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Thoroughbred Idea Foundation: Horsemen Deserve Fair Compensation

Horsemen should be properly compensated for content. A major source of funding for the sport and its stakeholders, is in jeopardy.

Horsemen have been pawns in the operation of racing for decades, not receiving their fair share of compensation for the content that their horses provide. The effects of the global pandemic have only made this clearer. Through the first six months of 2020, wagering on American races is down nearly 11 percent. Purses, however, are down 40 percent.

When the doors to casinos closed, and racing was put on hold, horsemen suffered. The owners and operators of advanced deposit wagering outlets like TwinSpires and Xpressbet did not. In fact, profits from Churchill Downs Incorporated's online wagering business rose 39 percent in Q2 2020 from the previous year despite not hosting its flagship event!

These two entities, among other ADWs, were pressed into service like never before because of the pandemic's impact which effectively closed on-track betting. While undoubtedly helpful, the customers forced to switch online may never return to betting through the sport's most lucrative channels – on-track wagering. This will hasten the imbalance in contributions to purses.

As most horsemen realize, online, out-of-state bets on racing are often the least valuable to purses. Now, ADW betting is the vast majority of wagering and unlikely to change soon. Even worse, the ADWs continue to retain an outsized portion of the commissions from wagering takeout. Without racing, the ADWs have little to offer customers. They should not take advantage of the horsemen who enable their very existence.

In its latest publication (click the link to read more), the Thoroughbred Idea Foundation (TIF) calls on horsemen, and their representative groups, to begin asking critical questions about the composition of wagering on its races, increasing attentiveness to approvals of wagering contracts and to better understand the delicate balance needed to continue sustaining racing purses. Racing operators act purely from a position of self-interest.

Horsepeople need to start doing the same.

The time to fix the broken model is now.

Roughly 65 percent of all wagering on racing in Q2 2020 came from the major ADWs, like TVG, TwinSpires, Xpressbet and NYRA Bets. So if doors were closed to tracks, where did the rest originate?

TIF estimates that approximately one-third of all wagering on American racing comes from entities we characterize as “high-volume betting shops,” or HVBS, which are the equivalent of private, high-end wagering platforms which do not need separate ADWs. As HVBS wagering increases, a series of disadvantages are created, increasing costs on all other bettors, and having the effect of reducing participation from, or outright eliminating, non-HVBS players.

The impact for all racing stakeholders, particularly horsemen, will be felt over time because HVBS players (which number in the dozens) are often the least profitable towards purses. HVBS wagering has increased over time, from only 8 percent of U.S. betting in 2003 to the estimated 30 to 35 percent now. When you adjust for inflation, racing's least valuable customers (relative to their contribution to purses) have increased by 114 percent in the last 16 years.

Meanwhile, participation from racing's most valuable customers – recreational players wagering under $100,000 annually – is declining at alarming rates. Make no mistake – our sport needs ALL of its customers, both from HVBS and non-HVBS sources. TIF estimates that all non-HVBS play has declined by a staggering 63 percent, adjusted for inflation, since 2003.

The most valuable source of prize money has dropped by a significant amount while the least valuable source has increased substantially.

This situation threatens purse levels in the intermediate and long-term across all racing jurisdictions, but particularly in light of the evolution of competitive wagering products – legal sports betting, daily fantasy sports and the growth of online casinos, which do not contribute revenue to purses even if the online license is granted to a track operator.

As racing faces declining contributions from casino-related revenues towards purses, or worse – loses all casino-based contributions to purses – along with a steady rise in wagering competition, horsemen must get involved in these contracts and start asking questions, increasing attention on the racing wagering business.

If you would like more information, please reach out to TIF Executive Director Patrick Cummings or one of the TIF board members.

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TIF’s Cummings Takes on Issue of Timing Problems

One day after Bill Finley wrote about inconsistencies in timing at a handful of racetracks in the U.S.–both big and small–in Wednesday’s TDN, Pat Cummings, the Executive Director of the Thoroughbred Idea Foundation, has penned a piece of his own, explaining why accuracy in timing is paramount to the game and offering a framework for how to move forward.

“The state of race timing in America is not improving as the years pass. It is getting worse,” writes Cummings, who served as the director of racing information for Trakus for the better part of four years from November 2011 through June 2015.

As the result of a deal between Equibase and the British-based Total Performance Data (TPD), races at a total of 11 American racetracks now rely on a GPS-based system known as Gmax. The system debuted in the U.S. in 2017 and is being used for this first time this summer at Del Mar. But as Finley and Cummings each point out, Gmax has been so unreliable as to force figure makers in this country to rely not on reported times, but on their own hand-timing of races.

“We have discovered that the final times, which is really all you are concerned with when making speed figures, from these tracks are not accurate enough at Gmax tracks to enable us to publish accurate speed figures,” noted Randy Moss, recognizable to most from his role as a racing commentator, but who has also been involved with making Beyer Speed Figures for Daily Racing Form for many years, in Finley’s story. “For the last month plus, we have been using our own times generated by video timing instead of the final times posted by the Gmax timer.”

Indeed, after finding that a handful of races from the Aug. 1 card at Del Mar–a program that also included the GI Bing Crosby S., a Breeders’ Cup Challenge race–TIF undertook an investigation of races at other tracks on the same day. Fully eight of the 11 live races at Woodbine Aug. 1 (as of the charts that existed Aug. 4) and two-thirds of Laurel Park’s nine races had different times on their live feeds compared to what the chart was reporting.

“An accurate time is a fundamental element of regulated horse races,” Cummings writes. “It has become clear that our sport has not evolved with more modern technology, but rather taken a technology, ignored whether it is at least as accurate as the technology it is replacing, and shoved a square peg into a round hole.

“Questioning Equibase’s GPS play is not being critical of all innovation and hoping to quash it, it is being critical of technological backpedaling which is being positioned as exactly the opposite.”

Click here to read the entire piece from Pat Cummings.

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TIF Special Report: Racing Not Only For the Elite

Instead of #FreeDataFriday, the Thoroughbred Idea Foundation is released a special report: “Racing Not Only For (the) Elite,” which focuses on wagering and the horseplayer,

The TIF stated that: “The report is the culmination of months of research, conversations across informed pockets of the industry and extreme frustration. The frustration is grounded in an assessment of the current state of racing when combined with the realization that the industry commissioned a detailed study that identified these current issues 16 years ago, when their impact was far smaller than it is now.”

Click here for the executive summary for the report or here to read the full report.

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Thoroughbred Idea Foundation Special Report: ‘Racing Not Only For (The) Elite’

In lieu of its traditional #FreeDataFriday series this week, the Thoroughbred Idea Foundation released a special report: “Racing Not Only For (the) Elite.” This report is the culmination of months of research, conversations across informed pockets of the industry and extreme frustration, and the executive summary is printed below:

Do stakeholders in American Thoroughbred racing really understand the state of the business as it relates to wagering? Do the horsepeople's representative groups, HBPAs and THAs, groups that have a hand in approving contracts to permit wagers on their races, understand it? Do the boards of major industry organizations? Does Kentucky, whose economy is so intricately tied to the proliferation of Thoroughbred racing?

If so, there is no conceivable way that our sport would find itself in the position it does.

Industry organizations boards and the directors of representative groups of horsepeople surely have the desire to act in the best, long-term interests of the sport and their membership. But have they been given, or do they understand, the full picture as it relates to racing's most natural source of sustainable income – wagering?

All signs point to no.

We believe the HPBAs and THAs should be asking some of the following questions: Where is your handle originating? What are the “effective” takeout rates for horseplayers from different handle sources? What is being done to attract and retain recreational and middle-market horseplayers? Are some wagering groups given preferred information or access which advantages their rate of winning over others bettors?

This TIF Special Report outlines a problem which has grown increasingly noticeable. Unfortunately, it is a problem that was detailed in a report commissioned by the NTRA's Wagering Systems Task Force, published in 2004. The report is a blueprint on how to avoid the exact situation racing is in today, though which few seem to recognize.

In brief, deals enabled by tracks and distributors of their signals with high-volume betting shops (HVBS) such as Curacao-based Elite Turf Club, have promulgated a great disparity between racing's largest bettors and the rest of the sport's bettors. This has a crushing financial effect on recreational horseplayers, racing wagering's largest customer base, while stunting growth of the sport's middle and upper-market players who are left to compete on a distinctly unlevel playing field.

In raw figures, wagering on American racing is down roughly 27 percent in the last 17 years, but over the last decade, the figures seem relatively flat. Judging the performance and state of wagering based on these numbers alone reveals almost nothing.

Play from HVBS customers, a group whose overall numbers reach into the dozens, has grown from roughly four percent of handle in 2002 and more than seven percent in 2003 to maybe 30 to 35 percent of overall play in 2019. The estimate of 30 to 35 percent is based on a combination of private expert assessments and a review of behavior in wagering pools. Some think this estimate is slightly high, but believe it is rapidly reaching that point. The exact figures are known by tracks and those who enable HVBS play, but major industry organizations, which include representative groups like HBPAs and THAs, do not seem to know.

Many in racing think of the bettors they see AT the track, or their experiences with betting via a retail advanced deposit wagering outlet (ADW) like TVG, TwinSpires, Xpressbet, or the rapidly growing NYRA Bets. The only trait these entities share with players from HVBS is that they are betting on the same races. Everything else is different.

HVBS players operate what are, essentially, the equivalent of profit maximization machines.

These are not individuals who bet big to impress anyone. They bet big because their own systems, developed and honed over years – the math – tells them to do it. Those bets, and the rebates they receive, will maximize profits. They are the most efficient operators in a sport that is notoriously replete with inefficient market behavior.

They don't lose, and if you try to reduce their rebates, they will turn to another source for betting.

HVBS play makes them the least profitable participants, as it relates to their contributions to purses, across racing wagering. As HVBS play grows, profits shrink, the net amount returned to racing declines.

Racing's most loyal, passionate customers, its recreational ones, contribute the most to the sport as a percentage of their overall play. Of prime concern is the portion of non-HVBS play which is decreasing. Since the publishing of the Wagering Systems Task Force Report in 2004, we estimate non-HVBS wagering in America has reduced 63 percent.

Now, take note of this element of the WSTF Report, again – with figures from 2004.

“There has emerged…a major gap within the retail distribution of Thoroughbred racing in the portion of handle going to purses and other track expenses associated with putting on live racing. On average, purses ($1 billion) are 6.7% of aggregate U.S. handle ($15 billion). Under the current pricing structure, however, a rapidly growing distribution channel, [that which we recognize in this report as commissions from high-volume betting shops], contribute materially less than this amount – from 3-5% of their handle – to tracks for purses and other track expenses associated with putting on live racing.

“All other distribution channels contribute materially more than this amount when one combines revenues going to host tracks, to guest tracks and/or to in-state hosts – at least 8%, and more typically 10-13%. So the gap is at least 3% but more typically 6%. There are two principal effects of interest. First, the distinct gap in overall support of live racing is a key component – and probably the key component – of rebates made available by the advantaged entities to high volume bettors. Second, the growing (and resulting) shift in handle toward these entities necessarily reduces track revenues and purses relative to aggregate handle.”

It was not addressed in 2004, and the gap has widened ever since. Action is needed.

This WSTF Report made three key recommendations to the greater industry. First, increase handle – that has NOT happened. Second, tracks should vertically integrate, that is, become online betting providers, control the tote companies, manage the levers in the greater value chain of the sport. This HAS happened.

The third recommendation, which has not been implemented, was presented as follows:

“Establish the most attractive blend of economic incentives to participation for both informed bettors and recreational players…Economic theory suggests that the higher effective takeout rates on all other bettors would decrease their participation in Thoroughbred racing, all else equal.

“The imbalance, we believe, is rooted in current [2004] technology that makes handicapping information and pool data available on demand and the process of placing bets almost instantaneous, but which cannot then redistribute updated pari-mutuel pool information on a real-time basis. Longer term, the solution lies in improving technology for all bettors.”

This report is meant to leave industry stakeholders, and particularly the boards of major industry organizations which includes representative groups of horsepeople, with a single call to action. Recognize that the situation, as outlined, is problematic, get answers to the key questions we suggest, discuss this more than it has ever been discussed before, and then move on to finding a way to operate successfully and sustainably, in the future.

CLICK HERE to download the entire TIF Special Report as a PDF

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