26 February 2008

Reducing Takeout To Maximum of 15% Will Cause Huge Increase In Betting

Really good article: Horse Sense-Improving The Racing Product I'll disagree to a point that quality is even close to be as important as track takeout, but the author's points on track takeout are undeniably true, and completely ignored by the racing industry in North America:

Quite a bit has been written about the dynamics of wagering. Historical evidence is abundant with the fact that reduced takeout, and hence higher payout, results in increased revenue.

One study of 24 racing jurisdictions done over 15 years shows conclusively that the profitability of track operations varies inversely with the takeout rate, because a lower takeout rate "stimulates a larger handle of which the track retains a fixed proportion".

That study concluded that at the average takeout rate of 15 per cent track revenues would be 60 per cent greater than if the take out were 20 per cent.

Other studies have shown that a decrease in the price of wagering tends to increase race track attendance and, therefore, "the total amount of dollars available for distribution for purses, etc"

H/T Pull The Pocket


Execs Analyze Racinos
Nick Eaves of Woodbine Entertainment said that racing created the problem it now faces.
"Racing relinquished control of its pari-mutuel product," he emphasized. "We abdicated our responsibility. Five percent of our customers make up 60 percent of our wagering. We have to regain control of our product distribution, product pricing, and to whom it's sold to make sure that the whales [major bettors] don't beach offshore."

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Note to Eaves: If you don't want the whales to go offshore, you have to offer the same pricing they receive from offshore houses. But more importantly, if you want to create more whales, you need to decrease the criminal takeout rates immensely. Maybe you'll attract a few Betfair and online poker gamblers along the way...not really maybe. Definitely.

Racing economist and long-time major bettor Maury Wolff noted that the horseplayer today has "quite a few more options" than in past years. He stressed that the price of betting, or takeout, is a driving factor in determining where those wagers are placed.
"Pricing is everything," said Wolff. "You cannot consistently beat that 25 percent takeout on a Trifecta."

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You got that right Maury.

New York task force weighs fate of old horses. Looking to prevent allowing retired horses from being slaughtered in Canada or Mexico.

Oregon Set To Welcome Two More ADWs

Blood doping harness driver Eric Ledford not welcomed back, but is back anyways. Bill Finley calls this a progressive attitude.

Ross Morton was the only announcer Finger Lakes knew

Older horses winning at Aqueduct

Drunken groom-to-be tries to run with horses during a race, in Australia:

The day before the wedding in Canada, guys generally go crazy by hanging with a naked women instead of naked horses.
H/T Equidaily

10 comments:

Free Bet said...

Casino

i agree with the 15%, it will greatly increase gambling activity

TX 1 student said...

Cangamble,

Aside from the takeout, one problem I see is that purses / purse structures don't seem to be adjusting for inflation. Alot of Grade 1 races like to say they are 1 million for marketing purposes etc, but a million bucks isn't quite the same as a million bucks back in say 1984.

Cangamble said...

At 15% on exotics people will actually think they have a chance, and they might.

Tx, you sound like you aren't kidding. That is not even on my priority list. Besides, I think you are wrong. Lots of races have upped their antes and the Breeders Cup Races have gone from 1 to 2 to 3 million in some cases.

A million bucks is enough to attract the best of the best.

Anonymous said...

I have my doubts that the takeout to handle relationship is as simplistic as it's made out to be, but leaving that aside, if you dig into the references in the article you cite and look at the study claims, you'll find how old, weak, and often completely unapplicable it is. A nice headline, but I'd say that's about it.

So you think it the Fort drops their takeout to 15% it will increase handle enough to make up the difference and net them an increase?

KH

Cangamble said...

KH, I don't think there has to be any change overnight, but over months, yes.
It is hard to get a real study on this because takeout rates are high everywhere, and extra paid out monies can go to a track with lower takes and also to higher takes skewing the data. We are in a different age than when there was just one track and you had to go there to bet on it.
I know for a fact that people tap out quicker,and it doesn't create much of a buzz. People used to look forward to going to a track having a reasonable chance to win. Now because of simulcasting, betting on horses is closer to slots or blackjack, both of which have much smaller takes.
If you think takeout doesn't matter, why don't they raise it up from around 9% for slots to 20%?
Simple, nobody would go anymore. No more bang for the buck. People would be going broke even faster than they do.
As for the Fort, my prediction is that a 15% takeout would increase betting at their track by their Niagara patrons by a very good percentage to at least make up for the loss in commissions, because people generally bet their last dime.
Having a 15% takeout will probably get people from other jurisdictions betting more on the Fort Erie product as well. The thing is, will other hubs take the signal, because they will make less per bet.

Personally, I just bet 7 times more than I would over the course of the last month ONLY because of rebates.
Didn't bet a dime through WEG. Screw them.

Pull the Pocket said...

When you try a rebate for the first time, and grind, you realize what a difference it makes. I will not speak of numbers, but frankly it is mind boggling how much more you bet.

When someone discredits the notion, or they say it won't work, I know one thing: They have never played with them with a proper bankroll.

Anonymous said...

OK, clearly, if you are a bettor, you should place your money where you have the least number of fingers in the pie, be it reduced takeout, rebates, whatever. No argument there, how can there be? It's pure math.... (Well almost. If you can find somewhere to bet where you can get odds that mismatch your choices more than the difference in take rate, it may make economic sense to bet one place over another, even with a higher takeout, but I suspect only the computer guys are betting into pools selectively based on that math...)
So my mistake is that I've been looking at it from another angle, namely that I am somehow skeptical that lowering takeout will mean that the track owners will make more money, which is claimed in lots of places. Yes, lowering takeout will increase handle, but will it raise it enough to make more money than they are making now? That's a calculation that I don't have access to. But barring collusion or shortsightedness, if it were true, you'd think it would have been tackled by now.
Track operators clearly don't have crystal balls especially with regards to new technology impacts, etc., so maybe I'm giving them too much credit. That said, to proclaim that they're leaving money on the table because they have high takeouts and the cure all is to lower them, seems to be giving them too little credit. They have to make a bet on whether to lower takeout. If they win, they lose money overnight until the good will catches up and the handle increases, past that magic number. If it doesn't work, well they've just shot themselves in the foot for no reason. I can see why they are taking baby steps.

In a world where you have more places to bet, the tendency will be for competition to drive the takeout lower. Protectionism, the ability to control the industry, archaic laws, etc. drive them to try and eliminate competition and set uncompetitive takeouts for as long as they can get away with it...
Will 15% greatly increase betting activity? It will help, but greatly? Depends on how the handle pie is carved up and what the motivations of the bettors are. People who talk about it on the internet seem to me to be in the middle ground (they aren't whales already getting the best rebates, kick backs, etc.) They aren't part of the majority of bettors who don't even know what the takeout is (look how hard it is to find it). Lowering takeout should get you guys to play longer before you run your bankroll, maybe bet a bit more, and might get the whales to play more (but my guess is not much as they're already getting better rates than you or me). The public doesn't even know the current handle, so why would they bet more if it's lowered? (You can't really run ads that say, "look we've increased your ROI from -20% to -10%, please bet with us!") So how much more is the serious horseplayer going to bet (% of your day job paycheque) in the long run? And are there easier ways to make that same amount of money in the racing biz. Thanks for the discussion. It's fun.

KH

Cangamble said...

OK KH, I can't say that I know for sure that dropping takeouts to 15% will make tracks more money 100% for certain. I'm just 99% sure.

Here are my assumptions:
1. John Smith only has so much money per year disposable to lose gambling.
He can't afford to bet every day nevermind every race, but he would like to with his racetrack money.

2. Tracks make money, so they wind up with their share of most peoples disposable gambling money.

3. John Smith doesn't even think about track takeout.

4. Joe Smith bets horses offshore because he gets a rebate. The racetrack sees none of it.

5. Both Joe and John play online poker losing at the end of the year, but they both seem to last longer with their bankrolls and even have the idea they could beat the game if they were more patient and discipline.

6. John Smith never tells anyone about playing horses (he is embarrassed and wishes he never went to a track in his life). He knows that when he deposits $200 with WEG it will be gone after 7 races almost always.

7. Joe Smith tells his friends about the rebate shops. Joe thinks he has an outside chance of winning at the game.

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Bottom line: If tracks were to drop to 12-15%, they would get more of the players disposable money for the year. Players would last longer. They don't even have to know why they last longer, just like slot players have no idea what the takeout is for slot machines or most blackjack players don't know the house edge, or most poker players don't figure out what the rake percentage is. They just know they last longer than at the track.

Domestic tracks will attract back the offshore gamblers which means more money.

The key is, by setting takes to 12-15% you might create the odd winner and create a buzz that people have a chance to win again, like some did 25-40 years ago.

A buzz will bring in new blood.

The game is broke right now, it needs fixing. And though it sound drastic, cutting to 12-15% will most probably grow the game.

Worse case scenario, the track execs will do what they expect their patrons to do. Gamble and lose, but I doubt very much they will lose.

Anonymous said...

I think what KH was getting at was what someone else posted over on Jen Morrison's blog.

http://jen-thoroughbreds.blogspot.com/2008/03/marching-in.html

In summary: is there a takeout greater than zero that the Cangambles of the world are willing to put up with?

Cangamble said...

Anon, if you've read my posts, I have never said that a zero takeout is feasible.
Ideally I think if it was comparable to slots (around 10%), betting on racing would grow in leaps and bounds.
However, being a realist, I think there would be nothing wrong right now if the racing execs got together and maxed out takes on exotics at 15% (all taxes included), and WPS at 12-13%. Racing would definitely draw back most of the offshore money they are losing, and it would create domestic winners who will create a buzz and possibly bring in a lot more customers.