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Racing searches for a ray of hope

7/13/2013
Slots can add value to the customer experience but the industry must improve its product. Horsephotos.com

The Dow Jones Industrial Average and S&P 500 both soared to record highs this week. The Case-Shiller home-price index has registered its largest gains since 2006. Unemployment has dropped to 7.6 percent. The economy, many pundits insist, even if some wallets disagree, is getting stronger.

But amid this economic "recovery," horse racing's downward trend continues. Even worse, the main obstacle to reversing the trend is the industry itself -- a sprawling, disorganized, captious, shortsighted, disputatious and frequently stupid cacophony of self-interest.

"

The industry is paralyzed.

"-- Eugene Christiansen, Christiansen Capital Advisors

"The industry is paralyzed," said Eugene Christiansen of Christiansen Capital Advisors, a research and consulting firm. And the industry's problem, he said, is "secular," meaning in economic terms that it's fundamental, deep-seated and inveterate, that it's beyond the palliation of Band-Aids.

Last month, according to Equibase, the handle, or money wagered, on American racing was down 1.57 percent from June 2012. For the year, handle has declined 0.81 percent. That would hardly be significant if not for the context, a sinking that defies the economy's rising tide.

Nor would the slight decline be alarming if it followed a period of robust growth. But except for a 1 percent blip of an increase last year, handle has declined steadily since 2007. Over the last decade, handle has plummeted 28.3 percent, from $15.18 billion to $10.88 billion, according to The Jockey Club numbers.

So how could horse racing turn this trend around? Betting on horses is expensive; the price is the takeout. And by lowering the price, the sport, Chistiansen said, could quickly increase sales, or handle. But at the mention of lowering takeouts, as if he had been waiting eagerly and expectantly in the wings for his cue, Dracula rushes onto the stage hoping to suck all the blood out of the idea. What is Dracula, aka the Prince of Darkness, aka dissension, doing in this tale of hopefulness? Well, he has become one of the stars.

Next to the fans -- and nobody really cares about them anyway -- the horsemen, meaning the breeders, owners and trainers, are the largest stakeholders in the sport. And horsemen won't accept any change or innovation that could possibly, even if temporarily, lead to a decline in purses, which lower takeouts could do. So takeouts remain high, sales low.

Americans still love to gamble. According to the National Gambling Impact Study Commission, Americans in 2011 bet $380 billion on sports, and that was just the illegal wagers. They bet an estimated $900 billion or so legally, in lotteries, casinos, card rooms and sportsbooks, some of it over the Internet. And Americans still love racing, as indicated by the 9.7 rating for the broadcast of the Kentucky Derby ("Sunday Night Football" averaged 7.9). But when it comes to betting, Americans generally look for other sports and other games.

"

It's an extremely difficult product to use. … The learning curve is not only long, but very steep. … From a consumer's point of view, it's very formidable.

"-- Eugene Christiansen, Christiansen Capital Advisors

Price is one of the reasons for that. Another is that betting on horses, quite simply, and mentioned here at the risk of sounding supercilious, requires some understanding and knowledge to appreciate. As Christiansen said, "It's an extremely difficult product to use. … The learning curve is not only long, but very steep. … From a consumer's point of view, it's very formidable."

Education, then, could be essential to reversing the trend. But where is a fan going to learn about racing or betting on horses these days? He certainly won't learn anything by reading a newspaper. Few racetracks offer much that's truly educational: A reading of the race conditions and the most salient facts from past performances isn't education.

Perhaps simplification could be an answer. Betting exchanges could simplify wagering while at the same time addressing horse racing's major problem, which, Christiansen said, is an eroding fan base. Betting exchanges basically connect fans that have opposing opinions and allow for one-on-one and propositional bets; a wager can take the form of the old fashioned my-horse-can-beat-your-horse challenge. Exchanges have been successful in the U.K., Christiansen said, in introducing new fans to the sport and by appealing to an audience that's more tech savvy than racing knowledgeable.

But at the mention of betting exchanges, as if waiting hungrily and excitedly in the wings, Dracula rushes onto the stage hoping to suck all the blood out of the idea. Both horsemen and racetracks, of course, are nervous about betting exchanges, which not only have a low takeout but can also shift money from the traditional betting pools. And so, while betting exchanges are legal in both California and New Jersey, they have not been implemented.

As for other approaches the sport might take, other ideas it might embrace -- like regional cooperation regarding race dates and stakes schedules; universal and strict medication rules; coordinating a progression of stakes races, a league or series perhaps, with bonus money, in various divisions, all leading to the Breeders' Cup -- well, don't be silly. At just the mention of such things, as if waiting keenly and longingly in the wings, Dracula -- well, you know.

The horse racing industry, Christiansen said, "finds it very difficult to contemplate change." In fact, he said, horse racing is more resistant to change than any industry he has worked in, and he has scanned virtually every aspect of gaming and gambling. Horse racing, in other words, is an untroubled, self-satisfied iguana basking in the sun, oblivious to the avalanche that's about to crash down on its head.

If slot machines discourage the sport from changing, are they really helpful in the long term?

And so instead of pursuing fundamental changes, horse racing counts on slot machines. They're the sunshine that keeps Dracula at bay. Already slot machines prop up some racetracks that deserved to disappear long ago. Largely because of slot machines and other gaming, purses have increased slightly over the last decade even as handle tumbled; so horsemen and racetracks, of course, love them. Any idiot who owns a slot machine can make money simply by plugging it in, which is far easier than trying to effect meaningful change or improve your product.

But gaming could be a Trojan horse. If slot machines discourage the sport from changing, are they really helpful in the long term? Many of the people who run racetracks with slot machines engage racing strictly on a need-to-know basis; in other words, they subordinate racing to gaming. At such places, horse racing is just a necessary inconvenience. But will it always be necessary? What happens when the operators and regulators decide to take racing's piece of the pie for themselves?

Yes, racetracks must offer a diversity of products that includes gaming if they're to attract large crowds. Even more, though, horse racing needs to lower the cost of betting. It needs to discover and educate its audience (hint: teenage girls wearing short skirts, cowboy boots and mischievous smiles while attending rock concerts after the last race are not the sport's audience) and demonstrate that it cares about its fans. It needs to embrace technology and innovation and new wagers, it needs to find a basis for cooperation and it needs to remember that it's still one of the greatest games in the world. As for horsemen, they should look further down the track and not focus so myopically on their own needs. But for racing to just sit back and do little while relying on gaming, to wait for the arrival of slot machines and yet more slot machines as if they're the solution to all the sport's problems while ignoring the market and the need for significant change -- well, that's just suicidal.