Towers: Lifetime Customer Value — Racing Could Take A Cue From The Masters by Dean Towers|06.04.201506.05.2015|2:42pm5:32pm This article appears in the June issue of “Horseplayer Monthly,” a free e-magazine produced by the Horseplayers Association of North America. If you'd like to sign up to have it delivered free each month in your inbox, or to read back issues, please visit the Horseplayer Monthly page here. I read with interest the reaction to the New York Racing Association release in early May relaying that this weekend's Belmont Stakes attendance will be capped at 90,000. “[The attendance cap] will not only result in an enhanced experience for Belmont guests, but will further improve access to and from the Belmont property on Saturday,” wrote NYRA. “It will also complement Saturday's post-race concert, which is anticipated to further stagger the exit from the Belmont property following the final race.” In this day and age, especially with an Association dogged with politics (having to show cutthroat profit), “leaving money on the table” is not often in the lexicon. However, in my view, this has precedent and is probably a very good move. Lifetime customer value and a good experience is too often glossed over in racing. This year's May issue of Golf Digest had a wonderful story about the Masters Tournament. It again turned, by all accounts, a large profit; this time around $30 million. That number should not surprise too many – it's a storied major championship after all – but the point of the story was not about the profit it turned, but more about the profit it turned away. Since 1934, the Masters Tournament has been about supporting the game of golf and ensuring it provides the best experience possible for customers and players. There are no corporate logos on the grounds, and tickets are limited. Food prices are throwback, barely changed since the 1970's. Ticket badges are $325 for the week, making it still one of the best deals in all of sports. With low ticket prices and a waiting list for them, the ticket brokers – a nice name for scalpers – tend to do good business. On Stubhub, badges for the whole event were going for $5,000, the $65 practice round tickets were fetching $925, and a one-day pass for Sunday would cost a would-be visitor $1,600. That's to be expected for a hard-to-get ticket. But the Masters had a big tent plan for them, too. “They're buying up the weekly badges on the black market and dividing them into daily badges,” a source told Golf Digest. “Anecdotally, it startles me how many people I speak with who are at the Masters for the first time.” Television deals are different, too. CBS, which has held the rights since 1956, makes little money on the arrangement, and so does Augusta National. Commercial interruptions are 4 minutes an hour, and the Tournament has complete control over how the event (and brand) is portrayed. One industry analyst believes the Masters could charge $100 for the week on pay per view and get 2 to 3 million buys, increasing revenue by a factor of 20, but everyone agrees that will never happen. What is done with the profits at the Masters is a whole other story. Some cash is used to beef up infrastructure – again to enhance the experience for players and patrons – and what's left is driven right back into the game of golf. First Tee, Drive, Chip and Putt, and exemptions and monetary support for Latin American and Asian tournaments are all a part of it. They want to grow the event yes, but they also want to grow the game of golf, worldwide. It's visionary, it's forward-thinking, with an eye on the prize at all times: Player and fan development is the goal, and that goal has stood the test of time. The Tournament, despite not making top-line revenue growth a priority, has done just that. Profits have increased by 400% the last fifteen years. In horse racing, customer lifetime value (“CLV”, simply the expected future cash flows of a customer) is vitally important; perhaps more important than it is at the Masters. Online poker sites, casinos, or any gambling game focuses first and foremost on the lifetime value metric. Gambling games – and playing the races is one of them – survive and thrive if customers come back, daily or weekly. One-off customers are losses, not something to be trumpeted. It's likely very much the same with the on-track experience, just like at the Masters. How does horse racing, handle this metric? In my view, not very well. At last year's Kentucky Derby, we all read the headlines. Customers and participants were not pleased. A couple of weeks before the Derby, Churchill Downs Inc. announced takeout increases of nine percent for win, place, and show and approximately 16 percent for exotic wagers. This surely helped the Derby bottom line (their Derby profits are very good), but what about lifetime value of core customers? Last year's spring meet, outside the Derby and Oaks, Churchill's handle fell by over $47 million, a 25.64 percent decrease. This type of behavior is not at all uncommon in our sport. Back in 2009, BetAmerica wanted to incentivize their players to play more and have a better customer experience, so they created a promotion. They – out of their share of the takeout, not the tracks or horsemen – would give back three percent at Santa Anita for the month of January so customers could enjoy the game more, and have a little money back to rebet if their accounts ran low. This policy is seen time and time again, at gambling games yes, but also with credit card rewards, air miles, or at your neighborhood coffee shop. BetAmerica was notified this was not allowed. Via an email blast from them, to their members: “The Thoroughbred Owners of California notified us this week that it is their policy not to allow any marketing incentives on a California thoroughbred race track in excess of two percent of the amount wagered. As a result, we have reduced our January Santa Anita Rewards promotion from three percent to two percent for the balance of January.” An old “law” of some sort in California – an anti-customer one – is alive and well. It hurts customer lifetime value, but it's a part of the game. I could easily document a dozen more examples of this, off the top of my head. How the other half lives is much different. Betfair, parent company of TVG, said this in its annual report not long ago: “Racing knows that customers who go racing, and a) feel they had no value for money at the racecourse, and b) don't win a single bet all day, don't have much fun. They may not come back. In just the same way, we know that the least valuable customers to Betfair are the ones who lose all their money quickly. They go away and never come back. So, we are happy to take less off our customers per bet.” That's a quintessential long-term Masters view, versus the short-term racing view. Augusta National Chairman Billy Payne was recently quoted after a tournament sponsored with Masters profits, designed to help get more young people into the game of golf. “I think we measure success and the future of the game a little bit differently. We don't do it in numbers. We measure it on the smiles of these kids. If we can create that here, we are very happy with the current state of the game of golf.” I realize that NYRA is taking some serious flak for capping attendance –they should be squeezing every last dollar out of the event, so people tell me. To them it's clearly much more than that. They are being driven to create a better customer experience on Belmont Day so fans can come back in non-Triple Crown years instead of only Triple Crown ones; maybe they come back for Stars and Stripes Day, or to Saratoga for Travers Day, too. It's not small ball, it's trying to hit a homerun with customers by making them happier. Yes, I realize smiles on faces may be free, but they can pay off with real dollars for the long lifetime of that customer. For the long-term health of horse racing, I hope we see more of it. The Horseplayers Association of North America is a 3,000 strong group of like-minded horseplayers who work with the industry to help make horse racing a better betting game for customers. In addition to the free Horseplayer Monthly e-magazine, HANA publishes yearly “Track Ratings” for upwards of 70 racetracks, along with takeout, field size and other data as a horseplayer resource.