Wednesday, January 20, 2010

It's Not Just Racing That's Suffering

Interesting figures from Poker News Daily on the decline in revenue for Atlantic City casinos in 2009. Overall casino "gross win" (what bettors pay, less what the casinos return to the bettors) was down 13.2% from 2008, coming in at $3.9 billion. The drop was spread pretty much equally between slot machines (down 13.1%) and table games (down 13.5%). The slots, by the way, account for roughly two-thirds of Atlantic City casino revenues.

The official explanation, from Casino Control Commission Chair Linda Kassekert, was pretty much what one would expect. Kassekert blamed the weak national economy, growing competition from casinos in neighboring states, and the partial ban on smoking in New Jersey casinos.As for the last of those, all I can say is that it's nice to be able to breathe in a poker room.

Compare to the Atlantic City figures, the recently released numbers for thoroughbred betting handle nationally and for the New York Racing Association (NYRA) don't look quite so bad. Nationally, total handle declined by 9.88% in 2009, as compared to the previous year, while in New York, NYRA's all-sources handle dropped by 10.24% That's not great news, but it somewhat belies the argument that racing is losing handle to other forms of gambling. That may have been the case in earlier years, as new casinos opened across the country and siphoned off players, but now that there are casinos everywhere (except, of course, at Aqueduct, where inept New York politicians continue to stall), it's interesting to see that the trend in casinos' revenues is no better than, and in 2009 at least, even worse than that of race track handle.

NYRA, which accounts for about 18% of total national handle, through its meets at Aqueduct, Belmont and Saratoga, saw betting decline from just under $2.5 billion on 249 racing days in 2008 to $2.2 billion on 250 racing days in 2009. Among the specifics cited by NYRA for the decline were the lack of a Triple Crown possibility for the Belmont Stakes (but all-sources handle on Belmont day was down only 10.2%, the same decline as for the year as a whole); bad weather on Travers Day, when handle declined by 18%; and the rainout of 144 scheduled turf races. As to the last of those reasons, I don't know what the average annual number of races taken off the turf might be, but 144 does seem high. And turf races tend to draw big fields, which always leads to better handle.

Industry wide handle was $12.3 billion last year, down from $13.7 billion in 2008. If we assume that the average takeout rate was 20% (close enough, and it makes the calculations easy), then the total amount flowing to tracks, horsemen, and, increasingly, OTB and ADW operators, was about $2.5 billion, or roughly what Atlantic City brings in just from its slot machines. Purses, interestingly, declined by only 5.6% nationally, though that decline is continuing into 2009, as track operators try to make up for the missing revenue.

I find the numbers to be good news in some ways. If racing's revenues are declining at the same rate, or less, than those of other forms of gambling, just think how much better we could be with some imaginative management, better marketing, and better pricing (takeout). A little imagination might go a long way.

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.

Wednesday, January 6, 2010

Surprise: Good Guys Are Maryland Stalking Horse

I've learned on good authority that Blow Horn Equity LLC has emerged as the "stalking horse" bidder for the Maryland Jockey Club properties (Laurel, Pimlico and the Bowie training center) that will be sold at auction in bankruptcy court on January 21st. Frankly, that's the best possible news for Maryland racing, though it may not be enough to overcome the obstacles to success that Maryland politicians, Frank Stronach and the De Francis family have created through their collective mismanagement.

A "stalking horse" bid in this sort of auction is one that the seller -- in the case Magna Entertainment -- is committed to accepting, unless someone else shows up with a better offer at the time of the auction. The fact that Magna has accepted the Blow Horn bid at least averts the threat that Stronach himself would cobble together a bid at the last minute to try to hold on to Laurel and Pimlico.

As I reported earlier, Blow Horn, headed by Jeff Seder of EQB, Inc., is the only one of six reported bidders for the MJC properties that is likely to have the welfare of the Maryland horse racing and breeding industries as its primary concern. The other bidders are either interested in slot machines, or in converting the tracks into real estate developments. It'd be nice to have folks running the tracks whose primary interest is in racing.

Of course, the ongoing saga of the Anne Arundel county slot machine license still hangs over the MJC deal. As of now, devloper David Cordish has the license, and has zoning approval from the county legislature to go ahead with a slots palace at his Arundel Mills mall, up the road from Laurel. As has been widely reported, there's a powerful petition drive underway to have that zoning approval revoked, and a movement as well to go back to the beginning in the licensing process, so the new owner of Laurel, whoever that turns out to be, could make the sensible bid, supported by a cash deposit, that Stronach refused to make when the license was first put up for bids.

David Cordish could still come up with a bid that offers more cash than the "stalking horse" offer, since he might calculate that the value of Laurel as real estate -- rather than a race track -- and the profits he could make from his slots license, if it's not revoked, are worth more than the value of a pure race track play. But the Blow Horn team has been doing its homework, and certainly is prepared to put more into Maryland racing than any of the other bidders. Let's hope they get the chance.

Sunday, January 3, 2010

Pity the Poor Trainer

The New York Racing Association (NYRA) cancelled racing today, because of very cold temperatures and high winds. No disagreement with that decision; I was at the barn area at Belmont this morning, and it was way too cold to be out in the open on a horse. Some trainers did send their horses to the training track, much to the discomfort of the exercise riders, but many chose just to jog them in the shedrow, away from the wind. Even that wasn't exactly a day at the beach.

But what's incomprehensible about the decision is that it was only announced after 7 am, AFTER trainers had to send their horses for the early scheduled races over from Belmont to Aqueduct in the NYRA van for the horses' mandatory six-hour stay in the detention barn. Every trainer who had horses in the first few races today therefore had to load those horses onto the van, send a groom with them, and then wait around until van, horse and groom returned, after the cancellation was made official.

For many trainers, this is a big deal. Since the detention barn system was instituted a couple of years ago, most trainers have begun charging their owners a fee, somewhere around $100, to cover the added cost of sending someone to be with the horse in the detention facility ("gulag") before the race. But when races end up being cancelled, it's pretty hard for the trainer to bill that "raceday fee" to an owner. The trainer ends up just paying for extra help, or for overtime to cover the work that the groom over at the detention barn can't do back at the trainer's shedrow.

There's no reason NYRA couldn't have announced today's cancellation before the first van left Belmont for Aqueduct, or even last night. It's not as if the weather forecast changed significantly between 5 am, when trainers started getting horses ready, and 7 am, when the decision was announced. Trainers and their workers get up early and are at the barn by 5:00 or 5:30 am; it's only simple courtesy and respect for the folks who put on the show for someone at NYRA to do the same.

Today's little fiasco merely highlights the difficulties that the detention barn system poses. It significantly increases costs for owners and trainers, and the mandatory six-hour stay in a strange barn often unnerves horses, resulting in uncharacteristically poor performance. And it's something that can't be worked on by schooling, the way a horse's behavior in the paddock, or at the starting gate, can be.

By now, it's probably impossible to undo the detention barn, even though other methods of preventing illegal drugging -- better testing, more security patrols, cameras in the trainers' own barns, just for example -- would probably be cheaper and less disruptive. NYRA has too much invested in the current system, both in money and in public relations. But if we're going to be stuck with the system, the least NYRA could do would be to help trainers avoid needless trips to the detention barn when there's not going to be any racing.