Free bets to raise horse racing handle?

You’ve probably seen free money offers from sportsbooks on your phone or TV screen,
but a racing jurisdiction has joined the party — with some success.

by Dean Towers

As sports betting has proliferated, free bets to entice new users are the norm, not the exception. It’s a jungle out there, and although the jury is still out as to whether this investment leads to long-term growth, it’s the way business is done in the vertical.

Although the sport of horse racing (through advance deposit wagering partners) has its share of promotions, the full free bet phenomenon is not really a thing, in North America at least. Overseas, though, just last month the state of Victoria in Australia released their 2022 numbers, and they’re pretty interesting.

Their horse racing handle in 2018 was $6.4B (all figures Australian dollars), and it’s grown each year to a record $9.2B in 2022, a 43 per cent increase. As we’ve seen in the U.S., COVID-19 policies played a role in the intra-year growth (and ups and downs), but unlike this side of the pond, their increases have been consistent right through 2022.

How did they do it? One tactic they’ve used involved the aforementioned free bets.

In 2018, when the online bookmakers (ADW’s) began offering customers free wagers, they totalled $110M. In 2019, the free money grew to $174M. In 2020, it was $247M. The year 2021 saw this number rise to $366M and in 2022, a whopping $438M was doled out.

Last year, about 5 per cent of total handle was a free bet, with costs borne by the “ADW”. That, in layman’s terms, is a 5 per cent takeout reduction.

Perhaps, some might say this is all smoke and mirrors. It’s moving around the deck chairs. But I would disagree.

When money is given back to a horseplayer, he or she reinvests it at a mathematical churn rate. One dollar in free bets generates — with a Down Under 12 per cent takeout rate — about $8 of added handle. So, the “free” money is not bet once, but multiple times.

This churn is value-added in numerous ways, not the least of which is allowing for the stickiness that all subscription-based businesses yearn for. When a customer is engaged and re-betting, it keeps them locked into the horse racing – studying past performances, watching the races, traveling to racetracks and supporting the industry. It cultivates customers and drives their lifetime value.

Some companies give three free months of cable, some companies offer customers a free iPhone, some companies offer “bundles” that lower their customers’ average cost – all of these are free incentives we see each and every day. They keep customers around.

In North America, there are hurdles with free wagers. ADWs are being squeezed with higher and higher signal fees, which lowers margins, or in some cases they are dealing with large entities (who also operate ADWs) who are not allowing them to take bets. This is all sub-optimal for the betting ecosystem.

By writing new deals that embrace the new betting world, the system can be changed, but the sport seems to be more worried about their slice of handle today, instead of the long-term growth of the overall pie.

One thing is certain. The free bet space that you’ll see advertised this weekend during the NFL divisional championships is happening, and will continue for the foreseeable future. Forward thinking horse racing entities such as Racing Victoria in Australia are exploring them in similar ways with the hopes of keeping horse racing relevant. It’ll be interesting to see how they do.