Does Horse Racing Need To Make Changes To Keep Up With Sports Betting?

Ever since legal sports betting came to New Jersey, the horse racing industry has had to consider updating its business to keep pace.
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A gambler can walk into the Meadowlands Racetrack or Monmouth Park in New Jersey — or at racetracks in other states such as Pennsylvania and West Virginia — and go to the sportsbook there and place bets on sporting events. The “hold” by the books averages around 5%.

Or the gambler can make a wager on a horse race, either happening at that track or elsewhere via a simulcast TV feed. The hold for that bet is around 15-20%.

Is that a problem, now that sports betting increasingly is going hand-in-hand with horse racing?

The Thoroughbred Idea Foundation, a not-for-profit industry advocacy group, said it is, in a provocative report published earlier this year.

“Racing’s existing customers, including our best customers, will be wooed by fabulously funded sports betting agencies,” the article reads, “while future generations of potential customers will be avalanched by customized fixed-odds betting products featuring their favorite leagues, teams, and players. The opportunities will be endless.

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“Over roughly the next two to three years, racing must adapt to these new market conditions — accepting fixed-odds and exchange wagering on its product; developing a new funding model to support the sport in light of this disruptive, well-financed and aggressive competition; significantly boosting and improving our marketing efforts; and innovating to create new types of bets for customers who will soon be taken by agile, forward-thinking sports betting outlets. The future of horse racing on the continent will depend on it.”

Horse racing industry reaction

Pat Cummings, a co-author of the article, said last week that the proposal has met expected resistance.

“It’s obviously a work in progress, since we’re starting from essentially zero,” Cummings told NJ Online Gambling. “The only speed in this sport is in the races.”

Jeff Gural, who operates the Meadowlands Racetrack, questioned the premise of lowering takeouts at a sports betting industry event in Manhattan last fall.

“Everybody says that,” Gural said. “And truthfully, if I owned a racetrack that had a casino, where the casino was funding everything, I would lower the takeout. It’s a no-brainer.

“The problem is … 90% of our business is being done off-track [via simulcast betting]. So if I lower the takeout because I feel bad for the customers, then the racetracks that take my signal won’t take it. They’ll say, ‘You’re telling me that your takeout is 10%? I’d rather get my customers to bet on a product where the takeout is 20%.’ It would require the whole industry [being unified].”

Gural added that big-time bettors get rebates that provide them more favorable margins, and he also noted, “there is no evidence that lowering the takeout actually helps the handle.”

A professional gambler weighs in

Keith Coppola, a professional horse racing bettor in New Jersey for many years, is not sounding the alarm either.

“The real money in the sport is playing with major rebates, so I don’t find [the discrepancy] to be an issue,” said Coppola. “Still, the lower the takeout, the longer a player can survive [before running out of money]. The tracks, though, contend they are barely making money.”

Mark Ford, the president of the Standardbred Breeders and Owners Association of New Jersey, notes that the early 2019 winter meet produced a healthy $3.6 million Saturday night handle in the first go-round with sports betting also in the mix at the Meadowlands.

“As far as sports betting, I think overall having it has gone a little bit our way — but it’s probably too early to tell,” said Ford. “It’s just nice to have fresh blood in the building, and the atmosphere is a little more exciting.”

Dennis Drazin, who operates Monmouth Park for New Jersey’s thoroughbred horsemen, also is not concerned. He notes that at racinos, horse racing and casino games co-exist — and that casino games offer differing takeouts as well.

Industry numbers show that national horse racing handle has been steady in recent years.

Sports betting: friend or foe?

Richard McGuire, executive chairman of SportTech PLC, said at a December event in Tucson, Ariz. that “the customer will demand” a shared wallet that allows online customers to easily bet on both horse racing and team sports.

“Sports betting is both the greatest single opportunity and the greatest threat to racing,” McGuire said at the event. “Unfortunately, consumer spending will quickly move away from racing, but racing and sports betting can coexist if sports betting is well integrated with racing.”

Ed Hannah, executive vice chairman of the Stronach Group, said at another industry event last fall that newly legal sports betting could create an issue for the horse racing industry.

“The crossover of racing bettors to sports bettors may lead to cannibalization of horse bettors by sports betting operators,” Hannah said at the Sports Wagering and Impact on Horse Racing symposium.

“We have to remember that other than maybe some weekday afternoon baseball games, that horse racing controls the North American afternoon market for betting from Monday through Friday — and I think that’s a tremendous opportunity we can take advantage of,” Hannah added.

Cummings said that the effort in the Kentucky legislature, which he hopes will bear fruit next year, will lead to both a lower takeout and fixed odds via exchange wagering, which he said “have to be concurrent.”

Sports bettors who choose a side know immediately at the time of the bet exactly what their payout would be. But with parimutuel horse racing betting, those odds can and do change in the final minutes if substantial money swings toward a particular horse.

So far, New Jersey is the only U.S. state that offers fixed odds. Drazin said it seems likely it will stay that way for the near future.

The simulcasting permutation

One complication for any change is the interconnected nature of U.S. horse racing via simulcast betting. Drazin said, mirroring the point of his counterpart Gural, that when Monmouth Park once experimented with a lower takeout rate, “some jurisdictions didn’t want to take our signal.”

On the same panel with Gural, Colossus Bets CEO Bernard Marantelli said that he believes the takeout should change, citing Coppola’s premise that reducing the takeout allows a bettor’s money to last longer, thereby increasing their level of loyalty.

“You’d have to go and get a variable takeout tote that allows you to take out 15% at a track where the people are dressed up and drunk and don’t know what they’re doing, and have a 4% takeout online,” Marantelli said. “That’s for people whose other options at home are, ‘Do I play a parlay at 104 or do I bet in what was a 15% racing takeout win pool, which is now a 4% takeout online?’”

So does change seem likely?

“A different payout rate online is technically feasible, and desirable,” Marantelli said. “But to get a bunch of [racetrack owners] who don’t particularly like each other to do that — that’s not going to happen.”

Still, Cummings intends to keep up the fight for lower takeout.

“Horse racing has not earned the right in recent years to say, ‘Everything is okay,'” Cummings said. “We have to accept the reality that sports betting is coming across the U.S., and react accordingly.”

Photo by Geoff Burke / USA Today Sports

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