I spoke to my brother on the phone this afternoon and he was at Newmarket races having a traditional flutter. This fascinating article from the Economist shows how the world of betting has been radically changed by the internet. That having been said, there is nothing like the sight of those beautiful creatures in the summer sunlight to stir the soul, especially with the jockey’s bright colours….hope you didn’t lose too much bro’…….
ON APRIL 9th nearly 45,000 people crammed into Oaklawn, a 106-year-old track nestling in the foothills of the Ouachita mountains in central Arkansas, to watch Zenyatta, a spirited six-year-old mare, win her 16th consecutive race. The next day’s event—the Arkansas derby, which in recent years has become a preview ground for the more famous derby held three weeks later in Kentucky—drew over 60,000 fans. In those two days punters at the track bet nearly $6.5m. Attendance was 38% up on the previous year. Neither the charming old track nor the town itself, with a population of just under 40,000, was built for such crowds. Enterprising locals turned their lawns and shopfronts into parking lots at $20-25 a go.
For racing fans everywhere such a turnout is reason to celebrate; it shows that the sport of kings has not lost its attractions. And indeed attendance remains strong at marquee events, such as the Arkansas and Kentucky derbies or Britain’s Grand National. But although sports betting does well online, horseracing has a particular problem. The business model that has kept it going up to now is being superseded by new and increasingly popular betting methods offered by the internet.
For all the national differences, racing in most parts of the world has two things in common. First, it has provided one of the few legal forms of wagering and bookmaking available to most of the public for much of the past two centuries. Second, the sport depends on money from betting. Practically every national racing association the world over takes its cut from bets placed on races. In Britain 10% of bookmakers’ profits go to the Horserace Betting Levy Board, a statutory body that distributes the funds to British racing interests (mainly purses but also courses, breeders and veterinary science). The levy was put in place when punters had to bet through parimutuel pools (in which odds depend on the number of punters backing a bet) or licensed bookmakers. But now they have other options, so in 2008-09 the total levy collected reached its lowest level in six years, at about £92m.
As other forms of gambling became legal, betting on racing fell. Between 2003 and 2008 the amount wagered on racing dropped by 10% in America and close to a third in Britain. But betting at the track is falling even faster. Punters in America have turned to advance-deposit wagering companies (ADWs) such as Youbet, TVG and Twinspires, which combine the functions of bookmakers and television networks, showing races from around the world. They allow punters to bet using a computer, mobile phone or television remote-control. Dedicated race fans in America can bet on European races in the morning, American ones throughout the day and Australian and Asian ones at night, all without having to leave home. And just as casinos offer free accommodation and meals to big players, ADWs offer redeemable reward points as an added incentive.
Punters in Britain and Australia have an even more attractive option: betting exchanges. The largest is Betfair, which bought TVG in January 2009. Betfair’s revenue last year was £303m, up 27% from the previous year. Around 90% of bets placed through exchanges and more than half of bets made online in Britain are through Betfair. Exchanges allow people to bet with each other, rather than going through a licensed bookie or a parimutuel pool. Betfair makes money by charging a small commission, based on a user’s net profit in a given market.
Unlike traditional operators, the exchanges also permit betting throughout races. Yet although Betfair’s model attracts savvy punters who understand how markets work, its numbers-heavy interface may intimidate casual sport punters. Noting that the odds on Chelsea are 1.19 and watching the market to see if they improve requires more effort than putting £10 on Chelsea to win.
But some punters may want to offer odds against Chelsea, which Betfair allows and traditional bookies do not. There are worries that letting people bet on a negative event will encourage corruption. In 2004 Chris Bell, the then boss of Ladbrokes, a bookmaker, claimed that at least one race a day was being fixed, and blamed betting exchanges. Yet a corrupt jockey or trainer can always ride badly or hobble a favourite and then bet the field. Also, online commerce is far more readily vetted and tracked than transactions by high-street or on-track bookies, so corruption should be far easier to sniff out.
Neil Goulden, who heads Coral, another bookmaker, says the real problem is not so much corruption as licensed bookmakers shutting up shop and offering odds through Betfair to avoid paying tax and levy. Yet even if this is true, bookmakers will find ways to get away from both anyway: Ladbrokes and William Hill have moved their betting operations from Britain to Gibraltar, where they are exempt from paying the levy and the tax on betting profits is 2% rather than Britain’s 15%.
The tap is also running weaker in America. Between 1977 and 2006 parimutuel betting on horses in America fell by 52% in real terms. Whereas on-track betting has dropped every year since 1996, the off-track variety over the same period has increased noticeably.
When off-track betting was first introduced, it was seen as a boon to the industry. Races being run in different locations were screened at the tracks so that punters at, say, Aksarben in Omaha, Nebraska, could bet on races being run at Los Alamitos in California. The revenue from off-track betting was split so that 80% of the pool went to the state’s horsemen’s association, 17% to the place where the race was being screened and 3% to the track where the race was taking place.
As long as the screenings were track-to-track and most betting was done on-track, that made some sense. But as on-track betting has fallen and the races are now being screened in all sorts of places that allow betting but do not stage any races (such as greyhound tracks, casinos and now ADWs), 3% seems a paltry reward for the effort of hosting a race. Yet finding a new payment model has proved tricky. In a number of places ADWs have been forced to pay a source-market fee: for instance, 10% of all racing bets made in Virginia—that is, where the punter is in Virginia, regardless of where the track is—must go to Colonial Downs, the state’s main track, and to the state’s horsemen’s association.
A downhill race – The sport remains in decline. California’s oldest thoroughbred track, Bay Meadows, closed in 2008; Hollywood Park, in southern California, is teetering; and Aqueduct, in Queens, was nearly sold to developers in 2007. New York’s racing authority, which runs Aqueduct, Belmont Park and Saratoga, emerged from bankruptcy in 2008—only to have to take up a $17m emergency loan in April.
No doubt more casualties will follow. After all, the sport’s success depended on its monopoly status, and that has gone. Banner days still draw a crowd, but everyday racing—“Wednesday afternoons at Beulah Park” (a track in Columbus, Ohio), as one insider calls it—is harder to sustain.
In more than a dozen states some tracks have added slot machines or card tables to attract those who want to gamble on something other than horses. These “racinos” funnel much of the money from slots and tables to fund purses and subsidise breeders. But cantering into that good night as an appendage to a slots parlour seems a sad fate for the sport of kings.