A recent guest editorial by Fred Pope entitled “Priority 1: Racing's Business Model,” brought forth a vigorous discussion among Thoroughbred owners, breeders and horseplayers about revenue splits from simulcasting and the levels of takeout in pari-mutuel wagering. Comments continue to be posted on that article two weeks after its original publication (including a lengthy reply from Pope on Jan. 2), as well as on a follow-up piece I wrote on the subject.

The following analysis on the issue was written by a California-based horseplayer who goes by the pen name “Indulto.” He previously wrote a Paulick Report
guest commentary on the Breeders' Cup in October and has contributed to other racing-related blogs and web sites. Indulto's views, like those of any guest commentary, do not necessarily represent those of the Paulick Report. – Ray Paulick

By Indulto
I heard there was a mugging going on at the Paulick Report recently, but when I got there it looked more like a series of drive-bys.

What is it about Fred Pope that riles up horseplayers? When the Paulick Report offered a second exposure to Pope's agenda in “
PRIORITY 1: RACING'S BUSINESS MODEL,” it was swamped by responses from horseplayers including multiple comments from several staff members of HANA (Horseplayer's Association of North America).

In pari-mutuel pool participant parlance, it appeared to be an attack of pirHANAs.

As usual, Mr. Pope's crafted arguments are logical, persuasive, and targeted at racehorse owners. The reader who is primarily a horseplayer, however, soon realizes that Pope doesn't acknowledge their existence much less recognize them as having any stake in his new business model for racing despite the fact it involves funding purses with pari-mutuel handle – a breath-taking omission to some. Understandably, a few initial reactions from responding horseplayers were overly negative and/or derisive.

Considering the volume and passion of his opposition, Pope's willingness to engage was laudable, but his live responses to the onslaught were not as convincing as his canned content. One of my objectives in this belated response is to address the concerns of some of racing's customers who are not among the horseplaying elite; in theory, practice or internet participation. Perhaps a chronological presentation of the salient portions of Mr. Pope's defense – with assistance from Ray Paulick — will permit easier reader verification, if desired. The bolding in quoted portions is mine.

Pope's initial reply disparaged most of the industry's customer base.

“… I value bettors greatly. We have somewhere in the neighborhood of 100,000 handicappers in America and we are losing some every day. They are not being replaced, so time is of the essence. We have about 3 million people who go to tracks each year and have a generally good feeling about racing, but they don't know how to handicap, so betting isn't much fun unless the color they picked wins. ….”

Who are those “100,000 handicappers” he referred to and where does that figure come from? How many of them are whales and/or professionals, i.e., the tiny minority of players whose huge bankrolls give them the clout to force the industry to effectively lower takeout on their wagers through rebates. This perversion of the pari-mutuel system puts the vast majority of non-rebated bettors at a competitive disadvantage, especially in the exotic wager pools. Takeout is obviously too high, but only the wealthy are eligible for relief. Some of the average player resentment against horsemen today is derived from the horsemen's shutting off signals from tracks they were negotiating with to onshore ADWs, but still allowing them to go to offshore ADWs that service those high-volume players.

Where are the free videos the industry should be generating for internet and on-track viewing to acquaint the novice with the game and the environment before, after, and even while attending the races for the first time?

Mr. Paulick then came to Pope's defense.

I didn't interpret in reading Fred Pope's article that the horseplayers don't matter. Of course they matter. But so do the owners who invest a whole lot more than an OTB or a phone betting company, and so do the tracks that have huge investments in bricks and mortar. Horseplayers lose on average 20% of what they bet. Horse owners lose more like 50%. Tracks may be show a minor profit, but not enough to rebuild their infrastructure or invest in the future. Right now, no one seems to be winning.”

Those percentages are misleading, in my opinion. Without implementing a level playing field from an equine medication standpoint, wouldn't the bulk of any purse increases continue to go to the same owners who currently collect a disproportionate share of purses just as rebated professional bettors cash a disproportionate number of IRS signers?

Apparently emboldened by that support, Pope responded to his detractors in kind.

“ Now, how some of you got the impression that I am against lowering takeout and don't care about bettors, is hard to understand. But, I have a wife, so here it is: I apologize honey for not considering your feelings and I promise to never do it again. I was trying to get the front door back on and should have thought about the fact you are feeling a chill.”

Okay, Mr. Pope. We are a sensitive bunch. We're watching an industry devoid of leadership and deficient in integrity self-destruct. You aren't the only one passionate about saving it and seeing it prosper. Concentrating on the unhinged front door while ignoring the broken back door hardly seems a recipe for success. Like a politician whose message changes with his audience, you provide no indication in any of your speeches and articles that bettors should benefit as well as owners.

In his concluding response there, Pope wrote, ”But, I think most people were not aware the bet takers were getting the lion's share and now most want to change the IHA to restore live racing. What I would like to hear is from some young folks in marketing about what this change could do for the host tracks and the sport.”

I would guess that as many people were unaware of who gets the “lion's share” as were unaware that the playing field is tilted against the non-rebated bettor. Horseplayers prefer ADWs to other bet takers when they provide rebates or access to venues the others do not. In my opinion, enabling residents of all states to wager on-line through the bet taker of choice on races at any venue, would by itself justify modifying the IHA. Establishing a centralized industry authority would be icing on the cake. John Pricci once proposed Bill Clinton for Racing Commissioner. Is anyone better prepared to deal with industry politics?

In Paulick's last response he wrote, “What has gone up is the access to exotic wagers (multiple types of exotics on every race, which wasn't the case 25 years ago). With that increased access to exotics is an increase in the blended takeout, since players invest more in exotics than in lower takeout WPS wagers. Did racing make a mistake in offering too many exotic wagers, or should the higher risk-reward bets have the same takeout as WPS, which most serious players don't seem to play?”

Currently the “serious players” dominate the Pick Six wagering pools because the $2 minimum for each combination effectively bars virtually all but big-bankroll bettors from playing it competitively. Defenders of the current minimum insist that a lower minimum would reduce the number of carryovers and thus the huge payoffs the wager sometimes generates. Perhaps a compromise is warranted. New York offers a lower Pick Six takeout on non-carryover days. Lower minimums on weekends and holidays – and only when there is no carryover — would enable more players to compete in the Pick Six Pool. Allowing on-track patrons to purchase a minimum of say 100 combinations at $.50 on those days should spur attendance as well as handle.

Shortly thereafter, Paulick followed up with his own summary in “POPE'S UPSIDE-DOWN BUSINESS MODEL PROVES HOT TOPIC.”

“Comments from horseplayers focused largely on what they believe is an onerous level of takeout,… Not many of the horseplayers who commented seem to have much sympathy for horse owners who spend at least $2 billion a year on training costs and compete for half that amount in purses.

“Many of those horseplayers want to see takeout reduced, especially on exotic bets such as exactas, trifectas, superfectas or multi-race wagers where the takeout often exceeds 25%. Some of them feel ADW companies should get a large enough share of the takeout so they can be profitable and still offer rebates to their best customers.

“The problem with that, as I see it, is that the stronger position the ADW companies have, the greater a percentage of handle will migrate from on-track business to phone or internet wagering. …  As handle moves from on-track to ADWs, there is less retained revenue for the tracks and local horsemen to put on the show. Less revenue means lower budgets for marketing, capital improvements and technology advancement for tracks, and less incentive for horse owners to stay in the game.”

Sympathy on all fronts is obviously in short supply. Maybe I should have changed the title to “Can't we all get along?” Seriously, owners need to consider reducing costs where practical. Purses aren”t supposed to support extravagance or subsidize bad judgment. Trainer fees, vet bills, stud fees, and sales prices are likely places to start. Why are fees generally greater for high-profile trainers whose “expertise” is funneled through assistants and applied increasingly hands-off across venues and among clients? Are their total earnings to total charges (including vets) ratios always competitive?

Pope added:
 “You know, it is hard to have it both ways. You want a better racing product, but the money from a better product is now going to the bet takers who give you a discount. … Which way do you want it? Do you really want a better product that will grow the sport, or do you want your discount.”

Actually, we want both. To imply the two are mutually exclusive is also misleading. One problem that players now attribute to owners, as well as tracks, is the degradation in quality of the product. Higher purses aren't drawing large fields, and graded stakes seldom attract previous winners at the higher levels. There are simply too many races being carded and insufficient cooperative scheduling. The result has been lower demand and thus handle. In fairness, synthetic surfaces may also be a contributing factor in this area.

Pope then rallied back to his original position.

“So, you guys are contending the growth of claiming races to over 70% is a better racing product?

And, the main reason for racing's decline is the takeout rate?

… I think you will find the people spending $500 million each year on yearlings want to get back more than the claiming ranks provide. They also want to participate in a sport, not just make a bet.

So, I'm going to say horseplayers are overpopulating this discussion.

Thoroughbred racing is the racehorse owners' game. The track facilities are important partners, but at the end of the day, racehorse owners and breeders will decide the racing product, its distribution, pricing and promotion. From time to time, they need to stand up and fix problems. I think that is exactly what they will do with the IHA.”

The internet wagering/viewing genie is out of the bottle, and it is the only access for fans too remotely located or too physically infirm to attend live racing. Racing should expand that market with the IHA, not abandon it. As one who follows the sport at its highest level and bets for entertainment, I would prefer to compete on a level playing field for all bettors regardless of bankroll size; just as many horsemen would prefer to compete in an environment with uniform medication policies accompanied by more appropriate penalties for violators.

Pope continued, ”The reason we have the problems in the sport is the lack of owner leadership. We need the basic structure of a major league like the other sports. … I apologize for jumping in on those who want to discuss takeout, however, I think that issue belongs in another forum. It would not be a part of the IHA.

… We spend too much time hiding from the truth. The truth is medication, drugs, animal welfare and the details of the right mix of takeout and customer service are not the basic problem. The basic problem is structure, or more specifically, the lack of it.”

One truth Pope can't hide from is that his plans will have to not only overcome resistance from his fellow horsemen, but also from horseplayers. If nothing else, he must now realize that there are people as determined as he is to put racing back on track, and that they have organized in order to accomplish some of the same objectives. Another truth is that my former colleagues' reactions had prior momentum. I was still working with the founding HANA team when the Pope agenda got its first airing on the Paulick Report in “
POPE TO OWNERS: 'IT'S YOUR GAME'.” After experiencing a similar reaction to Pope's remarks in that article, I submitted an opinion piece to the HANA Blog, “Horseplayers to Pope: It's Our Game Too.” I assume, Mr. Pope either never saw it or felt no response was necessary.

It's probably no coincidence that, in the absence of my daily dissidence, HANA has progressed well beyond a handful of posters at the
www.paceadvantage.com Web site to become a corporate entity with now very public officers, a distinguished advisory board, and an internet sign-up membership that has (to the best of my knowledge) quadrupled since Mr. Pope's work initially appeared on the Paulick Report. HANA is now led by its president and principal spokesman, Jeff Platt, who is no less logical and persuasive than Mr. Pope in articulating his organization's concerns and goals. It's clear to me that these two gentlemen should be talking to one another and developing a new business model that both horsemen and horseplayers can support.

Among the many worthwhile player comments focused on ADWs and takeout, there was one that I am certain deserves wider distribution. Poster BombsAwayBob Grant wrote, “The first track in the country offering strong rebates for bettors making wagers AT THEIR TRACK will be the first one to see their bottom line improve. It will get bettors back to the track, while still allowing full ADW access for their signal.”

Simulcasting and technology helped create the off-track wagering advantage in terms of cost, convenience, and competitiveness. It's time to reverse that drain by pulling customers back to a future where on-track patrons are viewed and treated as racing's best customers. Hopefully, Hollywood Park will get the message by next April. What have they got to lose?

Copyright © 2009, The Paulick Report

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