I'll start with the premise that the economic value of a NHC seat is simply the amount of the total pot divided by the number of players, which from what I understand is $1.5 million/500=$3,000.
But HorseTourneys.com cites the value of an NHC seat at $6,500. When I asked McKay Smith about this via e-mail, he said
"That's exactly what we pay the NTRA per seat. That's the standard pricing for the online sites that are authorized to move NHC spots, such as ourselves, NHCQualify and Twinspires."
I then asked Michele Ravencraft of NTRA. She replied:
"NTRA members pay $3333 per seat and non-members pay $6500 per seat. Most qualifiers also receive free airfare and hotel in Las Vegas.
The value of a seat to a player is a more difficult to measure. Unlike the World Series of Poker, where anyone can buy a seat for $10,000, a spot in the NHC must be earned through successful participation in a qualifying tourney. To some, a seat is priceless. To others, it may be an investment of a certain amount of dollars over the course of a year in an attempt to qualify. It varies by individual."
When I followed up and asked about the discrepancy between my calculation of the economic value of the seat ($3K) and the $3333 and $6500 numbers, her reply was:
"There will be between 450-475 participants. More than 50 of those seats will be comped (part of the NTRA Tour, sponsorship agreements, etc.). NTRA pays for the airfare and hotel of the majority of qualifiers."
I appreciated the responses and the helpful information but I take any $6-7K estimates of a seat's value with a boulder of salt. That may be what an online site pays the NTRA, but that's a different animal than the value to the end player, which bottom-line remains an economic value, or $3,158-$3,333 based on the 450-475 player range NTRA told me. That begs the question of where exactly the additional money goes and where is the transparency, but I didn't expect answers to those questions so we'll call them rhetorical.
What does all this pontificating mean? Well for the Joe Average NHC Tour players such as myself, some of the effective 'take' numbers for online contests aren't pretty.
For example, the July 22 HorseTourneys.com NHC qualifier has a $195 ante -- 4 of 200 players qualify for Vegas (which includes hotel but not airfare), and 20 players receive $195 credit. Assuming a $3,333 economic value of an NHC seat and $500 for hotel, by my calculations the base economic value of an entry to the HorseTourneys event is $96.16 (total pot of [($3,333 + 500)* 4] + ($195 *20) = $19,232, divided by total number of players, 200).
There is some but not much economic value to NHC Tour points that are awarded to the top 10% of finishers; I'll be generous and bump up my estimated economic value of a HorseTourneys entry by about 10% to $105. Even so, a $105 economic value on a $195 ante implies a takeout rate of 46% -- yeesh.
The input numbers at NHCQualify.com are different, but notably the output (takeout rate) is virtually identical. $160 ante, 300 entrants, 5 NHC seats plus hotel and airfare, 12 players win back $160 credit. Estimating the value of airfare at $500, The total pot is [($3,333+$1,000)*5] + ($160*12) = $23,585, and the base economic value is the total pot of $23,585 divided by 300 players, or $78.62. Bump it up by 10% for NHC Tour points and we get an estimated economic value of $87; apply that to the $160 buy-in and you get a 46% take. Again, yeesh. That 46% is two to three times typical takeout rates on standard wagering at your friendly neighborhood racetrack!
I'm not criticizing HorseTourneys or NHCQualify, both of which are sites I like, have used and will use again. The grimness of their takeout numbers seems to be a function of the NTRA's $6,500 per-seat charge, which is just way out of wack with the economic value of a seat.
So what's an NHC aspirant to do? Well for starters, it helps to be aware of some of these numbers. I know there is a cache and brass-ring aspect to the NHC quest, and a (however remote) chance of a life-changing score, and this has a certain (yet indeterminate) premium. But in my view there is a general lack of transparency with some of this contest stuff for the ~99.9% of players who won't win the NHC, so buyer beware for sure.
Live contests can be great value (as I blogged about recently, the NYRA essentially gives away NHC seats, not to mention lunch and beer, for free). HorseTourneys' feeder games are economical and can work out great from an ROI perspective, provided of course you can 'feed through' to an NHC-qualifying game for less than the price of an NHC-qualifying game. For non-NHC online games, DerbyWars' take is usually about 13% and can be lower or even negative if games don't fill.
I was kind of vaguely aware that some NHC contests were tough propositions on an ROI basis, so hitting out to the numbers opened my eyes some but it didn't shock me. I'll still dabble in HorseTourneys and NHCQualify, especially for the rest of this year given I'm chasing NHC Tour points and I have sunk costs involved in that quest. But going forward into next year, I'll try to be more discerning regarding contest costs, and adjust my play accordingly.
And I'll also hope NTRA improves the value proposition offered to NHC Tour players.
EXTREMELY interesting analysis, and a word to the wise to NHC Tour members, it seems. The data point that is impossible to quantify (presumably for competitive reasons among these contest sites) is operating costs. They're not going to get into the online contest business to run at a loss, so I would assume your calculation should include some kind of costs to maintain servers, hire IT professionals or others to coordinate and contests, publicize the events, etc.ReplyDelete
Without having spoken to Josh or John from Derby Wars about it myself, I can only speculate (based on number of games they run, all outside the NHC scope) they can offer lower relative takeout on account of economies of scale. NHC-niche sites run their contests far less frequently.
If nothing else, I hope this prods the NTRA to be more candid to its Tour-paying members about the cost structure. Transparency would be nice, but then again, it's horse racing...
As you know there has been a lot of debate about where all the money goes. There is evidence that the NTRA is using the NHC to fund its day to day operations. With tracks dropping out of the NTRA and a declining role in the horse racing industry the NTRA is skating on thin ice. I wouldn't be surprised if the NTRA disappeared in the next 5 years. If that is the case hopefully some other group will co-sponsor the NHC with the DRF.