for as long and convoluted as it was and for all the speculation it engendered, ran right to the past performances. The result could not have been any more formful.

In an open letter to Gov. Spitzer on June 22, it was stated that your own past performances indicate you believe in reforming troubled industries through changes in operational procedures and management, and by rewriting bylaws and reconstituting boards.

All these elements were major considerations in a non-binding Memorandum of Understanding between the governors office and the New York Racing Association, Sept. 4.

NYRAs Board of Directors will be reduced from 28 members to 19, 13 existing or new board members plus two appointed by the governor, one each by the leaders of the Assembly and Senate, and one by groups representing horsemen and breeders.

Streamlining and concentration of power isnt usually a bad idea.

For NYRA going forward, the elements contained in the MOU is a sweet deal, certainly not bad for an organization that was hanging on by a thread, but one which got a flood of late money that drove a 50-1 shot down to even money in the final flashes.

No matter how an emotional Charlie Hayward spun the Sept. 4 announcement, this was a big win for NYRA, power politics, and for racing in New York State and beyond.

Provincialism notwithstanding, the thoroughbred market needs a thriving New York the way the NBA needs the Knicks, the NHL the Rangers, and MLB the Yankees and Mets.

In exchange for dropping its suit against a state that suddenly feared it could lose its de jure land claims to a de facto property tax payer of $440 million since 1955 that has physical possession of the deeds.

NYRA played its hand beautifully and made out like a bandit. In its bankruptcy filings, NYRA argued that the state could not take the properties without compensation in violation of the state constitution. Despite earlier protestations to the contrary, the governor acknowledged he feared that in litigation anything was possible.

The terms are that NYRA would receive 4% of the VLT revenue to pay for upgrades and maintenance, 3% for racing operations and up to 6.5% for purses. Projections would be approximately $25 million over present purse levels.

Thats not all. The state would provide NYRA, from projected casino revenue at Aqueduct, up to $75 million to clear Chapter 11 bankruptcy protection and until that revenue flows, that it, or the future casino operator, would provide reasonable and necessary funds to meet operating expenses. The state would also forgive NYRA $130 million in debts.

Predictably, Spitzers plan met with affirmation and opposition, not coincidentally rooted in partisan politics.

Assembly Speaker Sheldon Silver (D-Manhattan) said he was pleased the agreement clarifies the land issue, calls for continued racing at Aqueduct, and a separate franchisee for VLT operations. Assembly Majority Leader Ron Canestrari (D-Cohoes) said he favored separation because Saratoga would be preserved and that the tracks would not be sacrificed for other gambling initiatives.

On the other side of the aisle, Senate Majority Leader Joseph Bruno (R-Brunswick) said the recommendation had a questionable finish after several false starts and promised that the Senate committee on racing would take a very good look at the recommendation at a scheduled meeting Sept 12. Assembly Minority Leader James Tedisco (R-Schenectady) said the governor came up with a half solution to a whole problem and that separating racing from gaming creates competition between the two. And so it goes.

The perceived one-sidedness of the governors recommendation was not lost on the other bidders.

Empire Associates, of which Bruno has known friends and associates as investors, said the recommendation to retain the status quo was bad for horse racing and taxpayers.

Capital Play Ltd. said it would continue trying to convince state leaders it had the best racing and gaming proposal.

Excelsior Associates, the group that won the original Request For Proposals recommended by the Ad Hoc Committee on Racing (appointed by the Pataki administration but whose findings were reconsidered by the sitting governor) had no comment.

The Excelsior group has always taken a low profile approach to the entire process, and now might be regretting it because theyve allowed their political rivals to define who they are.

Excelsiors silence yesterday was deafening. Unless, of course, theres another unknown component. The same sources that were whispering to us months ago and reported on believed then that NYRA would get the franchise and Excelsior would be their gaming partner.

One down, one to go?

Timing is everything. It was widely reported last week how would-be franchisees made political contributions to the Spitzer campaign and how much each spent. There also was reiteration of how Spitzer had the use of Richard Fields private jet, an Excelsior member, to transport him to fundraisers in Kentucky. And how Spitzer later paid for those services.

Given that the governor stated he will recommend in 60 days, with NYRAs input, the gaming franchisee, expect the political in-fighting to begin again in earnest following the Sept. 12 meeting.

Even before it was learned that members of Spitzers staff used State Troopers to find potentially embarrassing information, or worse, on Bruno, the governor found out how difficult it is to get things done in Albany. Last February, Spitzers efforts to appoint a state comptroller went nowhere. Spitzers steamroller never get out of first gear.

And there were other important measures that the governor and legislature failed to agree on. Remaining on the docket are unrelated issues such as changes in campaign finance laws, building projects estimated at $1 billion, and property tax rebates to seniors of $200 million.

Aside from the VLT money earmarked to maintain New York racings continued preeminence under NYRAs auspices, the bulk of the VLT money goes to the State Lottery and its obligation to a school system in dire need of funding.

It would be good if an accord were reached on all these issues without holding racing hostage, that Senator Bruno means what he says about the whole thing being about New York racings preeminence and the 40,000 industry jobs within the state.

Otherwise, Townsend might be inclined to sing a different tune to lawmakers from the people of the State of New York: Were not gonna take it. Never did and never will. We dont have to take it. Gonna break it! Gonna shake it! Lets forget it better still!

Written by John Pricci

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Friday, July 20, 2007

Experiments With Lower Takeout Gaining Momentum

There has been no announcement as to whether the revolution will be televised. What is clear, however, is that the uprising might be coming to a simulcast venue near you.

Reducing parimutuel takeout to increase the bottom line is not a new concept. Its been tried before and has worked when given the right opportunity.

The New York Racing Association, for instance, lowered takeout three times since the 1970s if memory serves. Every time, the trial period resulted in a handle increase.

Keeneland tried it six years ago but its effect was unclear since both of their boutique meets are short in duration and the simulcast venues balked because they thought they would lose money and failed to buy the signal.

In the short term, they would be right. And since executives are paid for what theyve done lately and state houses shutter when any revenue shortfall fails to meet their bloated projections, the concept often doesnt get a fair shake.

Takeout is too high but politicians will pay lip service to lowering taxes and supply-side theory only when it suits their campaigns. But they just refuse to get it when it comes to the hold on parimutuel wagers.

The states believe that the revenue generated from wagering gives them a right to tax tracks, OTBs and horseplayers at a far higher rate than anyone else. The concept of churn is lost on them.

Then how do we know that when more money is returned to winning bettors the more they bet in return? Because every serious study proved it.

Instead, politicians and myopic track operators look at the bottom line and figure that low takeout is bad for profits as if the systems inefficiencies have nothing to do with it. Some OTBs even overtly campaign for a higher take.

But the tide may be turning. When the Ellis Park meeting opened recently, new owner and president Ron Geary instituted a Pick Four with a four percent takeout, the lowest parimutuel hold anywhere in America.

Despite a lack of promotion because Ellis was awaiting commitments from some simulcast venues and had a racing dates overlap with Churchill Downs, early results were very promising.

In week one, Ellis averaged daily handle of almost $19,000. After the word spread, week two averaged $46,148, with a record high of over $65,000 last Saturday. In 2006, the bet averaged $18,000 daily.

[Ed. Note] A chart of payoffs comparing the 4% Pick Four with a conventional four-race parlay and with last years payoffs with a 22% hold is available at

So far were very pleased, Geary said by telephone Thursday. Its growing every day. Our goal is to reach $100,000 when we host the National Claiming Crown [August 4th]. That will be our first national platform.

I applaud him said Lou Raffetto, chief operating officer of the Maryland Jockey Club, whose Laurel Race Course will institute a Ten Days at Ten Percent promotion at their upcoming 10-day race meet beginning August 10.

The short summer session will feature a blended takeout of 11.4 percent that includes a mandated 1.4% for the Maryland Million Fund. Its the lowest takeout of any race meet in the country.

We needed to do something to get people to focus on our races and this is a perfect time to experiment with a lower take. Not only does lower takeout increase churn but it takes rebates off the table. The rebate is built in, Raffetto explained yesterday.

Clearly, Raffetto and Geary get it. Geary already is reaping a financial benefit. In lowering his takeout rate to the lowest in the country, Raffetto put Laurel on the map at a time when all roads lead to Del Mar and Saratoga.

Not coincidentally perhaps, the trend seems to be spreading internationally. Two major betting platforms in Australia have reduced the takeout on their superfecta wager from 22.5 percent to 3.12 percent.

The superfecta is significantly more popular in Australia than it is here, attracting more than five percent of the betting market. Its appeal lies in the very large fields and huge jackpots that result when no one hits it.

Racing often is a strange game. The industry acts as if wagering is an embarrassment instead of its the life-blood. Handicapping is not promoted as an interesting diversion, an intellectual pursuit akin to poker in that its also a game of people, played with horses instead of cards.

There are lessons to be taught that would give customers an edge, giving them a better chance than the 52.5 win percentage needed to break even making illegal bets on NFL games. Racing doesnt teach that.

With forward-thinking track executives like Geary and Raffetto leading the way, all might learn what a great wagering game thoroughbred racing can be, including legislators.

There is that point where proper pricing allows demand to meet supply to optimize profits. The lowering of parimutuel takeout gets us closer to that truth.

Written by John Pricci

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Friday, July 13, 2007

The Approach Is Only Thing Wrong With Racing’s Product

Is there something wrong with racings product?

Thats the message Churchill Downs president Bob Evans sent to all of racing in a speech he made before the Kentucky Farm Managers organization earlier this week.

Is Evans right?

Without equivocation, we think the answers are yes, no, and this view doesnt go far enough.

Racings critics think theres no excitement in watching a bunch of brown horses running in circles around an oval. On its face, theyre not wrong.

But scratch just below the surface, as loyal fans do, and nothing is farther from the truth.
Observations that watching horses run around in circles indicates a clear misunderstanding of the sports nuances. In that context racing has itself to blame for doing such an awful job educating potential fans.

And nowhere does that manifest itself worse than when the sport is presented on television.

Racing broadcasts have tried without apparent success to present racing as a game, a puzzle to be figured out.

In the past, racing has partnered with one past performances disseminator in an attempt to sell the racing product. If anything, it winds up being a better commercial for the past performance company than it is for the game.

By using several data sources to reach a consensus, viewers could begin to learn about racing strategy. From pace analysis flows a conceptualized view of how a race could be run, and how different tactics might influence the final result.

The education process for potential fans shouldnt be dumbed down. Whoever gets it, gets it. Whoever doesnt, has no inclination to learn and wont. Contrary to the stereotype when racing was the only gambling game in town, todays most successful handicappers are highly educated and upwardly mobile.

Forget mass marketing to attract potential fans. Racing needs fans and gamblers with the mental acuity and wherewithal to get and stay engaged. What it needs is old school snob appeal.

Racing isnt a game that will ever attract a wide audience. The trick then becomes to attract the right audience, not the attention-deficit crowd that follows Paris Hiltons every move. Racing doesnt want or need fans that are highly likely to move on when presented with the next big thing.

Evans thinks theres too much racing but thats not a new theory. Last year in the U.S. 7,375 racing dates offered almost 52,000 races with handle of $280,000 per race. Everywhere else, 117,000 races attracted handle of $780,000 per. Actually, those 51,688 races are 35 percent fewer than in 1990, another of the games many enigmas.

Fewer racing dates and presumably clever condition-book writing helped produce larger fields; nearly eight in the U.S as opposed to 10 at foreign venues. Evans correctly argues that 10 starters attracting $780,000 in handle is an economic model that would keep tracks flourishing.

Evans also thinks we need to produce more horses for fewer races since the number of starts per horse is down 20 percent since 1990. What he failed to mention to the Kentucky Farm Managers is that the industry needs to breed strength and stamina back into the thoroughbred, too.

Too much racing isnt necessarily a bad thing. Too much racing can provide the kind of diversity that allows small market, second tier tracks to survive. Diversity is important for gamblers, too, especially horseplayers.

Many horseplayers actually prefer pedestrian mid-week fare to the tough big races on weekends. They reason the worse the quality, the greater the number of throw-outs. Ill bet the majority of racetrack executives would be shocked to learn thats the way many of their customers think.

Evans pointed to a Churchill Downs promotion, a contest to pick the Derby winner, the choices logged via text messaging. Churchill received over 90,000 messages after running only four contest promos. The fair assumption is that CDI reached a younger, tech savvy audience, a good thing.

What is needed is more of this kind of outside the box thinking.

Racing engages the vast majority of its audience through wagering via the participatory process of handicapping. What could be better than the latest technology servicing this data driven game to attract a younger audience? But, again, racing talks but doesnt actually embrace technology.

Tracks still dont get together to make a concerted effort to invest in software that would transmit betting information instantaneously. How can players have confidence in the overall integrity of the betting pools when odds continue to change as the horses reach the three-eighths pole?

Theres nothing wrong with racing's product, only with the way its presented to current and future customers. Nascar isnt popular because there are only 76 major races as opposed to racings thousands; its popular because it does a better job.

For instance, has anyone thought of pooling racings resources to buy those same full-page advertising supplements like the car folks do in all the local papers?

Have racetracks made a real effort to service existing customers by providing the latest betting information for informed decision making, as if tracks dont have a vested interest in the fiscal health of its customers?

Have the tracks done a good enough job lobbying their state houses for permission to do what other businesses do when income stagnates, such as lowering the cost of the product?

Supply-side economics dictates there is a price at which supply and demand meet to optimize profits. Shouldnt racetracks, like other businesses, be allowed to test its pricing structure to find that level, unencumbered by inflexible and arcane legislation?

Innovation comes out of competition, Evans said, referring to the likely failure of a handful of modern racetracks to survive.

All Evans and other track executives and state governments need do is look within the borders of the Commonwealth of Kentucky to see what one new track executive, Ron Geary of Ellis Park, did; instituting a new Pick Four wager with a four percent takeout.

On a small scale, this innovation already is beginning to show dividends. Last year, the bet averaged a mere $18,000 daily. On Wednesday, $36,000 was bet into the Ellis Pick Four.

In the long term, price will prove more important than product. As for the product, its fine just the way it is.

Written by John Pricci

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