01/31/2017 11:36AM

Zoccali: Sustainability can be achieved by lowering host fees, takeout rates

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The simulcasting of horse racing throughout our nation’s racetracks was viewed as “found money” by its supporters on the dawn of its implementation.  The general way of thinking was that a small percentage of millions upon millions of dollars being wagered all over the country is better than nothing.  Certainly no one disputes that a small piece of a big pie is better than not having any pie at all.  But what this very simplistic idea lacked was forward thinking.

The fact that you no longer had to be at a specific racetrack to wager on that racetrack, and that they were creating an entirely new business model, did not resonate with the creators of simulcasting.  The idea that one day you would be able to wager without even being in a racetrack or an off-track wagering facility was not even a blip on the radar.  Therefore, racetracks began selling their signal, the signal that they owned and financially had to support, for a fraction of what it could have been sold for. 

Why would they do such a thing?  Again, it’s rather simple.  A racetrack would not make a great deal of money on its own signal being exported all over the country.  However, they would make a large percentage on all of the other racetrack signals they imported into their facility.  After all, the racetrack that owned the signal was selling it for a very low price and wouldn’t it be great if we could be making 15 or 20 cents on the dollar on tracks like Saratoga, Belmont, Santa Anita and Gulfstream because the customers in our building are betting on those products.  After all, we are just a small track in West Virginia, Iowa or Indiana and now we can get a nice piece of the New York or California pie! 

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The “importing” of signals to racetracks became more important financially to the racetrack receiving the signals than their own racing product.  In effect, the simulcast-center within the racetrack became more important than the racetrack itself as the track became more dependent on other racing products rather than its own.  That was and still is a very dangerous thing for one simple reason: You have no control over the signals you are importing and it is nearly impossible to market simulcast signals (not including marquis events) to your customers.  How do you convince your customers to come to your facility on a Wednesday afternoon to bet? 

When I was a young kid who went to The Meadowlands with his dad, it was evident that particular facility benefited from that simulcast system.  It was incredible to see the number of people who would be in that building during times of no live racing, wagering on simulcasting.  There was (and probably still is) more money wagered at The Meadowlands on simulcasting than any other brick and mortar racing facility in the country.

But The Meadowlands and other racetracks throughout the country saw their simulcast revenue decline when off-track wagering facilities began to pop-up all over the country.  From there, obviously when the era of being able to wager from the comfort of your own home began, fewer people were going to the racetrack as well.  But everyone talked about how there were so many fewer people at the racetracks for live racing, which didn’t look good.  But people were not really talking about the fact that there were fewer people going to the racetrack to wager on simulcasting, which ironically was even more detrimental to the racetrack because while no track races 365 days per year, they do have simulcasting every day.

The casino at racetrack programs masked the problem.  With casinos funding a lot of the racing operations or at least a sizable portion of the live racing operation, people within racing were not reacting to the decline of revenue received from simulcasting.  In fact, many racetracks simply decided not to be open for simulcasting seven days per week.  It simply wasn’t worth it. After all, the casino is more profitable anyway.  There was no incentive for many racetracks to look at what had become (and what actually always was) a broken and backwards simulcast system.

Of course, I realize that asking the racing industry to sit down in a room together and agree on anything is unrealistic.  Instead, I’ll ask this.  I will ask one racetrack that benefits from being aided by casino revenue (which limits their financial risk) to try something different.  Reach out to your brick and mortar simulcast partners that have a racing product of their own and re-write your simulcast agreements with those partners.  Formulate a plan to lower your takeout rates across the board while simultaneously lowering the host fee for your racing product even further.  Then, once you have received support from those partners, reach out to OTW facilities and ADW sites and do the same.  (For full-disclosure, I work for an ADW, and this plan would be financially beneficial to all parties, including the ADW, however the benefit to ADW’s carries no weight in my presenting this plan).

I know what you’re thinking, why lower the host fee after I said when the system was designed it was designed backwards and signals were sold too cheap?  Well, because when the system is backwards one racetrack cannot reverse it entirely on its own.  It will not work.  But, if you lower your takeout and host fees simultaneously, it provides opportunity for those receiving your signal to offer more wager rewards and rebate incentives to customers playing your signal.  It benefits all parties.  The simulcast partner, whether it be a racetrack, OTW or ADW will look good in the eyes of its customers by providing more wager rewards on a signal and the racetrack selling the signal will see their handle increase as well.

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My suggestion to any racetrack operator that benefits from casino revenue is to try this plan for three consecutive race meets.  Your biggest obstacle will be that the majority of racetracks have their simulcast agreements negotiated by a third party, whether it be Monarch, the Mid-Atlantic Co-op, CDI, etc.  But lowering your host fee should be able to offset the push-back received for lowering takeout and therefore cutting into the simulcast partner’s margins.  I believe handle and revenues will rise with each passing meet and the racetrack will become less dependent on the casino, which will make all interested parties happier and it will simultaneously stave off the idea of decoupling because as a business you have taken strides to help yourself and improve.

While I expect the majority of those operators reading this to dismiss the idea as quickly as they read it, maybe one person will find some merit in the concept and at least pursue the possibility of implementing such a plan.  It will take just a very small group to try and bring about change.  After all, never doubt that a small group of thoughtful, committed citizens can change the world because it’s the only thing that ever has.