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Churchill Downs Bets on a Thoroughbred
Month 1: Odds are in favor of this two-time winner taking a CRM triple crown.
For the rest of the July 2004 issue of CRM magazine please click here
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Horse racing fans who cheered loudest for Smarty Jones's Kentucky Derby win in Louisville in May triumphed over much more than 9--2 odds and a soggy track. Many winning bettors earned their payouts by sifting through a mass of data--jockey performance, training strategy, the horse's medical history and bloodline, its lifetime record, the opposing horses' strengths and weaknesses, post positions, track conditions, weather reports, and much more--and spotting the key indicators of a victory. Churchill Downs seeks to boost its annual winnings through even more complex analyses of its customers. To that end the public company, which hosts the Derby and owns other tracks in California, Florida, Illinois, Indiana, and Kentucky, has placed a strategic bet on a groundbreaking CRM initiative. Churchill Downs trotted out the seeds of a CRM strategy not long after Senior Vice President of Sales and Marketing Andy Skehan joined the company five years ago. The company started the Twin Spires Club, an affinity program comparable to those used by many casinos, at its Churchill Downs track. The swelling customer data enticed Skehan, a veteran from the marketing, advertising, and product development ranks of Nabisco and PepsiCo. Some basic spreadsheet analysis further tantalized Skehan and his marketing team, which hoped to plumb the database to strengthen campaign management, product development, and the company's mix of races. "Up to this point we have not been able to do a whole lot with that information," Skehan says. "It represents a huge amount of potential for us." After Churchill Downs executives examined those possibilities with Skehan, the company embraced CRM as a top strategic initiative. "We already feel that we provide good customer service," Skehan says. "We want to elevate that to a level unseen in our industry and, frankly, in a lot of other industries." To harness the revenue potential lurking in its databases, Skehan started searching for a CRM thoroughbred. From Seabiscuit to Smarty The recent popularity of "Seabiscuit" and Smarty Jones parallels the surge in revenue growth the horse racing industry has enjoyed in recent years.
Total wagering for the 130th running of the Kentucky Derby hit a record $99.35 million this year, a 13 percent increase compared to the 2003 race. Roughly 90 percent of the wagering was conducted via off-track betting (at simulcast outlets). That technology has helped restore some of the popularity surrounding the sport from the early through mid-20th century, when legends like Man O'War and Seabiscuit gripped the country's imagination. Yet simulcast-enabled betting, which represented only about 10 percent of horse racing wagers as recently as a decade ago, also distanced tracks from their customers. To bridge that gap Churchill Downs expanded its affinity program to all its racetracks. The company now counts about 160,000 Twin Spires Club members, but marketing to those customers, who are spread out across the country, posed a challenge. Mass-marketing campaigns would prove too expensive and inefficient for the $424 million organization. As a result, Skehan says, database marketing "began to emerge as an effective and efficient way to spend our money." Churchill Downs earns revenue from television rights, its simulcast network, licensing rights, admission fees to its racetracks, merchandise it sells at its tracks and through its Web site, program sales, group sales, and food and beverage sales. The vast majority of its revenue, however, comes from betting. The company receives roughly 15 cents to 20 cents of each dollar waged (that rate is mandated by law but varies by location of the bet's origin and type), but half of that amount covers the winnings for the horses' owners. The remaining 80 cents to 85 cents goes into the betting pool, which determines the odds and the payout for winning bets on each race's top three finishers. That pari-mutuel betting system differs from casinos, where bettors compete against the house. Horse racing's surprisingly diverse product mix also distances itself from other types of wagering. Each horse race differs from other horse races due to its unique assemblage of horses, tracks, race lengths, and betting activity. "How do we decide the most appealing race to schedule at the most appealing time of day to encourage the best types of wagers to make the most money and optimize our product and pricing mix?" Skehan asks. Improving the Odds of Success Atique Shah, vice president of CRM and technology solutions, must answer that question before the 2005 Kentucky Derby, the first major milepost for the three-year project. Skehan hired Shah in February based on his track record of leading highly successful CRM initiatives at the National Basketball Association and GSI Commerce, which received Gartner's CRM Excellence award last fall. Shah accepted the challenge because of the company's strong commitment to CRM, the strength of its management team, the fact that customers are hungry for more personalized service, and the opportunity to use cutting-edge technology and processes to support a rich tradition. The first-of-its-kind integration of betting information contained in Churchill Downs' TOTE wagering hardware (an ATM-like piece of hardware that bettors and cashiers use to enter bets) and the CRM system illustrates that commitment. "No sports racetrack organization of this caliber has attempted a project of this magnitude," Shah says. Churchill Downs is implementing E.piphany 6.5, which Shah also implemented at GSI Commerce. Much like a seasoned bettor, Shah has scrutinized all the conditions that will influence the outcome of his race. He has examined databases, evaluated the strengths of existing systems and networks, assessed connectivity, examined hardware, delved into data sources, identified merge-purge issues, and unearthed duplicate data issues. He's also sized up his people needs. So far Shah has identified 27 data sources that will feed the CRM system. But, he adds, "We made a conscious decision not to bring all 27 data sources into the system starting day one. We're specifically looking for data sources that are extremely important in terms of generating a better customer understanding that drives both customer value and revenue potential." Shah is in the process of hiring 10 to 15 individuals who will comprise his team. His first hire was a systems analyst within the company who "knew a great deal about our current systems," Shah says. "And I knew I could learn from that person." That attention to the details of the people and process sides of the project aligns with Skehan's priorities. "The majority of CRM failures stem from the fact that companies believed technology is the answer," Skehan says. "They don't address the processes and the people that use the technology. We've probably put more effort into working with people systems in the company and into change management than we have into technology. When we get these new tools and have access to new information and all of this power, we will have people who are ready to use it." Until then, Shah remains focused on getting a strong start out of the gates and reaching the first turn. Freelance journalist Eric Krell, whose first racing win was a bet on Seattle Slew, likes long shots and hopes to hit a trifecta soon
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