By Dean Towers
In Part I – This Time, Horse Racing's Aging Demographic Problem is Very Real, we examined the changing gambling markets, racing's reliance on patrons over the age of 60 and why the recent trends are troubling. The piece submitted evidence that while younger, smart, tech-savvy gamblers are seeking more and more skill games to play, they are not flocking to wagering on horse racing like they were even a half-generation ago.
In Part II, I'd like to offer three strategies that I think may help horse racing attract the younger, modern gambler, so that in three or four decades, horse racing holds its place in the gambling market.
Invest, Innovate & Reinvest (Without an Eye on Current ROI)
I received an email a few weeks ago. It was from a fellow in Finland who had been betting the pick 4, 5 and 7 on Swedish harness races. He asked me if these bets were offered in North America, and (if yes) if we were able to upload tickets via FTP to our ADWs like he does. Someone contacting me for an answer to a question like this wasn't overly striking, but the last couple of lines of the email made me take notice.
“I have now played the V6/V4/V75 with positive ROI almost every day for a little over year. I am a stats major, so my angles are based on statistics and machine learning,” he wrote.
This young man is 21 years old. He was not attracted to racing by a band or giveaway, nor was he introduced to the races like many of you and I–through a family member who liked the sport. Also, unlike many of us at that age, he was betting some serious money; probably six figures a year.
Young Josse represents an important part of racing's younger target market. Ensuring him, and those like him are able to use the tools they are comfortable with to consume the sport is of paramount importance.
The problem, however (as we noted in Part I), is that racing is very old, and getting older. It's glaringly obvious that not many 70-year-olds are uploading tickets via comma delimited files they created through artificial intelligence. It stands to reason that new ways to wager, the use of data, and many other innovative ideas do not have much of a market in racing's current demographic landscape. This is a problem because it's extremely difficult to bring something innovative to a boss at a public company like Churchill Downs Inc. and have to sell him or her on the development of a product that might not pay dividends for years.
Despite the lack of current ROI on these products, I believe they're vital. If these tools are not created, people like Josse will seek out games of skill where they are readily available.
The Writing is on the Wall–New Gamblers Love Fixed Odds
In 2008, Australian horse racing opened up its betting markets to fixed odds and exchange wagering. In that year, according to the Australian Racing Fact Book, handle on this form of win betting was AUS$167M. Eight short years later, over AUS$3.5B was bet on this form of wagering. The market spoke loud and clear–bettors like betting a horse at a 5-1 locked in price.
This, really, should not be too surprising. Sports betting in the US is only legal in Las Vegas, and its handle has doubled since 2006 in casino sports books. In shadow markets, people have been betting New England +7/-110 since forever. E-Sports betting and forms of daily fantasy sports betting are not dissimilar, and overseas, fixed odds have been offered for all types of gambling. Telling a younger gambler than a 3-1 shot can end up at 8-5 while the race is being run is like telling them we once had to call the operator to make a long distance call.
What Australian racing has noticed is that despite this wagering being considered an affront to pari-mutuel win betting, the pie has grown. In 2007, total handle on Thoroughbred racing in Australia was AUS$12.7B. In 2016 it was close to AUS$16B.
Other jurisdictions have modified their offerings due to the popularity of locked-in prices. In 2016, New Zealand announced an investment totaling $30M over three years to develop a fixed-odds betting system. Their racing head John Allen told Business Day, “customers prefer the certainty of fixed odds and we need to be competitive in that space.”
Now, certainly a system like this in North America is not something that's doable overnight. However, expanding and exploring more areas for a quasi-fixed odds offering like Betfair–currently licensed and operating in New Jersey–should be something the sport takes a hard look at.
In racing, cannibalization worries are often used as an excuse to do nothing, but nothing is being cannibalized if overall handle is growing. Fixed-odds or exchange wagering represents not only the present, but the future. In some way, or some form, I believe U.S. horse racing needs to be a part of it.
Lean on “Skills-Based Pricing” By Injecting Value into the Betting Pools
Jeff Hwang, an expert on gambling (especially with the millennial demographic), introduced the concept of “skill-based pricing.” Skill-Based Pricing simply means that the game itself must be priced right, be beatable, and must compensate for the opportunity cost to play it. Hwang believes that this is what the millennial gambler is looking for when choosing a game to play.
For racing, obviously the top-line price–the takeout, please stop raising it!–is very important. But there are other ways to inject value into betting pools, too; some of them already being explored by horse racing.
I love Patch as a racehorse, but my goodness, his price in the Derby was mind-numbing. He created value for every other win wagering choice in the race. This happens more often than you think on “Big Days” and the sport should keep trying its best to attract casual fans to the betting pools.
Because takeout rates are not coming down and signal fees are going up, newer players who want to get better and play more are relegated to player rewards systems that are unavailable to them (they don't play $500,000 per year, but they may want to). Racing should drop the high thresholds for rebating, make them more available to those who seek them out, and broaden the tent. It creates immediate value.
Over the years, horse racing has learned that carryovers drive value-seeking punters from just about everywhere. Promoting them, and looking for new innovative ways to create them is a step forward towards skill-based pricing.
My new Finnish friend Josse has found value in the high takeout “V” pools in Sweden, in part, because these bets are offered to the general public in corner stores and online through the lottery system. Brad Cummings's Equilottery and other lottery concepts can place immediate value into the pools if brought to market. There are horse racing-friendly states and provinces that should continue to be lobbied to allow for such a concept here in North America.
In the end, today's younger gambler expects everything obvious–to play on mobile phones and tablets; to watch crisp pictures in high definition; to be treated well when visiting a racetrack; for cost-effective intricate data they can use to wager. But beyond that, the true skill game gambler–those who play fantasy sports, E-Sports or are attracted to other brain games–is smarter than any generation before them. These punters expect to work hard at a game, be able to consume it easily through modern mediums, and if they're good enough, have a chance to win.
I believe if horse racing invests and modifies its offering to marry it with what's currently happening in the gambling world, it can continue to be, for generations, what it always has been–the greatest gambling game the world has ever seen.
Dean Towers has been a board member of the Horseplayers Association of North America since 2008. He has presented at various gambling conferences across North America.
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