When more means less

The gaming business is becoming more and more competitive. This is especially so with the racing industry. The most effective methods of dealing with competition are to:

1. Improve the quality of the products offered, and

2. Increase the value received by the patron.

These two methods are complementary in nature, since an improvement in product quality entails increased value received. The current administrators of Caymanas Track Ltd have displayed a level of incompetence which is unforgivable.

When there is clear evidence of failure to implement the obvious, then serious questions have to be asked. When we look at the reducing revenues generated, there is serious cause for alarm. The livelihood of thousands of employees - jockeys, grooms, exercise riders, trainers, field staff and others - have been placed in serious jeopardy.

The concern here is that no one seems to know, or care about, what is happening. There is no obvious corrective action being put in place to stop this slide. The sad tale is that when the industry is inevitably faced with bankruptcy, those responsible will walk away with nothing but dented egos.

System cannot work

It is inconceivable that glaring examples of the need for a change in the quality of product offered to the customer has been met with stern resistance. Each race day it becomes more and more difficult to attract even the diehard racing fans to the track. It is blatantly clear that this claiming and condition system has not worked, and cannot work.

Those who are in search of entertainment are subject on race days to small fields and lame horses, due to insufficient rest or just plain old age. These small fields are totally unattractive to those who wish to wager. Each week, we have the same horses winning at various levels, because they are allowed to drop in class, either by conditions determined by money earned, races won, or, in the case of claiming races, of trainers' whims.

The result is that no one is encouraged to invest in wagers when they are faced with one-to-five favourites race after race, week after week. It is obvious that this administration sees nothing wrong with the system since they are the architects of it. Certainly, the falling revenues must be of some concern, and should be a stimulant for urgent change.

The poor quality of the product is one important concern, but of equal importance is the value that the investor receives for wagering on the horses. When you bet on a horse, all the money goes into a pool. The investors who pick the winner share the money they receive from the pool, but only after a portion of the total of all the betting dollars has been taken out. This portion, the 'take-out', covers the cost of the races, including taxes, betting duties, operating expenses, purses for payment to stakeholders (jockeys, grooms, trainers, owners and breeders) and profits for the promoter. Horse racing could not function without this take-out.

However, while horse players readily acknowledge that take-out is necessary, there is tension over what the rate of take-out should be, with promoters often vying for increases, and horse players arguing that it should be reduced. Volumes have been written about the dynamics of wagering. Historical evidence is abundant, with the fact that reduced take-out, and hence, higher payment to the horse player, results in increased revenue.

One study of 24 racing jurisdictions done over 15 years shows conclusively that the profitability of track operations varies inversely with the take-out rate because a lower rate stimulates a larger handle, of which the track retains a fixed percentage. That study concluded that at the average take-out rate of 15 per cent, track revenues would be 60 per cent greater than if the take-out were 20 per cent. Other studies have shown that a decrease in the price of wagering tends to increase race track attendance and, therefore, the total amount of dollars available for purses, etc.

Reduced revenues

It was back in 2007 that the administrators then were convinced to reduce the take-out on win and place bets from 30 per cent. Reluctantly, with great resistance from the accountants on the board, the take-out was reduced to 25 per cent in April of that year. The results were dramatic - the sales for May showed an increase of 18 per cent over that for the same month of the previous year, and the sales in June jumped a massive 47 per cent.

So impressed were the administrators that they planned to move the take-out even lower, to 20 per cent. Unfortunately, at about this time, a new administration was put in place, and they remained unconvinced of the positive 'churn' effect of lower take-out. Instead of a reduction to 20 per cent, they have, in fact, increased the rate to 30 per cent, with an additional 10 per cent surcharge in certain cases. Well, the result of their action was predictable: lower attendance at racing and reduced revenues.

What are we, who have invested so much time and energy in the racing industry, going to do about this sorry state of affairs?

Howard L. Hamilton, CD, JP, is a former chairman of Caymanas Track Limited and is the current president of the Thoroughbred Owners & Breeders Association. He can be contacted at howham@cwjamaica.com.