Earlier this year, I wrote two articles for TRC: To ensure the future of the racing industry, the betting business has to change on January 26 and The pandemic has changed my views on how tracks should work with ADWs two months later. They may have made some good points and shined a not-so-bright light on the problem. I hope that this column will provide some real help.
It is important to understand that the industry has been targeted by casino, sports betting and other gaming interests as a way to profitably and financially exploit our customers and marginalize our core owners, breeders and other industry participants.
If you do not believe that, please read on.
Because of the pandemic of early 2020, Advance Deposit Wagering (ADW), Computer Robotic Wagering (CRW) and other off-track outlets handled 97 percent of the total U.S. racing handle last year. The on-track handle was the remaining 3 percent, or $333 million.
In fact, the on-track handle was the only profitable core of our business in 2019, but that was just $911 million, only 8.25 percent of the wagering business. Yes, some of that handle will come back in 2021, but keep in mind that in 2020, with virtually no betting on track, Saratoga total handle was virtually all off-track. The 2020 Saratoga handle was $702.5 million and just shy of the 2019 Saratoga all-source handle record of $705.3 million. ADWs have excellent retention programs and rebates, which will keep Saratoga customers on track betting with them in 2021.
It is important to understand how the racetrack and owners share a grossly disproportionately small part of the wagering dollar as compared to the ADWs, CRWs and other off-track outlets.
Here is a model of how the racetrack and the purse account would split a million dollars bet through an ADW: The ADW operator receipts would be $70,000, or 40 percent greater than the $50,000 total proceeds to the racetrack and the purse account.
When you consider the cost of purchasing a horse and training it up to the racetrack and the cost of the racetrack maintaining the tracks, the stalls and the cost of putting on the races, the current splits are absurd and will bankrupt the industry.
Almost all the ADWs process their bets through the Oregon Racing Commission Hub. Below are the 2020 and 2021 first-quarter comparisons from Oregon. Yes, the significant growth has continued into 2021 as most tracks did not run in front of customers in the first quarter of 2021. Those Oregon numbers for the second quarter should be available shortly and I will post them in a follow-up article.
Here are the stats for the four largest ADWs in the first quarters of 2020 and 2021. Remember, people will be returning to the track to watch the races, and ADWs have strong technology and financial incentives to retain their new customers.
Twin Spires (Churchill Downs) is the only ADW that is a public corporation and breaks out the performance of Twin Spires Horse Racing in its annual report. Here are the handle, net revenue and Adjusted EBITDA for 2019 and 2020
These financial results for ADWs wildly outperform any other sector of the racing industry, and they do not require the kind of substantial risk or investment that the racetracks and the owners are involved in.
One business strategy these four ADWs are aggressively pursuing are investments or partnerships with sports betting organisations, casinos, etc. These partnerships will provide customer development for the ADW, and the ADW can use its customers and expose them to sports betting or online casino play.
For example, the Churchill Downs 2020 annual report explained some recent business developments in the TwinSpires Sports and Casinos:
“We signed multi-year agreements with GAN Limited and Kambi Group PLC to provide player account management, casino platform, sports trading and risk management services.
“We opened a retail sportsbook at Bronco Billy’s Casino at Cripple Creek, Colorado, and at Island Resort & Casino in Harris, Michigan. We have also launched our sportsbook and casino app in Michigan.”
Ambitious strategies
In a similar manner, TVG is part of the FanDuel Group. The U.S. division consists of FanDuel, Fox Bet, TVG, PokerStars and Betfair US. It has a diverse product offering of online and retail sportsbooks, online gaming, poker, ADWs on horseracing, and TV broadcasting. FanDuel is the market-leading online sportsbook and casino operator in the rapidly expanding U.S. market and is well positioned to continue to take advantage of this opportunity.
Clearly, TVG is well positioned in the FanDuel Group for customer development and to expose its customers to the many FanDuel offerings.
While NYRA launched its online ADW in early 2007, it did not take it outside New York State until 2016, when it re-branded the ADW as NYRA Bets and began a number of ambitious television and targeted partnership strategies.
NYRA partnered with the Jockey Club through its America’s Best Racing division, the Breeders’ Cup, Churchill Downs and a major television deal with Fox Sports in 2018. In March this year, Fox Sports and NYRA signed a new deal that would provide NYRA with a minimum annual production of 700 hours of racing at Saratoga and Belmont through 2030. In addition, a Fox Sports subsidiary will exercise an option to purchase a 25 percent stake in NYRA Bets sometime in 2021.
Fox Sports has made a major commitment to sports betting, Fox Bet, and will be a strong partner for NYRA.
In May, less than two months ago, NYRA Bets was announced as the first horseracing partner of BetMGM. “We’ve found a great partner in NYRA Bets and look forward to working with them to create a thrilling interactive experience for horseracing fans on BetMGM,” said BetMGM CEO Adam Greenblat.
Bloomberg reported last month that the Stronach Group is “exploring options for parts of its portfolio after fielding interest from special-purpose acquisition companies and other suitors,” according to unnamed sources. No specific assets were listed to be under consideration.
The Stronach Group does own Xpressbet, third largest ADW in the U.S. Perhaps more importantly, it also owns the Elite Turf Club, which is the largest CRW with an estimated annual betting handle of $1-2 billion. However, it is not clear if Stronach is committed to such a move.
Secretive business
Finally, the ADW business in Thoroughbred racing is probably the most secretive and loosely regulated racing business.
When I joined NYRA in November 2004, we were the first racing business in New York to launch an internet wagering site there. As is the case with simulcast racing agreements, an ADW contract allowed for the track that provided the ADW with racing product to audit the ADW on an annual basis.
From the launch of the NYRA ADW in early 2007 until I left NYRA in May 2012, I do not recall that NYRA ever received a request for an audit. Nor do I recall NYRA ever requesting an audit from an ADW. However, that was remarkable, because every ADW always had a small team for business development in recruiting new customers and was competitive. Each state’s racing commission had different practices on source-market fees, residency requirements, etc.
Shortly after I left NYRA, I had the occasion to see a confidential document from a large ADW that was offering to provide addresses in states with little or no source-market fees or ‘flexible’ residency requirements. There was no regulation of ADWs and ADW customers by the state regulators that I was aware of. It truly was - and I believe still is - the ‘wild west’.
As a result, I was not surprised to read this report in the Paulick Report that an executive at Presque Isle Downs is filing a suit against the local HBPA to contest a source-market fee and a practice whereby the HBPA was alleging that the track was trying to move Presque Isle bettors from a live track to a Twin Spires account.
One of the big challenges in addressing the most serious issues regarding the conflicts between the ADWs and the major tracks is that many of the most powerful tracks are owned by major ADW operators.
- The Stronach Group owns Santa Anita, Golden Gate, Gulfstream, Laurel and Pimlico and, on the account wagering side, an ADW and a CRW, XpressBet and Elite Turf Club.
- Churchill Downs Inc (CDI) owns Churchill Downs and Fair Grounds and two smaller Thoroughbred tracks, Presque Isle and Turfway Park, and operates Twin Spires. It is only fair to note that CDI has closed three important tracks in the last decade - Hollywood Park in Los Angeles, Gulfstream Park West (previously Calder) in Miami and Arlington Park in Chicago, where Churchill has made it clear that it has chosen its casino interests over one of the most iconic tracks in America.
- NYRA owns and operates Aqueduct, Belmont and Saratoga and operates NYRA Bets.
- TVG does not own any tracks, but it has tremendously loyal customers because it launched its business with aggressive distribution in California with TV network distribution deals.
One final observation: Some of the biggest investors in the racing industry have already come to understand that running your horses to win races is sadly not financially viable. Hence, the consolidation of high-net-worth individuals with major commercial breeders to get expensive pedigrees that will generate their return not on the racetrack but in the breeding shed and at the sales pavilion. Combine this with the ADW/rebators and the cheaters who have driven the loyal bettors away from the sport.
Standing on one foot and then the other is not going to solve the problem. Anyone who really cares about racing knows what we have to do. And we have to do it together.