Sports betting shows that racing needs to think contagiously

February 7, 2016

by Dean Towers

Betting on the outcome of sports contests in Las Vegas is not shrinking as new table games, shows and slot machines are developed and pushed. It’s not shrinking as people play Powerball, or other lotteries. It’s not losing market share as Internet betting explodes.

It’s growing.

2013 Sportsbook Handle: $3.45 billion

2014 Sportsbook Handle: $3.90 billion

2015 Sportsbook Handle: $4.30 billion

It was up 8.4 per cent alone last year. Today, Super Bowl Sunday, $120 million will be bet legally on the game at Nevada sports books. This will be a 69 per cent increase since 2003.

The above, three-year growth has appeared in lockstep with the exponential growth of Daily Fantasy Sports (DFS) wagering. FanDuel and DraftKings took in about $2 billion in handle last year, up from only a couple hundred million in 2012. There are some who think a competitor like DFS hurts sports wagering, and it makes some sense (it’s a competitor isn’t it?). In fact, there’s evidence land-based casinos would rather it go away for that reason, and have been trying to do exactly that in State houses.

I think they’re being incredibly short-sighted. They are missing exactly what “DFS” does.

In Contagious, Jonah Berger – a marketing professor at Wharton – examines why some things catch on and some do not. It’s a good read. In his opening sections, he puts forth a case that showing the public a story that they are not aware of helps spread the word (that’s obvious), but sometimes the results aren’t what’s intended.

An example he uses is the war on drugs.

Back in the ’80s and ’90s, billions of dollars were spent to combat drug use. Those of us in high school during that time probably remember it more than most. We watched commercial after commercial about how bad drugs were, and their dangers. They were pretty scary. So, these ads worked? No, not really.

Studies showed that those who saw (in this case) marijuana ads actually were more likely to try and use marijuana. The author concluded that the so-called “War on Drugs” was actually introducing some drugs to young people, and young people were willing to see what the fuss was about, because their friends probably were doing exactly that. It acted like word of mouth advertising.

“Our hypothesis is that the more kids saw these ads, the more they came to believe that lots of other kids were using marijuana. And the more they came to believe that other kids were using marijuana, the more they became interested in using it themselves.”

I believe similar happened with FanDuel and other DFS companies with sports betting. DFS was in the news through commercials and by having the sports leagues and governments and the media talk about it. This not only promoted DFS, it made it, and sports betting, more mainstream, because ‘lots of people seem to be doing it’.

I think this was further exemplified early in 2015. There was a lot of negative publicity about how these DFS games were “fixed” (later disproven), and yet DFS handles – week after week – were still going up and up and up.

War on DFS = War on Drugs.

Racing has not come to grips with this phenomenon, in my view, and they should, because it represents opportunity.

Harness and thoroughbred racing are having a war of words, and in Magna’s case, a legal war with the horse racing contest site Derby Wars. Derby Wars resells a horse racing product in a unique way. Those who have not been looking at racing for a long while, and those who just want to play a game, along with their regular betting, are interested in their product. Derby Wars also promotes heavily, both inside and outside the sport.

I think there’s evidence that Derby Wars is racing’s version of DFS to sports betting. They are promoting your core game – pari-mutuel betting – for you, even if it’s step two in the process.

As Scott Jagow noted in the Paulick Report Friday: “I met one of the new fans he’s referring to at the NHC. He qualified on DerbyWars, having been encouraged to play by a friend. He hails from a state that has no legal racing, and I had the impression he hadn’t even been to a racetrack, yet. But he’s a 20-something diving headfirst into the sport through contests, which might lead to lifelong participation.”

Harness racing has been recently experimenting with Derby Wars for harness contests and in my opinion this not only needs to continue, it needs to be enhanced. Regular contests, like the National Harness Handicapping Championship, also need to continue to be invested in. They’re contagious.

Looking at other non-traditional outlets, betting exchanges have been something racing wants nothing to do with. They’re pirates, they don’t pay us enough, and they’re like a boil that needs to be lanced. It’s been racing’s mantra with them for 15 years.

Again, this is missing the point.

Betfair has billions of dollars on account and they have a willing audience of players who, at the surface, want nothing to do with you in the pari-mutuel pools. However, if you are on the exchange and offering your track to them, at least some of these bettors are looking at you. There’s a chance at least some of these players could become pari-mutuel bettors and your track will be the first they’re interested in. There’s a reason why smart tracks like those at NYRA and Keeneland are happily on the exchange while others have run for the hills.

Years ago I presented on this topic and suggested the larger harness tracks do everything they can to be a part of the exchange; do everything they can to make it work. I still believe that today, because it fits perfectly with what’s happened in other gambling businesses that are growing.

Racing must come to grips with the fact that people are not falling all over themselves any longer to bet into 25 per cent takeouts in a pari-mutuel system that was invented in 1905. Like with DFS and sports betting, there are complimentary ways to grow market share. The sooner racing looks towards new avenues and mediums for partnerships, rather than looking at them as adversaries, the better.

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