Reinvent racing; outdated OTB system hurts industry

Fred A. Pope of Lexington is president of Pope Advertising, which specializes in the Thoroughbred industry.
Fred A. Pope of Lexington is president of Pope Advertising, which specializes in the Thoroughbred industry.

After almost 20 years of debate, our legislature last week rejected, at least for now, voting on a constitutional amendment to allow casino gambling, that might have benefitted Thoroughbred interests.

Kentuckians, who may still get to vote on the issue, want to know the truth about their sport and breeding industry.

For more than 30 years, I have worked for and advised many of the major participants in breeding and racing. Here is my analysis.

The breeding side, with thousands of jobs and beautiful farms, is only in trouble because the racing side is failing.

Racing is failing because off-track bet takers are ripping off racing content. Tracks like Keeneland should get four times more revenue than they receive from off-track wagers on their races.

With $10 billion in national wagers, the split for racehorse owners' prize money should be $1 billion, but only half is coming through. That means $500 million that could be reinvested in racing prospects from Kentucky breeders is lost.

Can the problem be fixed? Sure. Businesses reinvent when they get in trouble. None better than Apple Computer, which was failing until Steve Jobs returned.

The biography, Steve Jobs, tells how music execs went to him for advice. Napster was ripping off their music and sales were falling. Jobs figured out what they needed — a secure, central platform to sell their music.

He called it iTunes. The music execs knew music, but not changing technology. They thought they were in the record and CD business. Jobs changed their focus to music content.

Jobs did not save the music industry for the suits. He loved music and wanted the talent who wrote and performed the music to benefit. Economic satisfaction for Apple was a bonus.

The music execs were competitors in need of a central solution. When they reluctantly agreed to iTunes, Napster disappeared and they focused on individually producing and selling music content for more profit than ever before.

The music case study applies. Racing needs the same solution as iTunes, a central platform to sell racing content direct to customers, and eliminate the Napster-like bet takers ripping off the sport.

When technology allowed off-track wagering, racing chose a bad model for reasons that no longer apply. For example, when Keeneland sends its races to New Jersey bet takers, only 20 percent of the revenue returns to Keeneland, while 80 percent stays in New Jersey. That's upside down.

Lotteries started about the same time as off-track betting, but they pay their bet takers — gas stations and convenience stores — a 20 percent commission to punch in the numbers with 80 percent going back to the lottery. Lotteries have growing sales of $55 billion.

Racing sales peaked five years ago at $15 billion and have fallen to $10 billion now.

Kentucky is a major exporter of racing content. One of every $10 wagered in America is bet on Kentucky races. That amounts to $1 billion. With a central wagering platform, the net increase to Kentucky racing will be more than $100 million, enough to assure our tracks stay healthy.

The track owners are not victims. They created this insane business model that is killing the whole industry. The tragedy is they will not fix it without outside intervention. That's because some of them own Napster-like subsidiaries and those with casinos no longer need racing.

Every time racing has been threatened, powerful men and women have used their influence in Congress to protect the sport and agricultural jobs at risk.

That's what needs to happen now. A central wagering platform will equally protect and serve customers, tracks and racehorse owners.

The vehicle for a secure, wagering platform is within the federal law that permits interstate wagering. A national wagering trust can be established by tapping the cash flow in wagering. No federal funds are needed. The new trust can partner with the likes of Google, or maybe Apple, to make it simple for customers.

Congress wants to help this sport with tracks and breeding farms in most states. When they look across the table at resolute owners and breeders trying to save a way of life, will they also see other people in opposition? Who will appear to say they should be allowed to rip off the sport? Nobody.

If legislators in Kentucky or Congress bring in racetrack owners, they only need to ask one question: "If a central wagering platform will give you every dollar of revenue from wagers on your races, tell us why you would not want that platform?"

The new platform will bring transparency to the sport.

Some wealthy breeders in Kentucky have donated tens of million of dollars to influence Congress on political philosophy, but not one dollar has ever been donated to incubate creative ideas for the sport. Breeders need to understand their future is the rebirth of racing.

To reinvent a proud sport and industry rooted in Kentucky, we need to follow the words of the late Steve Jobs — "Think different."

Racing content has enormous value when the talent in the sport controls it, not when those who take bets on it are in control. A central wagering platform gives the sport a new future. As Jobs would say, "Isn't that cool?"