Have global racing stakeholders, hidden the sport’s structural shortcomings through a dependence on gaming machines to generate revenues. Industry strategic consultancy Regulus Partners investigates this complex dependence partnership…
Horseracing and gaming machines have a curiously intertwined history on both sides of the pond. In the UK, the reduction in LBO gaming machine stakes from this week is already causing a ripple through prize money, especially at the lower end of the sport, because media rights payments are largely linked to the number of shops, not to the direct productivity of horseracing.
In the US and Canada ‘racinos’ (i.e. putting slot machines on racetracks) have been seen as a solution to declining handle for some time, with the latest US twist of ‘historic horseracing’ (effectively using old results as an RNG product, either directly into a slots format or as ‘real virtuals’) gaining traction in Kentucky (the slots version) and about to start in Virginia, but being blocked by the state senate in North Dakota (the video re-run version) this week – because they were felt to be too similar to slot machines.
Whilst in Ontario (15 tracks, CA-$1bn handle, c. CA$200m revenue), the 19 year CA$105m pa collaboration between the state government, OLG and racing to create a sustainable future (with extra funding for small, failing tracks and grassroots racing) starts next week; this comes alongside agreements to reduce the number of slots at several tracks last year (favouring dedicated casinos). At the other end of the pressure spectrum, California has just announced a public consultation on use of the whip.
Horseracing is a sport very well suited to gambling – indeed it is its primary funding (and purpose) in most parts of the world that it exists. It is therefore unsurprising that it is often found alongside that other stalwart of mass-market landbased gambling, the slot machine. However, in too many jurisdictions the slot machine has become the easy high margin solution to cash flow, hiding pretty significant structural issues. In the US, slot machines largely prop up many racetracks, as betting revenue has languished after precipitate falls 2008-12; in Ontario the government has had to step in with a very long-dated cheque (levels of funding are only increasing marginally); while in the UK the ‘one off grant’ of £6.5m (curiously only £4.1m to grassroots) unlocked by the Levy to stop the factions warring is rather put into perspective.
The problem is not slots, in our view, but what slots represent to racing: easy money. Slots have four issues from a racing perspective. First, they can be cannibalistic as well as complementary from a consumer spend perspective, especially when the quality of racing is poor. Second, slots tend to be far more politically controversial than horseracing (even factoring in the growing welfare debate). Third, they are far more about monetising gamblers than putting on an event, which has a number of operational and management psychology implications when mixed in the same business or revenue streams. Finally, they are quite hard to ‘reinvent’ (on their own terms), especially in the landbased consumer shift from transactions to experiences (the online slots experience is often more compelling on a pure product basis where allowed; many casinos are poor at offering high-quality experiences, though there are some notable exceptions which often give gaming establishments a good name in initial public perception, to be dashed by their local reality).
Racing doesn’t have any of these problems from a structural perspective. It is a powerful customer acquisition product (especially at the apex) as well as a direct betting revenue generator. It is typically blessed with broad political support both as a sport and as a betting product (though this needs to be nurtured carefully and not taken for granted). Finally (in terms of the last two points on slots), racing is all about experience and this can always be kept fresh – or at least it should be.
Racing has instead created a problem for itself in its dependence on slots (notably, where that is the case). Dependency has tended to mean less focus on the product, both as a high quality betting proposition and to attract racegoers to all but the highest profile events. Dependency has also provided the easy cash flow to keep old ways of doing things in place for far longer than their economic and consumer engagement merits would otherwise have allowed (operationally and structurally). Racing holds many more aces than it realises across the ‘English speaking world’ (excepting Australasia, where things are going rather well despite the presence of lots of slots: just not with the same industrial symbiosis), but it will only be able to capitalise on them if it plays to its strengths rather than trying to paper over its weaknesses with outdated practices and other products’ money…
UK: In Parliament – the case for the prosecution
Britain’s online gambling industry was back in the dock this week in Westminster as the All Party Parliamentary Group on Gambling-related Harm began its latest inquiry.
On Wednesday, the APPG’s chair, Carolyn Harris (Lab, Swansea East) commenced proceedings by calling testimony from a number of “former online gamblers”, the concern group Gambling With Lives and the brain injuries charity, Headway.
Over the course of recent years, the remote gambling sector has provided its critics with ample grounds for concern and we suspect that its reputation will hardly have been burnished by Wednesday’s session. There are reasons to be sceptical about levels of impartiality among the APPG members; most if not all have already delivered verdicts on the industry that range from castigation to prohibition.
However, looking at the agenda for the inquiry, there are grounds to suppose that this will be a more balanced and constructive process than with the group’s previous foray into gambling (the FOBT trial). The next session (on 24th April) will feature companies engaged in harm prevention activity, including: gamban (blocking software); the banks, Monzo, Starling and Barclays (account blocking); Experian (affordability); and GamStop (self-exclusion). There is a sense therefore that at least some members of the APPG have embarked on this latest endeavour in search of solutions rather than sanctimony and prohibition.
Thursday brought a refreshing change of pace as Tom Watson’s (Lab, West Bromwich East) policy advisor Dr James Noyes convened a council of eminent economists, social researchers and political thinkers to discuss the role of gambling in British society. Not since the days of the Budd Report has gambling been the subject of such elevated discourse. While discussions of pettifogging detail will always constitute the meat and drink of policy debate, this was a welcome reminder that both businesses and regulators need from time to time to reflect on the point of it all.
Elsewhere, the Government responded to a question from the Bishop of St Albans on the relevance of a paper on gambling and suicide in Sweden (Karlsson & Hakansson, 2018). Lord Ashton of Hyde correctly pointed out the difficulty of “[isolating] the role gambling played when weighted against other co-morbid factors” – pushing back against the tendency of some to see causation in correlation. In recent weeks, the DCMS has become noticeably more adept at responding to parliamentary hand-wringing – and this may be a sign that the Government is starting to get a proper grip on gambling policy issues.
As we have noted before, it is critical to the sustainable functioning of the market that debates are conducted with integrity and a respect for data and research. While companies are instinctively fearful of Government intervention, it seems likely that some level of regulatory tightening in Britain’s gambling market is not only inevitable but may also be desirable in terms of its future health and well-being.