Many racetracks will now have a sportsbook to complement the races
There has been a great deal of excitement this year stemming from the success of Justify in the Triple Crown races. Attendance at the tracks and betting have seen record levels. More than 135,000 people attended the Kentucky Derby and Preakness while 90,000 attended the Belmont Stakes. That number would have been higher except it was capped for safety reasons. Pari-mutuel wagering was up slightly as well, although that tends to happen near the Triple Crown races and then tapers off quickly after the Belmont Stakes. Wagering was way up when American Pharoah won the Triple Crown, but then plummeted shortly after. And 2015, the year American Pharoah won the Triple Crown, was one of the worst years for tote betting and 2016 wasn’t any better. The only state where the amount wagered on horse racing has actually increased in the U.S. is Nevada, although they don’t have an actual racetrack and all wagering is simulcast from other tracks around the world. But there could be some reason to be optimistic that a turnaround for horse racing is imminent and that stems from the Supreme Court (SCOTUS) decision to strike down PASPA, along with a willingness within the industry to consider new ideas.
It is well accepted that the millennial generation is what’s keeping horse racing down. Older generations, baby boomers and even to an extent Gen X has been willing to place their money on the ponies, but the millennials won’t. It isn’t that the millennials have an issue with horse racing itself, and attendance and TV viewership of the Triple Crown races is proof of that, it’s simply that they want to bet only on games where they believe they can win and they don’t believe horse racing offers that option. I spoke with John, a 35-year-old accountant from New York who explained the reasoning why he avoids betting on horse racing.
I have only so much disposable income that I can use for gambling. My priority is my family and meeting regular household expenditures. I also put aside money for my kids’ education and for a family vacation. There is a bit left over and my wife and I agreed that half the remaining disposable income she will use to treat herself and the other half I use for gambling, since that’s my passion. But since the amount is limited I’m not ready to piss it off on anything. I will only wager on games where I know I have a chance of winning. For that reason, I avoid casinos and horses and instead play poker and DFS where I know I am using my skill and can come out on top in the end. I also wager a bit offshore on sports and sometimes that includes horse racing, but only on race matchups. I will not wager on pari-mutuel payouts because I know with the takeout it’s impossible for me to make money.
Harry, a 28-year-old bartender from Boston had a different reason for not betting on horse racing.
It’s boring. I used to go with my father and while he combed through the racing form I was trying to find anything to occupy myself and I still kind of feel that way. Think about it, you go to the track, leaf through a lot of past performances for several minutes, make a pick on lousy odds that you know will end up costing you in the end and you watch a race for a minute or two and then it’s over. Then what? Well you go through the same process and wait a half hour for the next race. I realize I can bet on other tracks during the time between races, but I find it difficult enough to handicap Suffolk Downs. I have zero desire to waste time handicapping a bunch of tracks I know nothing about. It’s different for the Triple Crown races and Breeders Cup, but for regular weekly races, no thanks. If the track offered something different that interested me to supplement the races, then I’d be more interested.
In both cases it’s clear that the issue with millennials isn’t horse racing itself, but rather the terrible odds which are mandated by the high takeout. Horsemen will argue that the takeout is necessary for purses, for track maintenance and to pay personnel, but others have argued that a smaller takeout from a larger volume will provide the same results. In better words a 16% takeout on a handle of $400K would yield the same $64,000 in revenue to the track as a 10% takeout on a handle of $640,000. Plus, if there is a bigger handle, it means higher attendance and ancillary revenue from programs, racing forms and concessions.
Fortunately, there’s a way to satisfy the racetracks, the baby boomers and the millennials and provide a higher volume of bets thanks to the SCOTUS decision. The obvious solution seems to be to continue offering pari-mutuel wagering, but supplement it with sports betting type bets that millennials will deem are more up their alley. These would include head-to-head matchups on races including parlays, proposition bets, such as winning distance, and most importantly fixed odds. One of the biggest frustrations horse racing bettors have, regardless of age, is betting a 10-1 shot with 5 minutes to go to post and ending up with odds of 2-1 after a few larger wagers come in.
Bookmakers around the world address that issue by offering fixed odds, and some even guarantee best odds, so if the odds on the horse you bet on increase after you bet it you get the better odds. But the tote still exists for bettors overseas who prefer to bet on pari-mutuel wagering. In return for being allowed to offer fixed odds horse wagering bets and matchups, the sportsbooks contribute a portion of that revenue from horse racing to the tracks. And while U.S. casino operators like MGM or Caesars don’t have the experience in providing fixed horse racing odds (at least not yet), William Hill, Paddy Power-Betfair and possibly 888 and Ladbrokes, who are looking to enter the U.S. market, certainly do have the experience and have been quite profitable at it. In fact, horse racing is the second biggest generator of revenue in the UK behind only soccer, and many of those wagers are on U.S. racing. And in Australia, the Tote down under is doing extremely well, mostly because of the sports betting action they take on horse racing and sports.
And the mingling of horse racing and sports betting solves a big issue for millennials. In the case of bettors like Harry, the fact that many racetracks will now have a sportsbook to complement the races means that he wouldn’t have to be bored if he attended the racetrack. He can wager on the Suffolk Down races just before post time and in the time between races he can wager on other sporting events and watch those on TV screens at the racetrack.
No doubt U.S. horsemen will worry about cannibalization of horse racing revenue as a result of fixed odds and other sports type bets on races, but the UK and Australia have proven that just isn’t the case. Many bettors in other locales still prefer to bet on the tote and for exotics such as win 4s, pick 6 or superfectas the pari-mutuel tote will still be the only option. And the tracks can mandate that exactas and trifectas can only be wagered through the tote as well, so the sportsbooks can’t offer fixed odds forecasts or tricasts as they do in Europe. More importantly by offering these new sports bet type offers, the tracks would have a good shot of reeling in bettors like John, who will never wager on the tote anyways, but will consider wagering on fixed odds horse racing.
That said, the industry must act quickly, especially in Delaware and New Jersey where sports betting is taking place. There is excitement in the air around horse racing, partly because of Justify. This is a great opportunity for the racetracks to capitalize on that excitement by effectively saying “come one come all as we have betting options that will appeal to you.” New Jersey in particular has the opportunity since Paddy Power-Betfair already operates there as a partner with Golden Nugget in online casino betting and they have set up a partnership agreement with the Meadowlands to offer sports betting at that track. And William Hill seems to have their eyes set on the state as well. And make no mistake Paddy Power-Betfair have the means and the systems ready to go to offer a fully array of wagering on horse racing including the betting exchange if they are given permission to do so.
So, the question is can New Jersey and Delaware take advantage of the excitement surrounding Justify’s Triple Crown win and are they willing to take the risk by offering a lot of wagering that has been popular overseas for decades, but has been frowned upon in North America. If they do, expect a big turnaround for horse racing in those states. And without question many other states that are considering offering sports betting at their racetracks will be watching closely and taking notes.
Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!