Thursday 15 August 2013

Curmudgeons, Grotesques …. and the Economics of Racing

Well the middle of this month has been very enjoyable, particularly with a fantastic retirement bash at Windsor Racecourse on Monday. I’ve stepped down from the chairmanship role in my consultancy, Future Purchasing, and was delighted when colleagues organised a celebration (I think for my achievements, rather than pleasure that I was leaving!!) with much merriment, drinks and dinner in a large box in the Royal Grandstand. Even the speeches weren’t too boring. There were a couple of jokes about Champion spark-plugs and melons that certainly wouldn’t pass the spam filters. Even managed to back a few winners. Jack and I staggered off the course loaded down with presents so there was some tremendous generosity. We both resolved to retire every year from now on!

This sort of party definitely illustrates how racecourses can make money and provide lots of entertainment for non-racegoers. The vast majority of our guests had never stepped on to a racecourse before, and wanted to know whether our sport was always like this – fine food, decent wine, private bars, panoramic view of the racecourse and river, etc. It was hard not to smile wryly, thinking about what it will be like as we go through the winter enjoying the facilities at some of the minor jumps tracks, or even more wryly when considering the very dubious delights of the all-weather.

My last blog on owners being treated as “cash cows” triggered much discussion about the crazy economics of racing. Indeed, over a few pints of Donningtons down here in the Cotswolds the Curmudgeon and I developed a whole economic model around ROO (Return on Ownership). Those of you in the business world know that ROCE (Return on Capital Employed) is a very important financial metric, and we believe ROO is the same for racing. At the moment the ROO is about 20%, if you’re lucky. In other words, for every pound that an owner puts into racing, they get about 20p back. This puts us right at the bottom of the league table. In many countries, such as Dubai, Hong Kong, Japan and Australia, the return is massively better. The key question is what to do about it. Now that I’m officially retired and have a bit more time, I’m intending to try to get my mind around that, and also do some digging and delving into the facts and data of actual returns. I’d like to see the BHA and the ROA set a formal target of, say, 50% ROO to be achieved within five years.

When a friend of ours, Ruud van Ruitenbeek, and his wife Di were staying with us a week or two ago, we went to visit the historic church of St. Peter’s in Winchcombe, built in 1468. Right around the sides of the church are gruesome depictions of people, animals and mythical beasts. I’d always thought these were called gargoyles, but Ruud discovered that “gargoyle” comes from the French, gargouiller, which means “to gurgle”, and therefore refers to a water spout. Since the ones at Winchcombe don’t have any water coming out of their mouths, they are apparently called grotesques. The one that I have put into this blog definitely illustrates the likely reaction of anyone who tries to understand the crazy economics of our sport. It equally depicts my reaction to the disgraceful way in which bookmakers are milking our industry and failing to reinvest their profits so as to make an adequate contribution. This is another area that I intend to investigate. I’m going to start by seeking clarity on the BHA’s strategy – is the plan to keep on appeasing the bookies by allowing more and more low-grade racing, or will they be facilitating fundamental levy reform, and if so, how?

Off to Yorkshire now to see the horses at Karl and Elaine Burke’s. Bound to meet a few curmudgeons up at Middleham. I’ll keep you posted.

P.S. If you’d like to see any of Ruud’s photos, do have a look at his web site, - they are excellent. You can even buy his book of photos online.

Thursday 1 August 2013

A One-Eyed View of Racing – Revenues Up and Costs Down

Throughout my consulting career I always made sure that clients worked hard to concentrate on both sides of the business equation – put in place the strategies and innovations to grow sustainable revenues while doing everything possible to reduce costs in a similarly sustainable manner. Incredibly, I often found many clients would only concentrate on one half of this equation, and I termed it the “one-eyed view of the world”.

I don’t know why, but I read two things recently about racing that made me twitchy and, if I’m honest about it, somewhat irritable. Racing quite rightly is determined to increase its slice of the sports and betting pie and grow overall revenue so that more money flows into the sport. For owners, the big worry is that not enough comes back to us through prize-money. And yet the sport doesn’t really seem to concentrate on the cost base. Indeed, from an owner’s perspective, I think we are often seen as a cash cow, there to be well and truly milked. So what irritated me?

I noticed that on 20th July Haydock Park was (in its own words) “turning itself into a House of Fun”, with a “fantastic summer’s night of action-packed racing and live music”. Well, the “action-packed racing” was an exceptionally dreary card with only 37 runners and most of the fields not big enough to allow each-way betting. Madness topped the bill. Maximum ticket prices were £60 and, amazingly, 19,000 people turned up, thereby generating revenues well north of £1m. Win prize-money on four of the races was less than £3,000. Doubtless everyone who paid a premium price loved the music, and it has put a lot of money into the racecourse’s coffers. But as owners, will we see any of it? Great that revenue was up, but the racing was awful. If Haydock Park is first and foremost a racecourse rather than a music venue, how do we gain anything from it? Don’t get me wrong – I’m very much in favour of using racing’s assets in a way that maximises revenue, but there must be a risk that the main experience and its raison d’être is diminished. If so, Madness.

Secondly, in the latest Owner & Breeder magazine, I read about Noel Chance retiring. Great trainer, two Gold Cup winners. Jamie Snowden is now in one of his former yards, Folly House. Noel said of being a trainer, “It’s a wonderful life. I never had a bob, but I didn’t eat in a bad restaurant or stay in a bad hotel. It’s a surreal existence training racehorses. You’re dealing in vast amounts of money belonging to other people, and you tend to lose touch with reality to a certain extent. You tend to lose the value of money, particularly when it is other people’s” (my emphasis). It is that line that irritated me.

In Owners for Owners, we’ve gone out of our way to find trainers that we admire, respect and trust. So the comments I am about to make do not apply to them. They wouldn’t be on our roster if they did.

But I do think that racing authorities, many trainers and agents most definitely do not think enough about the cost base and forget that they should be husbanding owners’ hard-earned cash and doing everything possible not to waste it. At the moment, the average return on owning is less than 20%, i.e. 20p in the pound, which is a fraction of what we find in many other countries. And yet racing only really concentrates on trying to take revenues up. Maybe it should also concentrate on bringing costs down. Lots of ways of doing that: simplify the administration; rationalise the charges; avoid wasteful multiple entries; share the transport (not charging 100% for each horse when there is more than one in a box); cap training fees (they can range anywhere from £30 to £70 per day, and yet staff costs are relatively constant); refuse to bid up sales prices to ridiculous levels (aided and abetted by the agents who love the buzz of buying the top lots); making sure there is no luck money or hidden kickbacks; and avoiding bottom-of-the-barrel syndicates that double or treble the value of horses they have bought cheaply and passed on to naïve and gullible owners.

A bit of a rant, that. I did say I was irritated. I think I should discuss all this with The Curmudgeon who has been in hiding recently. I’ll find out his views over a few pints of Donnington’s fine ales here in the Cotswolds.