POPE’S UPSIDE-DOWN BUSINESS MODEL PROVES HOT TOPICBy Ray Paulick
Fred Pope touched a nerve throughout the Thoroughbred industry with his commentary about what he called an “upside down” business model for simulcasting, where the track and horse owners putting on the live race get one-fifth of the takeout, the remainder going to the simulcast site, OTB or ADW taking the bet. If the bet taker/simulcast site is affiliated with a racetrack, its share is usually split with the local horsemen.
The article, published in the Paulick Report on Friday, was a reprint of a speech Pope gave earlier this month at the University of Arizona Symposium on Racing in Tucson, Ariz. The Lexington advertising executive wants to see racing adopt a new business model, one that pays the lion’s share of simulcast revenue to the track and horse owners putting on the live race. Pope has long been an advocate for horse owners to exert greater control over the terms of simulcast contracts.
Though his widely-read article has elicited nearly 90 comments from horse owners, breeders and gamblers whose opinions fall on all sides of the issue, participants in the Daily Paulick Poll voiced overwhelming disapproval of the current business model. To date, only 6% of those who voted say the current model is the right one. Sixty-five percent believe the lion’s share of the simulcast proceeds should go to the track and owners putting on the race, while 27% feel it should be divided evenly between the live track and horsemen and the simulcast site, OTB or ADW and affiliated horsemen at that end.
Comments from horseplayers focused largely on what they believe is an onerous level of takeout, but many of them also feel disenfranchised or taken for granted by an industry that once had a monopoly on gambling and has not done a very good job of competing in this new world of Indian casinos, riverboats, and online gaming, whether it be poker or sports betting through offshore bookmakers. Not many of the horseplayers who commented seem to have much sympathy for horse owners who spend at least $2 billion a year on training costs and compete for half that amount in purses.
Many of those horseplayers want to see takeout reduced, especially on exotic bets such as exactas, trifectas, superfectas or multi-race wagers where the takeout often exceeds 25%. Some of them feel ADW companies should get a large enough share of the takeout so they can be profitable and still offer rebates to their best customers.
The problem with that, as I see it, is that the stronger position the ADW companies have, the greater a percentage of handle will migrate from on-track business to phone or internet wagering. We’re already seeing horseplayers at the track making wagers through ADW companies because some of them will offer rebates. As handle moves from on-track to ADWs, there is less retained revenue for the tracks and local horsemen to put on the show. Less revenue means lower budgets for marketing, capital improvements and technology advancement for tracks, and less incentive for horse owners to stay in the game.
Pope’s proposal may not be without flaws, but the current model clearly is upside down, and any business structure that puts more power in the hands of the bet takers is going to make it even worse.
Copyright © 2008, The Paulick Report