Tuesday, September 22, 2009

Enough Cannibals To Go Around

LOS ANGELES, September 22, 2009--When off-track horse betting was introduced in California in 1988 (four years after the first state lottery ticket was sold), the cautionary words were, "Let's not cannibalize the live gate." Two decades later, the cannibalization of the live gate is complete, and new cannibals, mostly known as advance deposit bettors, or Internet/phone horseplayers, have come along to devour what's left of an industry. A cartoonist would depict California racing as a snake, eating its own tail.

The imminent demise of a satellite betting facility at a fairgrounds in Santa Barbara, 90 miles north of Los Angeles, is symptomatic of what lies ahead. "We can't subsidize racing anymore," the CEO of the fairgrounds told the Santa Barbara Independent. Rearranging the deck chairs, the California Horse Racing Board is now in the business of licensing mini-satellites, at a card club here and a bar there, putting Band-Aids on a hemorrhage. Eventually, some deep thinkers at the racing board will conjure up new cannibals. Then advance deposit wagering will take over for satellites as the tail of the snake.


Off-track betting is no healthier in New York City, where a fatal combination of political cronyism and a moribund sport have led to losses of about $40 million in the last four years. New York City OTB, condemned to bankruptcy protection, owes $14 million, for crying out loud, to the New York Racing Association, which itself has been down the bankruptcy road as it struggles in vain to get Saratoga to meet the tab for Aqueduct and Belmont Park. "(OTB) was an idea that was designed to fail," said the New York governor, David Paterson.

Howard Samuels, later to be called "Howie the Horse" because of what an autograph-seeking cab driver called him one night in front of the Algonquin Hotel, was the architect of New York's Frankenstein, back in 1971. As a young man, Samuels made a fortune in the nascent plastic-bag business, but he was either a racing dilettante or got a peck of bad advice. "I wanted to be governor, I didn't want to be head bookie," Samuels would say later. I knew slightly Irving Rudd, Samuels' righthand man. He was a PR man Barnum would have coveted, but about racing he said proudly, "I don't know a furlong from a fetlock." They set up shop by asking bettors to pick horses by the alphabet instead of numbers, and threw in a surcharge on payoffs. It has all been downhill from there. By the time Rudy Giuliani became mayor, he said: "This is the only bookie operation in the world to lose money." One administration later, they promoted Giuliani's cousin to run the thing.

In California, Al Karwacki, an old friend from Bowie, where I had attempted to cash an occasional bet in a snowstorm, seemed to be a strange geographical choice to head the state's new off-track betting system, but he brought with him all the necessary tools. He knew the racing game, he was not opposed to cashing a bet himself and he had the unzipped mind of an accountant. It wouldn't have made any difference. The business model was full of holes. Off-track sites were limited to fairgrounds, and later Indian casinos, and bets on out-of-state races were severely restricted. A marketing budget was non-existent, as were amenities at the satellites. Smokers could still smoke, but they were lucky to find an ashtray.

In the early going, Joe Harper at Del Mar told me that his track needed a $3 bet at a satellite to equal the revenue a $1 bet would bring on-track. I think he was factoring in the loss of admissions, parking, program sales and all that. I don't know what the ratio is now, and I doubt whether Harper knows, either. Tracks get to a bottom line, but the math along the way is murky. Del Mar puts out a pie that goes into great detail about the takeout, and the more the cannibals, the less the track's share. An on-track $2 win bet leaves the track with just over 14 cents. Off the track, that take drops to 7 1/2 cents. A bet with TVG, or some such, and Del Mar takes home 3-plus cents. Internet business has shown a steady growth pattern, but those are the bets that make up the smallest slices of the pie.

Among the locals, there has been a lot of bitterness about the Santa Barbara OTB closing, which could come in October. "When they gave an exclusive franchise to the state, they shot themselves in the foot," one of the horseplayers told the newspaper. "It's a professional business for gamblers, and they weren't running it like a casino format. They offered no perks, and gambling is a perk business. They ran this place like a 7-Eleven."

I hate to keep saying it wouldn't have made any difference, but Scott Grieve, the CEO at the facility, said that it wouldn't have made any difference. "Racing has seen its golden day," he said. "Unless there's a real change in what people like to do, I don't see it having a bright future."

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