Schwarzenegger Signs Amendment To Allow Tracks To Terminate California Racing

I was really alarmed when I read the article, Governor Signs Bill To Help Horse-Racing Industry:

The bill (Bill 517) by Sen. Dean Florez (D-Shafter) allows a thoroughbred association or fair to increase the amount it deducts from horse-race wagering. It also provides the groups more flexibility to spend the money on improvements, including the purchase of tracks and training areas, and allows winnings that are more competitive with those offered in other states.

Legislative analysts estimate that a 5% increase in the amount taken out of wagers would generate $200 million annually for the horse-racing industry.

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This just goes to show how out of touch with reality governments are when it comes to horse racing. They are assuming that $4 billion that is now being bet will remain to be at least $4 billion bet. They have no idea what churn is, and how that $4 billion may turn into $3 billion if takeout in California rises a full 5%, which would lead to a bottom line decrease to the state and to the racetracks.

One commenter (Scott F.) on the article said it best:

"How does this actually help the racing industry? Bettors don't have bottomless pockets - if they lose their money faster, the total pie gets smaller and these players give up and go home. A bigger chunk of a smaller pie will be worth far less than a small chunk of a bigger pie. Yet again, wagering laws decided by people who have never placed a bet, or have certainly never tried doing it seriously. Basic economic theory of elasticity of price applies here."

As an aside, I don't recall any racetracks in any futuristic movies starring Arnold Schwarzenegger:)

Upon doing a little more digging, this bill doesn't mean that takeouts have to rise. Thanks to Equidaily for posting the actual old bill and the new revised bill to help clear the air.

In a nutshell, California had the 10%-25% takeout limits prior to the signing. But what this new bill does is give the power to the racetracks to be able to raise, or even lower takeout without any red tape from the government.

The only hurdle standing in the way of a takeout change is the California horsemen groups. They have to approve any changes before changes are made.

However, after reading the politician's take on the bill in the LA Times article, I would have to say that this was signed with a takeout increase in mind.

As for the Horsemen Groups veto. Don't count on it. In Ontario, racetracks have had the same powers California tracks now have. They can raise or drop takeout without red tape. However, horsemen groups stand in the way here when it comes to growth through lower pricing.

The reality is Woodbine has noted that the horsemen agreement actually stands in the way of a takeout decrease as they get an additional 2% on all bets placed and an additional 4% on triactors. What that means is if we look at the old takeout for triactors at Woodbine, the government got 1.3% out of the 28.3%, Woodbine received 11.5% (42.6% of the amount of takeout available to horsemen and track), the horsemen received 15.5% (57.4% of the available takeout money).

Theoretically, if Woodbine were to drop their takeout to 21.3% on triactors, the agreement would make it so that Woodbine would get 8% (only 40% of the amount of takeout available to horsemen and the track) and the horsemen 12% (60% of the amount of takeout available) on all triactor bets made.

If takeout were to decrease even more, the ratio the track gets would decrease even further.

It is the horsemen who are unwilling to renegotiate this contract to make it more equitable.

This also has implications on rebates given to its customers. The horsemen group is double dipping here because the rebates come from the track's money. When the rebate is churned, the horsemen get a cut on that money too.

In other words, horsemen groups don't help the game when it comes to lowering takeout and allowing the game to grow.

Maybe the horsemen groups need to be educated more on the matter.

Gambler's Book Club recently put up a podcast of an interview with icon handicapper/author Steve Davidowitz (click here, and then click the "Listen Now" button on the top right). At around the 8:30 minute mark of the interview, Davidowitz is asked about track takeout. He said there was a secret study done around 20 years ago (who knows, maybe it was 30 years ago) where takeout was changed from 14% to 17% and back again for a couple of years (Note: he didn't mention what track or tracks participated in this study). He did however state that the results were that when tracks lowered takeout, handle increased, and when they upped it, it dropped. In the long run, tracks made more money with the lower takeout.

To be honest, I never heard of this study until I heard the interview. But all one has to do is look at the success of Betfair to show that by allowing players to last longer, the players all of a sudden become more obsessed. Obsessed with the idea they can win, and the fact they last so long, it really kills other competitive forms of gambling in that player's life, not to mention it also increases the likelihood that the player will expose others to his or her obsession.

I can tell you for a fact, that the reason most players stop betting is that they run out of money. That has always been the case. But when you consistently run out of money too quickly, you increase your already negative expectations of the game (even if this is done on a subconscious level). This is the reason why slots take out an average of around 10%, not 20%.

When horseplayers sit on the sidelines, they lose interest in horse racing. And very importantly, they wind up not exposing new people to the game when on the sidelines.

The last track I know of that raised takeout was Calder back at the start of 2008. Calder recently had to slash purses. Now, instead of dropping takeout, the track has decided to put its effort into promoting its casino. Personally, I have not bet on a Calder race since the takeout increase was announced. If one track were to close tomorrow, I would like it to be them.

HANA (Horseplayers Association Of North America) is obviously against any takeout increases anywhere. We are pondering putting up an ad in The Daily Racing Form to help inform the public, horsemen and racetracks of the insanity that appears likely to transpire as a result of this bill. From the HANA President:

This bill does not in itself change takeout rates. However, we are obviously concerned by the implications and the tone of the press releases.

HANA, on behalf of horseplayers everywhere, is currently seeking further information as to any immediate consequences from this change of law.

HANA is extremely dismayed to see the same false economics continue to be thrown about, that suggests prices can rise while sales remain constant.

A price increase would obviously only have one effect -- to further accelerate the mass exodus of players and their wagering dollars from this game.


Jeff Platt

President, HANA


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