And so let the blood letting begin

[Hesi]

A long and complicated read, but it is pretty much what people like Mardi and Curious have been saying

"TAB been able to maintain the 9.8% proportion, operational cash flow last year on the same turnover would have been $271.1 million, roughly $110 million more than it actually was."

[Hesi]

So looking at his figs

In 9 years

Betting and gaming turnover has increased 1.18 billion

Betting and gaming turnover divs paid has increased 1.09 billion

So net revenue has increased 90 million

But costs over that period have increased 68 million

Net effect for that increase in turnover, is 22 million!

The question he has not addressed, is how could you have increased turnover, by not going to fixed odds.  In retrospect, all that effort for 22 million, why would you bother

 

 

 

[curious]

2 hours ago, Hesi said:

So looking at his figs

In 9 years

Betting and gaming turnover has increased 1.18 billion

Betting and gaming turnover divs paid has increased 1.09 billion

So net revenue has increased 90 million

But costs over that period have increased 68 million

Net effect for that increase in turnover, is 22 million!

The question he has not addressed, is how could you have increased turnover, by not going to fixed odds.  In retrospect, all that effort for 22 million, why would you bother

 

 

 

Simple. By making tote more competitive with FO and let someone else be licensed to do the risky FO business like Sportsbet offered to do.

[Globederby19]

Kinda like going into business selling pies for $1  and costing $2 to make. That was an interesting read. I have always bagged on at various employers to maintain cash flow, taking deposits in the slower times for bigger jobs, efficiency in getting invoices out quickly and follow up, and not forgetting yr bread and butter clients in favour of the big ticket jobs.

Basic 101 business sense.

[Hesi]

58 minutes ago, curious said:

Simple. By making tote more competitive with FO and let someone else be licensed to do the risky FO business like Sportsbet offered to do.

Fair enough, but by making tote more competitive, I presume you mean lowering takeouts, which would affect profitability, unless there was a big increase in tote turnover to cover.

Do you know what Sportsbet offered

[Freda]

16 minutes ago, Hesi said:

Fair enough, but by making tote more competitive, I presume you mean lowering takeouts, which would affect profitability.

Did you read Alan Jackson's Operations Manual?   That's pretty much how he thought, too, when he was Chairman of the RB.

[Hesi]

38 minutes ago, Globederby19 said:

Kinda like going into business selling pies for $1  and costing $2 to make. That was an interesting read. I have always bagged on at various employers to maintain cash flow, taking deposits in the slower times for bigger jobs, efficiency in getting invoices out quickly and follow up, and not forgetting yr bread and butter clients in favour of the big ticket jobs.

Basic 101 business sense.

I have a business

I have several products that I sell, that I make a very good profit on, for minimal work.  Nothing flukey about that, it was a planned strategy, after a lot of research and trial and error

So it is like me, trying to increase my sales, by moving into lower profit, higher maintenance products, that take me a lot more time and cost, that I make less profit on.  Now nothing wrong with that to a certain degree, as long as it does not impinge on my high profit products.

But, if my new lines become in demand, then by default, I end up in a  trap, which has what has happened with the TAB, and Johnstone's figures above illustrate that

 

[Hesi]

10 minutes ago, Freda said:

Did you read Alan Jackson's Operations Manual?   That's pretty much how he thought, too, when he was Chairman of the RB.

So are you saying that he was against lowering takeouts, because it would lower profitability, without considering that lower takeouts, would drive revenue substantially, more than compensating for the reduced profit per dollar spent.

Surely they would have done modelling on this based on many what if scenarios, ie reduced takeouts vs increase in revenue vs overall profitability

[curious]

46 minutes ago, Hesi said:

Fair enough, but by making tote more competitive, I presume you mean lowering takeouts, which would affect profitability, unless there was a big increase in tote turnover to cover.

Yes. How do you know how it would affect profitability though? I think it would take a year or two but is more likely to improve it. If I can buy the same product at the Warehouse for $13 that I can buy at Hammer Hardware for $18, I'll go to the former and give them their $5 margin while Hammer loses out on getting their $10 one. Both are valid business options but in today's global wagering markets pricing is key. Maybe the NZTAB should increase takeouts to say 25%. Much better gross margin if they can find enough idiots to buy and lose at that price.

[Hesi]

12 minutes ago, curious said:

Yes. How do you know how it would affect profitability though? I think it would take a year or two but is more likely to improve it. If I can buy the same product at the Warehouse for $13 that I can buy at Hammer Hardware for $18, I'll go to the former and give them their $5 margin while Hammer loses out on getting their $10 one. Both are valid business options but in today's global wagering markets pricing is key. Maybe the NZTAB should increase takeouts to say 25%. Much better gross margin if they can find enough idiots to buy and lose at that price.

That's why I have said above, that surely they would have done modelling on all of this, to decide what takeout rates give them the best overall profitability

[mardigras]

1 hour ago, Hesi said:

That's why I have said above, that surely they would have done modelling on all of this, to decide what takeout rates give them the best overall profitability

You'd expect that the understanding should have been that the optimum take out is the one that allows your typical punter the opportunity to lose the same amount they are prepared to lose each year. Since your goal is to obtain those losses. Whether you do that with 20% takeout or 10% takeout. The net revenue is the same.

Where the takeout being lower has added benefits is that punters that won't bet into a pool with 20% takeout, may well bet into a pool with 10% takeout - so you have the ability to attract new punters that wouldn't otherwise be involved. And you then want the takeout rate to be the rate that allows that new set of customers the opportunity to lose the amount they are prepared to lose.

The more you then are able to bring in new customers, the pools actually will also grow in size since punters are able to churn their funds with a more frequent level of reinvestment. So pool sizes growing allows for greater price confidence - which in turn can attract punters due to knowing the price has greater confidence. 

So you've grown your customer base and still managed to obtain the losses available to you from those customers. It's not a difficult thing to understand except the likes of Jackson couldn't.

As for what is the optimum rate, that is something you work on over a very long time. You set it to say 10% W/P. Assess it over the course of 2 years+. If you don't believe you are obtaining the level of losses from your punters that you should, then maybe the rate is too low. If you are getting what you expect from them, and gaining some new, lower it to 8% for example. Trial that for another 2 years+. You'll eventually get to the point where you understand what provides the optimum level of churn (to obtain revenue), along with what that does for attracting new.

Edited June 7, 2020 by mardigras

[curious]

Yep. It's not rocket science but they make it seem like that. Given their results, it's probably far from right where it is.

I don't really see how you can model it very effectively. It's like punting, you have to trial it prospectively with real dollars and adjust from there.

 

Edited June 7, 2020 by curious

[mardigras]

12 minutes ago, curious said:

Yep. It's not rocket science but they make it seem like that. Given their results, it's probably far from right where it is.

I don't really see how you can model it very effectively. It's like punting, you have to trial it prospectively with real dollars and adjust from there.

 

I agree - since you can't model what effect the rate will have on punters, and you can't model what new customers will become attracted to bet based on the rate/liquidity. It would be massive guesswork.

[curious]

That said, massive guesswork might be better than what they've been using.

[curious]

3 hours ago, Hesi said:

Do you know what Sportsbet offered

From another site but pretty much what I recall. They would of course pay income tax as well. Not sure the licence fee would or should go to prizemoney though. Maybe to the taxpayer.

The outsourcing feasibility was actually done by the applying outsourcing applicants.  It was two years ago now that SportsBet put together a presentation in Cambridge about what they would offer NZ racing to be their outsourcing partner.  Working on memory here:

• NZ racnig would continue to receive same return for 15 years at minimum
• NZ racing would joint venture any income above the minimum.  This would come from the growth that SportsBet would generate.
• MASSIVE upfront sign on payment.  This would have been put into prize money.

[Freda]

5 hours ago, Hesi said:

So are you saying that he was against lowering takeouts, because it would lower profitability, without considering that lower takeouts, would drive revenue substantially, more than compensating for the reduced profit per dollar spent.

Surely they would have done modelling on this based on many what if scenarios, ie reduced takeouts vs increase in revenue vs overall profitability

Yep, he sure was.  And I doubt if modelling of any description was done, or very little.