Sports Betting and Racing: The Future

In today's third and final edition of the TDN's look at the relationship between sports betting and racing, we examine how some creative thinking might benefit the sport. Click here to read part one and part two.

For decades, the Australian legal gambling market mirrored the American market. The first organized horse racing meet in Australia took place in 1810. For some 160 years, betting on racing was the only game in town. That changed in 1973 when the Australian state of Tasmania decided to legalize casinos. When one state broke down the barrier against casinos, it wasn't long before they spread throughout the entire nation.

That was good news for a gambling-mad country. According to Wikipedia, over 80% of Australian adults engage in gambling of some kind, which is the highest rate of gambling in the world. In 2016, Australians lost more money per person–an average of U.S. $990–than any other developed country, according to research by consultancy H2 Gambling Capital.

All sports betting was illegal in Australia until the 1980s and it then existed on only a limited basis until 1996. That's when online sports betting was legalized, and it took off. More than $8 billion Australian dollars are now wagered on sports in the country and the amount is rising rapidly each year. Large bookmaking firms are pouring money into marketing and advertising, and have caught the attention of a younger demographic that enjoys the convenience of betting on mobile devices.

The Australian horse racing industry does get a small cut of sports bets, but more importantly, sports betting has grown the gambling market as a whole, and that has proven to be a good thing for Australian racing. Yet to get sports bettors to become horseplayers took some bold and daring moves– something that has not typically been a strength for the U.S. racing industry.

Bookmaking firms learned that Australian sports bettors were uncomfortable with the pari-mutuel process, which means odds changes. The late change in odds in the U.S. can be dramatic because of the large influx of money bet at the very last instant by computer players who bet huge sums and receive rebates not generally available to the general public. The Australian gamblers understand that when they bet $11 on the Cleveland Cavaliers at -9 1/2 points (the NBA is the most popular U.S. sport among Australian gamblers), they are either going to win $10 or lose $11. They didn't seem to understand, or like it, when they made a bet on a horse at 4-1 and its odds went down to 5-2 at post time. To solve the problem, the Australians introduced fixed-odds wagering.

“What happened here is the growth of sports also went parallel with a growth in horse race wagering because of fixed odds,” said Sam Swanell, CEO of the Australian-based PointsBet.com, which is exploring how it can get into the U.S. market if sports betting is legalized. “So, with race betting, we have a little bit different scenario than in the U.S. What we found is the younger demographic find sports betting quite straightforward and they understand it. It's very easy to throw 10 bucks down on a team. You don't have to be an expert. In racing, with what you call handicapping in the U.S. and what we call the form, it can be a little bit of a challenge. With sports betting coming in, we attracted a lot of new bettors, and they all wanted to have a bet on the races. We just had to make the process easier and something they could readily understand.”

Swanell said he has spoken to race-book managers in Las Vegas and they tell him that with there being so much product in the U.S., they believe setting an accurate fixed line on horse races would be impossible.

“We'd like to bring fixed-odds betting into the market in the U.S.,” he said. “The sports-book managers in Vegas say you couldn't do fixed odds, that the handicapping effort would be too great, that they would get skinned. We [once] thought that in Australia–and now we do it across all our meetings, greyhounds, gallops, harness, and it has just rejuvenated the industry. The pari-mutuels are still popular, but more so with the exotics, pick fours and bets like that.”

Swanell said another key is that the takeout on fixed-odds bets is lower than the traditional takeout on pari-mutuel bets and more in line with sports wagers.

“The average punter was just getting skinned,” he said. “They were losing their money reasonably quickly because the takeout rates are so high. What happened in Australia [is that] we took the margins down with fixed odds. Sports betting forced racing to sharpen its pencil. It forced racing to realize you can't just charge punters whatever you want with high takeout rates. The margins are lower with fixed odds, but the handle has grown so much that racing is now making more revenue despite lower margins.”

According to the annual report of Racing Victoria, the governing authority for racing in the state of Victoria, for the fiscal year 2017 the company has gone from being $40 million (Australian) in debt in 2012 to now having a “robust net cash position of almost $90 million today.”

The report also credited the turnaround to the increased wagering on fixed-odds bets.

“Record domestic turnover was achieved in FY17 with more than $6 billion wagered on Victorian racing over a 12-month period for the first time,” it reads. “Total turnover grew by 9.4% to $6.23 billion with the migration of punters from parimutuel to fixed-odds wagering continuing.”

If American racing is not ready to embrace fixed-odds wagering, it must, at the very least, find a way to merge online sports betting and online wagering on racing. While some believe that the sport would be better off if sports betting were restricted to bricks-and-mortar casinos and racetracks, experts say that's not practical. In an online world, someone is going to find a way to move sports betting online so that the modern consumer, particularly the younger ones, can bet from their computers, tablets or phones.

“If we don't do it online, then the illegal online gaming companies already out there will just remain in business,” Meadowlands owner Jeff Gural said. “While I would love to say we should not do it online and force people to come to our facilities to make a bet, the reality is that won't work. The reality is we're going to have to come up with a model that not only encourages people to come to our tracks to bet, but also allows them to bet online.”

That's where U.S. racing's ADW companies come in. They are well-positioned to take sports bets almost immediately because they can make a quick transition and add sports to their betting menus. Start-up online companies taking sports bets only would take time to develop, market and build up a customer base. It's natural for the TwinSpires, TVGs and Xpressbets of the world to become a major player in sports betting.

“Keep in mind, the American Gaming Association and the bricks-and-mortar casinos are going to want to keep it in their facilities,” said NTRA President and CEO Alex Waldrop, who has vowed to work on Capitol Hill to protect racing's interests should sports betting be legalized. “They're going to be very reluctant to support any online wagering because they want to bring people into their facilities. We have ADWs that are already in the online space and they may see it differently. We have to weigh the needs of our members and our options and I'm not going to say `no' to anything at this time. We've got to talk to lots of our members, including TVG, TwinSpires, XpressBet, NYRA Bets. Those folks are in that space and how they want to proceed will guide us.”

Swanell said, “For this to work in racing's best interests, it has to be done online and there has to a single wallet where people can bet on racing and sports from the same account.”

Racing has long been looking for a way to attract new customers, particularly younger ones. While sports betting may pose serious challenges to the sport because of the possible cannibalization effect, if things are done right, it could also introduce racing to millions of gamblers who otherwise are not involved in the sport. It's halftime of the Patriots game, they look like they're going to easily cover the spread, and you're looking for more action. The fifth race at Belmont is about to begin and you go to your online account and put $20 to win on No. 5. It's happening in Australia. Maybe it can happen here, too.