It certainly isn’t breaking news that the North American economy is in rough shape. Jobs are becoming scarce, housing prices are declining and disposable income is decreasing. As a result, businesses are doing whatever they need to in order to attract new customers and keep existing customers happy as well. In order to achieve this, many businesses have introduced enticements that may prove to be unprofitable in the short run but will prove worthwhile in the long run. For example, businesses often put up numerous loss leaders, hand out coupons or provide reward points that can be used as cash for later purchases. The philosophy behind the practice is that a happy customer will be a loyal customer and when times turn better those customers will continue to shop at the stores in appreciation for the retailer’s efforts when times were tough. And eventually the business will turn a profit. That’s pretty well understood by all retailers nowadays but for some reason it hasn’t clicked in with the horse racing industry. In fact, the horse racing industry almost appears to be taking a totally contradictory approach.
Horse racing attendance and handle has been declining for years. Competition from other forms of gambling, including land based casinos and offshore establishments has dramatically cut into horse racing’s business, so in an attempt to attract the customers back, race tracks began to offer some incentives. Those incentives have included things like free parking, free attendance, free programs, free live streaming on races viewed on the website and loyalty points which can be redeemed for cash vouchers and prizes later. With offshore websites like 5 Dimes and Ehorse offering rebates along with Youbet and other internet companies offering incentives, the move by the race tracks was almost imperative. Yet recently Churchill Downs Inc. announced that it was cutting incentives for all but the largest players who wager at their Twin Spires website. Under the system players will be given rewards cards and only those who wager $25,000 or more at the 4 Churchill Downs tracks (Churchill Downs, Arlington Park, Calder Race Course and Fair Grounds) or on the TwinSpire’s website in a year will be entitled to “elite rewards” which include free parking, programs, etc. The rest will be given tokens like free Brisnet credits. The company has argued that the current rewards structure hasn’t been enough to increase wagering and therefore the new structure will prove better for all bettors, but others in the industry say it’s just a cost cutting measure and the message is clear “unless you’re a big better your business is irrelevant to us.”
Of course that attitude is nothing new in the gambling business. Last year the Las Vegas Sands scrapped all their promotional offers and effectively told customers that they were welcome to play and stay at the casino but nothing is free anymore unless they meet a threshold. Instead of simply offering some incentives like free buffets to customers for their play, players are obligated to get a card and build up enough points to earn punitive rewards. Customers can still get small discounts on some things but add-on promotions like free hotel stays, entry fees for gambling tournaments and complimentary meals and show tickets, which have always been a key to enticing people to Vegas casinos were gutted. Of course it is also understood that for the extreme high rollers, i.e. those that gamble hundreds of thousands, each stay the comps will remain but for people who wager say $1000, they will get nothing other than possibly a free drink. The CEO of the company boldly made the statement that nothing was free at the Sands anymore and even reneged on offers that were previously sent out. Other casinos in Vegas haven’t been as stingy as the Sands on perks but the days of free buffets or show tickets for simply wagering $100 a hand for a couple of hours are a thing of the past.
Unfortunately it’s not just Churchill Downs Inc. or the Sands that decided to screw over all but the highest rollers. That attitude is now prevalent throughout the horse racing industry. Last year the California Horse Racing Board passed a motion to introduce exchange wagering to the state where players bet against each other as is done at Betfair and Matchbook but in agreeing to that motion, which no doubt will entice some additional wagering, the Racing Association announced an increase in the takeout. And without question takeout is the one issue that most gamblers say turns them off of the sport. Built into each bet is about a 17-25% takeout which goes to pay horsemen, purses, track upkeep, salaries and of course taxes. Yet California decided that the 20% takeout on exotics requiring 2 or more horses and 21% takeout on exotics requiring 3 or more horses wasn’t enough so they have decided to increase both by 2%. This is a blatant stab at the smaller bettors since exotics are far more popular with novice bettors than are win, place and show wagers. And the takeout increase isn’t limited to California, Albuquerque Race Track in New Mexico announced a similar increase on all wagers and tracks in other states have takeout increases on the discussion table. In fact a recent industry publication suggested that the takeout may increase in up to 10 states by the end of 2012. This is mind boggling in a day where customers are looking for the best value for their betting dollar and younger bettors have turned away from horse racing because they believe the takeout makes it an unwinnable proposition.
To make matters worse, some tracks that offered free admission and parking are now deciding whether to start charging again. In fact one executive at a Virginia race track said they were in a conundrum because the board wants to start charging for admission again since the loss in revenues from when they charged at the gate was much higher than they anticipated but the slots casino at the track makes that unrealistic. No one will pay to go to a casino so they’re trying to see if there are ways to charge patrons of the race track but not the casino aside from separating the 2 entities.
As well in Canada, Woodbine Entertainment has seen an increase in revenues thanks to its Horseplayer Inc. website, its racing channel and the numerous off-track betting outlets, but even they are now starting to withdraw some incentives despite the profitability. The rewards program, which effectively provides a 0.33% cash rebate to bettors and can be used for things like racing forms, programs or horse racing paraphernalia is being scaled back, and the company which offered live streaming on its website for all customers has cut the streaming to customers who don’t wager a minimum of $50 a week. As well many off track betting centers are cutting human personnel so most establishments now just consist of automatic teller machines and TV sets. These cutbacks may be small but are nonetheless an inconvenience to bettors.
And the question that has to be asked is why the industry has taken this measure now. When other businesses are increasing incentives, why is the horse racing industry cutting back? It’s not only illogical but it’ll almost certainly scare away more potential customers. I asked a friend who worked for years covering horse racing for a major Canadian newspaper for his thoughts and his response was “the industry is controlled by new executives that don’t understand the business or the patrons or older executives who still think it’s the 1960s or 70s.” He suggested that the time following World War II until the late 1970s were the heydays for the industry. Horse racing was a loved past time and aside from Vegas was the only legal form of gambling. Consequently, gamblers went to the tracks in droves and happily paid for parking, admission and were willing to stand in long line ups to bet or cash tickets. He said he still recalls well seeing lines of 50 or more people at the $2 betting windows trying to ensure they could get a bet down before being shut out. Now of course there are no betting limits at the windows plus, as mentioned, automated tellers are becoming the norm. But he believes some executives still live in those days and are trying to relive the time when horse racing was king and they could do no wrong. Hence many of those executives are unwilling to believe that today’s customers are different and expect them to pay through the nose for the right to watch and wager on races. Other executives, he believes are MBA grads or CEOs of large for profit companies who don’t understand the industry and really don’t want to. Their sole goal is to cut costs to the bone regardless of how it affects the horsemen or previously loyal horse goers. In either case, he believes it’s hurting the business. Ironically Churchill Downs Inc. COO Bill Carstanjen was featured in 2009 on an episode of Undercover Boss and many commented how it was clear he was just a suit that didn’t understand horse racing at all. In fact in the episode, when Carstanjen was forced to work as a groom at Arlington Park he admitted he was afraid of horses.
But all sides need to understand that horse racing is not like any other business. In fact, gambling is like no other business. People only have so much disposable income and if they decide to use it gambling, they expect some freebies or at least the sense that they are being treated well for agreeing to bet their money away. The decision to cut perks to horse bettors may look good to this year’s bottom line but it will backfire in the long run. The horse racing industry and land based casinos for that matter, need to look at increasing perks and comps rather than cutting them. To do anything else will just drive more bettors offshore or underground. Unfortunately the horse racing industry just can’t seem to comprehend that.
