Is Churchill on the Verge of a Fall?

First Churchill Downs flips off players with a hike in takeout rates then they make a spin move and flip off owners with the same bird by not providing even a minimal ticket allotment for owners running in graded stakes.  The last straw for me in this fortnight or so of Churchill’s money grab is lack of accommodation for a Hall of Fame jockey that brought some of the greatest memories in the sport to us: the snubbing of Ronnie Turcotte who, one could argue, gave more of himself to the game than most.

I’m not going to get into the specifics of each transgression, but you can read about each of them with these links:

Takeout - http://www.playersboycott.org/

Owner Seating - http://foxhillfarmstable.com/2014/04/28/churchill-made-an-irresponsible-mistake/

Turcotte - http://www.bloodhorse.com/horse-racing/articles/84712/turcotte-issues-statement-against-churchill

I would offer these words of caution to the geniuses at CDI: keep biting the hand that feeds you and you’ll be wringing your OWN hands wondering what the hell happened.

I’ve been in the gaming industry for nearly 20 years now.  I’ve seen the rise and fall of casino companies as well as casino suppliers and there are a few things that the “falls” have had in common and Churchill Downs is already starting to exhibit some of the early signs of these behaviors.

Raising Takeout to Increase Revenue.  I’ve seen this at several major casino companies: tighten up the games a little bit and watch the revenue roll in.  And it works.  But it doesn’t work forever.  Players eventually know that there is something different.  They may not be able to say that the hold percentages have gone up (hold percentage to a slot machine is like takeout to racing), but they know one thing: I can’t seem to win anymore.  The weekly trip to the casino becomes twice monthly and then becomes once a month and then “only when we’re close” to, finally, not coming at all or finding a casino where they feel like they are winning.

Once large company’s justification was that it has such a great player loyalty program that people will keep on coming because of the great offers.  At some point the players realize that the free buffet or show cost them $300 and the quality of THOSE had gone down as well.  Now there are rumors that it is matter of when, not if, this company will declare bankruptcy.

Sure, CDI, you have Derby but if players don’t feel like they can win or that the facilities are becoming sub-standard (see CDI’s Fairgrounds issues below) they’ll stop coming and stop betting on your product.  And one thing horseplayers have that casino players don’t is a group like the Horseplayer’s Association of North America that can hasten things along.

Putting Dollars Over Sense.  The most analogous in gaming would be the cheapening of offers by casinos to players.  While apt (and occurring), I would compare this more to the big gaming supplier that changed management and decided that surest way to improve the bottom line was to cut staff, cut benefits and hire as cheaply as possible.  The arrogance was that the product was so good that casinos would HAVE to keep buying or leasing their product – regardless of the sales rep or customer support.

When competitors started to cut deals with customers, this company refused.  Again, it was an “our product is so good you HAVE to have it” attitude.  However, what ACTUALLY happened is that casinos moved on to other game suppliers.  Thousands of revenue share games were removed from casinos across the country, impacting the bottom line by tens of millions of dollars.  One casino outlined how their “better performing” games actually COST the property money.  Let me digress to illustrate.

In revenue share situations the casino and supplier share in the revenue of a game.  Traditionally this has been 80% for the casino and 20% for the manufacturer.  There are other models but this is the easiest to illustrate.

Big company A’s games made $800 a day: their 20% was $160 while the casino kept $640.

Company B’s games only made $700 a day.  However, they made a deal and capped their percentage at $50 a day, letting the casino keep the rest.

Sure, company A’s games were better performing, but company B’s games did two things: allowed the casino to keep $10 more per game per game AND reduced their operating budget expense by $90 a day per game.  This allowed the casino to spend more on upgrades and conversions and stretch their budget further while earning more money on a “lesser” performing game. 

Company A’s unwillingness to deal with their customers has led to more layoffs to try and stabilize profits.  The value that casinos were used to getting from Company A was erased by the lack of qualified and experienced people and the blindness of the new management to their lack of expertise.  As a result, market share has suffered and stock price has been stagnant for nearly five years.  What seemed like a good idea at first collapsed under its own shortsightedness.

Lack of Reinvestment. Talk to horsemen about the deplorable condition of the Churchill Downs backside.  Heather was shocked when she saw it several years ago and was amazed at how much nicer the backside at Canterbury is comparatively speaking.  Vendors, trainers and owners alike have all said basically the same thing to me at one time or another over the past year: Churchill Downs cares NOTHING about racing anymore.  CDI management may try and disagree, but if that’s what your core clientele perceive, then it is your reality.

The Louisiana Racing Commercial had to strong arm CDI in order to get improvements made to Fair Grounds Racetrack.  This is NOT a company looking to reinvest in its racing product.

A very large, independent, off-strip casino was once known for its well-appointed rooms and fabulous food choices.  It thrived and had a very loyal following.  It was sold to a mega company and things began to change.  The restaurant quality began to slide and several closed.  Friends of mine that were loyal customers were telling me that the rooms were in need of upgrading with dirty carpets, holes in the drapes and upholstery.  And, worst of all to them, they couldn’t seem to win anymore.  Sound familiar?

 

CDI may be starting to show these beginnings of demise if you look closely.  Unless the core issues are addressed the rosy earnings reports may last one more quarter but then begin to slowly slide.  Other astute and savvy operators will assault the chinks in the armor by providing better service – and opportunity - to owners, players and VIPs.   Players will vote with their wallets and chose other racing opportunities.  Casinos are a dime a dozen now so those patrons can walk even easier if they feel they aren’t getting a fair deal.  (And if CDI is gouging their horseplayers, can you imagine what their casino hold must be?) Owners and trainers will show their displeasure by racing elsewhere.

Will a prominent owner one day eschew the Derby because of the way they are being treated?  Who knows?  The Derby allure may be too strong for that.  But the rest of the racing season will be up for grabs.   Perhaps Pinnacle Entertainment will treat their horsemen better at the new Belterra Park (River Downs) and with enhanced purses, thanks to slots in Ohio, they may draw horsemen away.

Don’t be shortsighted Churchill.  There are other options and folks have already started looking.