The Jockey Club Aug. 14 announced a nine-step plan for the betterment of horse racing and breeding and expects to spend millions of dollars over the next five years to implement it.
The recommendations, publicly released during the Round Table Conference in Saratoga Springs, N.Y., stem from a McKinsey & Company report titled “Driving Sustainable Growth for Thoroughbred Racing and Breeding.” Many of the recommendations have been discussed before but not implemented on a comprehensive scale.
The nine recommendations involve fewer, better race days; innovative wagering platforms; integrated rewards systems; improved television coverage for racing; free-to-play online games to educate the public; social games to develop interest; safety improvements; new ownership tools; and best practices at racetracks.
The Jockey Club will commit five years’ worth of funding to implement the recommendations, Jockey Club president and chief operating officer Jim Gagliano said. McKinsey & Company will remain involved in the effort, he said.
Dan Singer, director of McKinsey’s media and entertainment practice, said there are two constraints in the industry: no single governing body and a lack of substantial capital. He said there is “no real way “ to create a league office with broad powers and acknowledged the funding issues, but said the McKinsey recommendations can be accomplished under the current industry structure.
“We’re convinced racing has the potential to innovate much faster than it has,” Singer said.
McKinsey, which began the project earlier this year, said it considered 600,000 races over 11 years and conducted about 1,800 interviews. The company said if changes aren’t made soon, by 2020 pari-mutuel handle will decline by 25%, owners’ losses will jump 50%, and only 25% fewer racetracks will be viable.
“There is substantial risk for these factors to be even worse,” said Michael Lamb, a principal in the McKinsey media entertainment practice.
The report acknowledged that 26% of core bettors consider pari-mutuel takeout a “top two concern,” but fewer than 2% of most fans know about takeout. Thus, the report makes no recommendations on an issue that has boiled over this year, particularly in California.
“We prefer rebates as the method to address the price-sensitive bettor,” Singer said.
McKinsey offered a mixed message on fan development, particularly in regard to television and advance deposit wagering.
The company advocates improved TV coverage of horse racing, noting it must be "economically sustainable” and consistent as far as when it is offered. Low television exposure is hurting fan development, Singer said, noting Thoroughbred racing's presence on TV has fallen from about 175 hours in 2003 to about 43 hours in 2011. The percentage of fan who sadi an important or exciting race on TV was the most important reason they got involved in the sport fell from 9% 30 years ago to 0% over the past year.
"I can tell you as a consultant that without TV you're not going to grow a new fan base," Singer said.
ADW systems, launched more than 10 years ago, account for roughly 12%-15% of total handle in the United States each year; McKinsey estimates it could reach 44% in 10 years. But the company also said ADW is not attracting new fans to horse racing, and in fact is “frustrating” for beginners.
“The system has been built for experienced bettors,” Singer said.
Interestingly, the percentage of revenue racing gets from ADW to put on the show wasn’t addressed at the Round Table, though McKinsey suggested racetracks should operate their own ADW platforms so they can retain a larger share of revenue.
The report touched on exchange wagering, which is not yet available in the United States. McKinsey believes exchange betting has the potential to attract new patrons; Singer said the platform is “unlikely to be profitable at a takeout rate under 10%.”
The industry also was told to quickly implement free-to-play games—there are 32 million fantasy sports players in the U.S.—and develop social games along the lines of “Farmville,” a Facebook.com game played every day by 30 million people.
Gagliano said The Jockey Club already is working on a televised racing series and is in discussions with major networks; is building online games; and is developing a tool for racetracks to better schedule races and post times. He said the recommendations can work because horse racing’s “potential, appeal, and core values are still strong.”
In follow-up comments after the Round Table, Gagliano said the five-year plan is a “multimillion-dollar” project for The Jockey Club. He also said the organization fully intends to lead, not facilitate.
“Where there is overlap we will work with others (in the industry),” Gagliano said. “We view ourselves as a leader, and we want to be a leader. This is our obligation. We’re taking the lead where we think we need to take the lead.”
Some of the recommendations involve programs that have been or are being handled by the National Thoroughbred Racing Association. After listening to the McKinsey presentation, NTRA president and chief executive officer Alex Waldrop said it outlined challenges being faced by all industry organizations.
“All of us who have as our mission the growth of Thoroughbred racing have to find ways to support these initiatives,” Waldrop said. “We had input (into the McKinsey report) and look forward to sitting down with other industry stakeholders to see how we can support the plan.”