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The Keeneland fall meet begins this Friday, and in anticipation of one of central Kentucky’s premier autumnal experiences I sat down with Bob Elliston, Vice President of Racing and Sales, to discuss what lies in wait for racing patrons this October. Part 1 of this interview was posted on 10/3. Part 2 follows below:
KSR: “Let’s talk about takeout a little bit. Last month Keeneland announced that you would be raising takeout to the maximum allowances for the state of Kentucky – which puts you on par with Churchill. Effectively what it does is raise the price on Win, Place, and Show bettors by 9% and exotic players by 15%. The Horseplayers Association of North America (HANA) has come out in support of a boycott of the Keeneland fall meet in response to the takeout hike. They (HANA) also boycotted the Churchill meet in 2014 after that track maxed out their takeout rates. The result of that boycott was that Churchill’s non-Derby handle fell by almost 25%. Is that something that concerns Keeneland, or is the view that the demand for Keeneland’s product is more inelastic?”
Elliston: “Well, first and foremost, it always concerns us if a major, important constituency is at odds with us. You know, we don’t like raising prices for the sake of raising prices. I think what is unique about Keeneland, in its 80 plus years, is what we do with the resources we generate. It’s a bit of a misnomer, people believe that we are actually a not-for-profit, but we’re not. We are a for-profit company, but we are tethered and guided by a mission that says anything we earn, we invest back in the sport. That takes the form of purses, it takes the form of these beautiful grounds that we operate on, keeping it to be this idyllic place for people to come enjoy the races, and we invest in the sport in terms of research and fan development and things like that. So what we believe and what we think will be different for us is that we are raising our price to the level that the other major racing venues are, it’s not just Churchill by the way. We are literally on par within 10 to 15 basis points of New York, Florida, California, Oaklawn, all the major racing venues. So, it’d be different if we priced our product higher than they are, but we didn’t. We priced it at that level. When you couple that with knowing that we will do right by the resources they are providing to us, investing it back to benefit horseplayers through a higher quality racing product, investments in more people following the sport, promoting the sport, our hope is that they will understand that. You know, most handicappers are also business people, and they understand that when you don’t raise your prices for multiple years and you are out of whack with that and your expense structure goes up, as any business does, you have to make tough business choices. But then ultimately how you reinvest those resources, I think that ultimately will give them good reason to continue to support our product.”
(Photo courtesy of Keeneland)
KSR: “Have you heard from any individual bettors that typically make significant contributions to handle during Keeneland meets?”
Ellistion: “You know, we’ve heard from HANA. I’ve spoken directly with Jeff Platt (president of HANA), and we had a very cordial conversation. We had a difference of opinion, but we agreed on other things as well. So we are completely open to having those conversations with the major players, and we continue to put on quality betting lineups and guaranteed products and handicapping contests and some other things. We are going to announce shortly that we have an all-star roster of handicappers who each day are going to be making wagers with funds that we give them, and the proceeds are going to be donated to the Permanently Disabled Jockeys Fund. So, we are an open book, we are happy to visit with anybody about those subjects, and you know, it’s ok to have cordial disagreements and fact-based disagreements, but I think ultimately when they understand what we do with the resources, and they see the quality of the product that we are putting on the track and the business opportunities that are there in terms of the value of the pools, we are hopeful that they are going to stay in our pools.”
KSR: “Part of the reason for the takeout increase is to keep the purse structure at Keeneland competitive with other racetracks. In the fall meet, your primary competition is Belmont, and the purses there are fueled by a full-scale casino at Aqueduct. That has to be incredibly difficult to compete against. It’s not a level playing field. Keeneland does benefit from the revenues you earn from the sales and a newer revenue stream via the historical racing venture with the Red Mile. Is that investment going as you hoped it would? Are you seeing the numbers you forecasted to be able to put back into your purse structure, or has that project fallen short of expectations and perhaps that is some of what is driving the takeout increase?”
Elliston: “The historical racing product is different than a casino product. I think we’ve observed that both at Kentucky Downs, in terms of the life cycle of that venue and how the trend lines of their gross revenues have occurred. And it’s also happening on a very similar trajectory at the Red Mile. You as a former banker understand also that a lot of start-ups don’t get to 65 miles per hour day one. They take a little ramp-up time to get there. But I will tell you that the performance of the Red Mile is literally on a very similar trajectory as that of the Kentucky Downs facility. So we’re very optimistic about that because I think most folks would suggest that has been very successful. We’re actually now producing funds in excess of the operating expense so that we can reduce our debt and also contribute to purse structure. As further evidence, I think, of supporting that concept, is our recent announcement with Churchill Downs that we are looking to do two new ventures, joint ventures down in Corbin and in western KY. And again, those venues will be tied to producing results for us that will be reinvested in the sport. So when you look at the cumulative effect of those investments, first it takes capital to make them happen. Then secondly it takes a ramp-up period to get them to maturity where they cover the debt, cover the operating expenses, and produce the outcomes we want. Those are the steps we have to take to insure that we are top 3 in the country in terms of purse structure. It’s not ok at Keeneland to be 17th or 16th or 12th in terms of purses. We are a company that prides ourselves on the highest purses because we understand that is the best return on investment that people expect to get when they go down and buy a horse, or breed a horse right here in our own backyard. So for all those reasons, we are willing to put capital at risk to try and generate these revenue streams to keep us there, to keep this venue an idyllic place as I mentioned. But also, if we are successful in those things then we can revisit the takeout issue. If you diversify your revenue streams then you can look at doing the things we would all like to do collectively. I told the HANA folks this, I said ‘the day we get every single major racing venue at a table to all talk about lower takeout to invite new capital into that side of the business, I’m on the plane first. I’ll get right there, and I’ll talk about it.’ But until then, does it really make any sense for us to price our product so far below market that we impede our ability to diversify revenue streams elsewhere because we need capital. So that’s kind of what we’re dealing with and that’s how we’re trying to respond to it.”
KSR: “The racing commission hasn’t come with an immediate stamp of approval on the racing licenses for the two proposed joint facilities with Churchill. What do you think the hold-up is and do you anticipate any issues with getting the licenses?”
Elliston: “If I were a regulator I would want to fully understand what the process was to do those kinds of things. Perhaps they are evaluating that, but you know, we are in it for the long haul as is Churchill Downs. We are both iconic brands, Kentucky-based, that believe that together we can materially effect the quality of thoroughbred racing in this state. Now we didn’t choose to apply for licenses for more thoroughbred racing because we think there is plenty of thoroughbred racing, and the circuit is working. But we are very much tuned into taking the resources that come from the Quarter horse facility or the Standardbred facility, reinvesting them on the racing side after you take care of purse structure and things like that on those two breeds to help the whole circuit. We’re willing to keep our powder dry, and when the commission says they are defining a process and inviting us to that process to hear us out, we’re confident that we’ll prevail because the best guide for how the future will be is how people have behaved in the past. If you look at what Churchill and Keeneland have done in this state and in racing for all these years, it’d be surprising to me to have somebody do something in a more positive way for racing in Kentucky than we would.”
KSR: “It was interesting to see Churchill and Keeneland partner together. How did that partnership come about? Do you see it as necessary to work together in order to be able to compete against New York?
Elliston: “I would say that we both have an investment in a very healthy Kentucky racing circuit. Churchill has a bigger footprint in terms of number of race days than we do. They have 3 race meets and the ability to keep horses here longer clearly benefits them. We have a clear interest in making sure horses are successful here because we sell most of them, you know, and they are bred right here. That’s the nexus for why it’s a good thing for Churchill and Keeneland to work together. I wouldn’t portray it as pitting us against anybody else, any other jurisdictions, it’s a competitive landscape, and we’ve got to do what we can with what’s available to us to do that. And that’s what those investments are about – finding a diversity of revenue streams that we’re willing to put capital into to grow jobs in those communities, but also produce benefits to that core business that we are in as the reasons why. I think it’s a unique and pretty formidable relationship and joint venture when you look at all the resources corporate-wide that Churchill has, and you also have the vision and the goodwill and the community based mission that we have, those things together I think are formidable.”
Check back in this spot on Friday and throughout the weekend as we take a look at all the Keeneland racing action over Fall Stars weekend.