Friday, January 15, 2010

A Wish List for Maryland Racing

Now that Frank Stronach has made a deal with Magna Entertainment's unsecured creditors, it's almost possible to start dreaming of a post-Stronach world, apart from Gulfstream and Santa Anita. While the Magna bankruptcy settlement is not quite a done deal yet -- the minority shareholders in Frank's captive company, MI Developments, not to mention the bankruptcy judge in Delaware, may yet have something to say about it -- and while I wouldn't put it past Frank to come up with a last-minute bid of his own to hang onto Laurel and Pimlico, there is a dim flashlight beam barely visible at the end of a very long tunnel.

So, in the spirit of some other visionary bloggers, let's dream a little about what could be done if somebody who actually cares about racing (i.e., Jeff Seder's Blow Horn Equity) somehow manages to win the auction, set for January 21st, for the Maryland Jockey Club properties.

(As far as I can tell, from the very limited public information available, none of the other bids would place actual real live horse racing at the center of their enterprise, and most of them would involve converting as much as possible of the MJC into real estate developments, while possibly running the Preakness in some football stadium to satisfy the State of Maryland.)

Let's start with the racing schedule itself. Last year, Pimlico ran only 20 days, on a four-day-a-week schedule in April and May. That's not much use for a major capital facility, even one as rundown as Pimlico. Laurel, in contrast, runs a four-day racing week straight through from September until mid-April. That's worse than the six months straight at Aqueduct that New York horseplayers have learned to loathe. Even with the summer break, when the horses head to Colonial Downs and Delaware before the bullring meet at Timonium, that's too much racing for the state.

Racing needs to shrink. We need fewer horses, fewer tracks, and fewer races. And we need to make the races that we do put on attractive to fans and bettors (two groups that overlap, but are not identical). Here's a possibility: break up the calendar with a fall meet at Pimlico, like Churchill's star-studded fall meet, and the perhaps take a break altogether in December and January. Less live racing, but make sure there was a great, state-of-the-art simulcast facility at each track, so the die-hard bettors could keep coming all year.

Speaking of simulcast facilities, Maryland law would allow the MJC to open additional OTB outlets around the state, subject to local zoning and regulatory approval. Right now there are only three OTBs in the entire state. OTBs owned by the race track, and integrated into its tote system, are a proven success in other locales, so why not build on that in Maryland?

And keep the four-day racing week, but put in some lights and run those Thursday and Friday programs at night, with lots of music, bars, and things for people to do before, after and in between the races. In other words, make the tracks places that people actually want to go to. There are a lot of places around the world where racing has increased its fan base in the past couple of decades. Take a trip to Australia, Hong Kong and Japan and see what they're doing there. A lot of it might translate well into the US scene; the Aussies even speak a distant relative of English, and they've managed to attract a distinctly younger and more female crowd than one sees at any US track. They must be doing something right, and it's only a 12-hour plane ride, so go take a look.

Obviously, the physical plants at Pimlico, especially, and at Laurel need a lot of work. Priority number one is to make the front side attractive, so that people will be happy going there. But not far behind is putting some work into the backstretch. Make sure the barns don't leak, provide some decent housing and facilities for backstretch workers. Get together with local health care agencies to provide decent medical care for backstretch workers. Provide social services onsite and maybe even convince the University of Maryland-Baltimore law school to run a free legal clinic once a week. Work with the state and the city of Baltimore to get money into the neighborhood around Pimlico, and put as many neighborhood residents as possible to work at the track. Football and baseball stadiums get tons of public money, or at least public guarantees of their bond issues, so why shouldn't racing, which has a much much greater economic multiplier effect?

And once we get that improved physical plant, let's make sure it stays new and welcoming to customers. Have lots of customer-service reps who actually want to help; have supervisors checking up on what customers are saying (Doug Donn used to walk around Gulfstream with a clipboard, taking notes, something I haven't seen much of under Stronach's management) say thank you to customers when they leave; make the reserved-seat ticket operation fan-friendly and pro-active (I get calls all the time from theater groups, ballet companies and the symphony -- why not from the race track?). We're in a retail business. That means our success depends on attracting and keeping customers. Has anyone at a major race track thought of that recently?

Once we've got decent facilities, and are treating our customers well, how do we increase handle, capture enough of that handle to support the track and the horsemen, and pay back our investors? There are at least four factors in maximizing revenue from racing: field size, takeout, simulcast arrangements, and OTB/phone betting revenue. Let's look at each of them.

Lots of studies, including some excellent ones by Jeff Seder, show that field size is by far the most important factor affecting handle. A Grade 1 stakes (except for the Triple Crown) with a five-horse field will always pull in less money than a 12-horse mid-level claimer. So how do you get full fields? That's what a good racing secretary does; know your horses, work the horsemen, card races that typically fill. PJ Campo in New York has done a pretty good job in this regard, in a tough situation. He's introduced a lot of allowance/optional claiming races for the better horses, and a lot of conditioned claimers for the not-so-good. True, he often has 25 races on the list, including those in the condition book and a host of extras on the overnight, and it's hard for trainers to know if the race they're pointing at will actually go, but they are running more horses per race in New York now than they did a few years ago.

Another idea is to create additional big days for Maryland racing. Right now, there's Preakness weekend and, to a far lesser extent, the Maryland Million in the fall. What about theme days, of the kind that have worked well in Florida, where Calder's Summit of Speed and Stronach's(!) Sunshine Millions have done well. Why not get together with the other mid-Atlantic tracks and have a real mid-Atlantic championship series, with qualifying races at all tracks and the final championship day rotating among, say, Philadelphia, Monmouth, Delaware and the (new) Pimlico fall meet?

The Maryland tracks are in the middle of historic steeplechase country. Why don't we have more jump races at the tracks. They're great spectacle, even if you might not get quite as much betting handle, at least until the bettors get used to them.

In much of the world, it's common to have 14, 16 or even 20 horses per race, especially on the spacious turf courses that are common overseas. That makes for terrific per-race handle. At Laurel and Pimlico, it would probably take some major rebuilding of the track to accommodate bigger fields, but it's worth thinking about. There's room at Pimlico to extend a turf course into parking lots that are used once a year. Let's at least do a feasibility study.

What about takeout? The evidence is, to say the least, inconclusive. Laurel has experimented with a lower (14%) takeout on its Pick 4 bet, but no North American tracks have tried a serious experiment with the 10-12% takeout that horseplayers' groups recommend. Why not give it a fair shot? As HANA has often pointed out, lowering takeout keeps bettors in the game longer, makes them feel better, and even allows some good handicappers to make a little money. And if you do lower the takeout, promote it like crazy. Make sure everyone in the racing world knows that Laurel is the cheapest place to bet in all of North America.

One reason that tracks, and horsemen, have been hurt by simulcasting is that they've essentially been giving away the rights to their product -- the races -- for almost nothing. While simulcast fees have crept up a bit in the past few years, they're generally still far from the model espoused by horsemen's organizations, under which one-third of the takeout would go to the track sending the signal, one-third to that track's purse account, and one-third would be left for the simulcast outlet.

There's no quick and easy solution to the simulcast mess. And the increasing monopoly power of Churchill Downs Inc.'s TrackNet operation, especially if its merger with YouBet goes through (it's being opposed by a number of unhappy YouBet shareholders), the combined operation will sit like a colossus over US simulcasting operations, with Churchill on both sides of the negotiating table, as track owner and, more relevant for its bottom line, ADW bet-taker. The legal obstacles may be immense, but a more sensible solution would be to take the existing mid-Atlantic coalition, that negotiates with simulcast outlets, and turn it into an ADW operation of its own. Failing that, the post-bankruptcy MJC could form its own integrated betting operation, with the tracks, its wholly owned OTBs, and its own phone and internet betting operation, along the lines of, say, NYRA Rewards in New York.

An integrated betting operation would mean that the track, and the horsemen, would get the same cut from OTB, phone and internet betting in Maryland that they do from dollars actually wagered at the track. Not a panacea, but a start.

Any and all of these changes will be more likely if the new track management in Maryland acts like a good citizen and gets involved, not just with the stake-holders in the industry, but with the state, with Baltimore, with Anne Arundel County. Get out and be visible, go to the charity events, volunteer on some public task forces. I know that Jeff Seder plans to put together some visionary programs for the poor, mostly African-American area that surrounds Pimlico. That sort of community involvement should be, but probably isn't, a condition of taking over the MJC.

And don't forget to take care of the people who put on the show. Have someone in track management who's actually out there in the mornings, talking with trainers, finding out what's bothering them, and who sits down with the horsemen's and breeders' organizations regularly. Don't institute new rules without consulting the horsemen first -- NYRA's arrogance really shows itself on this issue -- even if you have to decide that maybe the new rule has to go ahead over their opposition. Negotiate a fair contract with the horsemen, one that provides lots of upside potential for everyone, and that encourages cooperation more than it threatens punishment.

And, in the wake of Stronach's "management" style, don't forget the basics of running the enterprise. Make sure people know what they're supposed to do, and see that they do it. Set measurable objectives, and keep track of whether they're met. There's been so much bad management in American racing that even just getting the basics right would be a huge improvement.

At least half of these ideas probably will turn out to be unworkable or unsuccessful. But racing has been mired in do-nothingism so long that the imprtant thing now is to try. Some of the ideas WILL work, and when they do, Maryland Racing will be a lot more fun, and maybe even profitable.

Good luck, Jeff.

4 comments:

HiPlainsDrifter said...

Stronach was not the only one who created the problem, but in industry after industry purchases of enterprises at inflated prices resulted in huge piles of owed debt. And money formerly paid for employee wages and capital investment and repairs was diverted to just paying interest.
Jobs were abolisehd and enterprises ran down.

Zachary said...

I agree, but the good news is that no one is overpaying for real estate these days or other over valued assets.

rather rapid said...

you lost me when you started out "racing needs to shrink".

Tom Atwater said...

It is good to see some people have the interests of MD racing at heart.
As you said, most of these ideas will have a hard time coming to fruition, but if the good intent is there, some good will come of it.