Saturday, October 3, 2009

Is the Price Right?

Last week I told you I would be speaking to marketers from across the country at the NTRA's Marketing Summit in Las Vegas. I asked for your ideas and you responded -- man, did you ever respond! I received almost 50 substantive, insightful, passionate responses. Read all of the comments for yourself but be aware that to see all of them, you have to go to two places now. My blog is posted not only on the NTRA website but also on Bloodhorse.com in the Blog Stable.

I was so impressed by the effort that I actually incorporated paraphrased versions of almost every one of the comments into my remarks. I think it is fair to say that your views had a very positive impact on the Summit. Portions of my remarks can be accessed online. Take a look and send me your comments. By the way, several experienced horse players, including the last two DRF/NTRA National Handicapping Championship winners, who participate in the NHC Player Advisory Panel were invited and did attend most of the sessions.

I organized the speech around a series of questions. The first two questions were coincidentally the questions posed by Rosie (posted 9/26/09 on ntra.com). "What are we selling?" and "To whom are we selling?" Here's how I answered the questions. Given the stiff competition we face from casinos, Internet gambling options, and other forms of entertainment, to recover the losses we have suffered in this economy, we must get back to basics. We have to recommit ourselves first and foremost to selling our game as a unique, challenging, exciting opportunity to wager on live horse racing. To that end, our primary customers are and must always be horseplayers.

I did add one twist that is essential. Tracks are also selling racing opportunities to owners and trainers. Full competitive fields are what horseplayers want, so marketers working in concert with their respective racing departments must sell great racing opportunities to owners and trainers just like they must sell great racing and wagering opportunities to horseplayers. The tracks with full, competitive fields will attract the bettors.

The third question I asked is the most important, and for many tracks, the most difficult. At what price are horseplayers willing to buy what we are selling? Said another way, do some tracks need to consider a reduction in takeout? From a pure economics perspective, the answer is clearly "yes."

Takeout is the amount of the commission withheld by tracks from all winning wagers. Typically the takeout rate averages about 18 % -22 % on a blended basis. Price, or in our case takeout, is the single biggest driver of value and it is overall value that determines whether people will buy your product for the price at which you are offering it. If you listen at all to horseplayers, they are saying over and over again to this industry -- "Your price is too high for the product you are offering." "We love horse racing but at your prices, we are forced to seek other forms of gambling which may not be as exciting but are more profitable for us." "Reduce the takeout and we will wager more money and more often." Why else would rebaters be able to lure our biggest bettors away from the live track? Tracks have tested these waters before with mixed results but it’s time to plunge back into the process and find the optimal takeout rate for all parties- tracks, horsemen and players.

As I stated to the audience, the industry spends a lot of time and energy fighting over the "price" paid to host tracks and horsemen by distributors of the simulcast signal (receiving tracks, OTBs, ADWs and the like). This important discussion relates to the wholesale pricing of our racing product. It's time for this industry to also concern itself with the retail price or the price paid by the consumer (i.e. the horseplayer). Every other industry fighting to survive in this economy is taking a hard look at its retail pricing structure and it is high time horse racing considered doing the same.

Such a change will take creativity and experimentation by tracks and horsemen, and some distributors may object because it may eat into their margins. Nonetheless, now is the time to once and for all prove (or disprove) the overwhelming majority of academic research concerning takeout which says, in essence, less is more. Now is the time to determine whether in fact, less takeout actually means more wagering and ultimately more revenue for tracks, horsemen and horseplayers. Said another way, let's focus on growing the economic pie instead of always arguing among the participants about how we will carve up a shrinking economic pie. See the 2004 NTRA Players’ Panel Recommendations for more detail on the relationship between handle and takeout.

I spoke about these topics at length then ended with this thought which is a paraphrase of an idea provided by one comment to "Marketing 101" posted on Bloodhorse.com: "Treat the gamblers (and I would add "the horse") right and the rest will take care of itself." Well said, Volunteer.

How would you answer these fundamental questions? Are we selling the right product to the right people? Why have most track experiments with lower takeout failed to generate new handle? Do you pay attention to takeout when you play? Let me hear from you.

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