28 August 2010

Dropping Track Takeout Sounds Counter Intuitive....But It Will Grow The Business

Lets hope this isn't lip service. It looks like NYRA is starting to get it.

NYRA Chair Steve Duncker from an interview earlier this week:

"Duncker noted the blended rates in New York were 15% in 1960, 17% in 1970, and 19.81% in 2010. Over that period, racing has faced growing competition from other forms of gambling that employ takeout rates of 2%-10%.

“What business people in this audience think that’s the way to increase business?” Duncker said. “We’re being priced out of this market. We need to bring the cost of our product down in a competitive market.”

And on CNBC, NYRA CEO Charles Hayward was interviewed. This is a must see video (not very long) for anyone who cares about the growth of horse racing:

I personally love the use of the description "counter intuitive" that Hayward uses to describe the effects of track takeout.

"We're taking too much out of the customer's pocket.....the more money we put back in the people's hands, the more they'll bet back in."

The interviewer was pretty much representing the intuitive point of view, which is wrong, that the price to "put on the show" forces takeout rates to have to be higher. This is far from the truth. The cost to put on the show is pretty much a constant (except when it comes to cutting or adding dates, or adding or cutting purse money...which is predicated on the amount of betting the track takes in). Using the example of Fort Erie Slots. Lets say it costs $25 million operate the slot side 7 days a week. This cost has no bearing on how much is lost by customers.
The only thing that matters is the price of the bet. Slot operators have found a long time ago that their optimal payback rate (the amount of money that maximizes profits for slots) is around 92-95%). In terms of a racetrack, that equals a track takeout of around 7%. What this means is that if the slot takeout is doubled, for example, to 14%, it would attract less than half the long term betting than at 7%.

It doesn't matter if the operation costs were $2 million or $30 million. What matters in gambling is how much the customer gets in return.

Yes, it is counter intuitive, but that is how gambling works. The longer a player lasts, the more they enjoy it, the more they are likely to return. The more money a customer leaves a gambling establishment with, the more likely they are to come back quicker.

Three more good things happen when it comes to growth by reducing takeout. First, the longer a person lasts, the more likely they are to expose friends and family to their hobby. This potentially creates a new audience.

Secondly, a player who spends more time handicapping and watching races will likely devote more of their entertainment and gambling bank roll to horse racing and less to other forms of gambling.

And third, the lower the takeout, the more likely some visible winners will be created. Visible winners helped poker explode. For the most part, there has to be a good reason for a newbie to begin tackling horse racing's enormous learning curve. They need to be able to rationalize a reason to buy a handicapping book in the first place. If long term winning is impossible (with a 20% chop it certainly is impossible), why even look into betting on horses?

I should also make it clear, that takeout can be reduced to as close to zero as possible. There is an optimum takeout, where tracks and horsemen make the most money, but it differs for each type of gamble. The optimum takeout or house edge in blackjack or poker is lower than the optimum takeout for horse racing wagers. One of the main reasons for this is the frequency of wagers per hour, and the fact that no matter how enticing horse racing becomes, there will still be quite a few players who will only play a little per week, month, etc. Much of their churn will go elsewhere, other than back to the track.

In fact, each type of wager has different optimum takeouts associated with it. Show betting has a lower optimum takeout than win bets for example, and much lower than triactors.

Since, there is no empirical evidence to use when it comes to horse racing (as horse racing as always charged its customers too much), I can only estimate. Right now, I figure the optimum takeout for show betting is around 5-6% with no breakage. Win betting is probably 7-9%. Exactors and doubles around 9-10%, and triactors and other exotics fall in the 12-14% range.

Those Morons In California
Those morons, yes morons, in California are going to learn a very big lesson. It is going to get ugly there very soon. I think this is the first time HANA ever got mentioned in the DRF. Personally, if they do raise takeout in California, I will not even look at another past performance from there (except for Breeders Cup Day). I won't be the only one who will personally boycott their racing. They need leaders there who get it. Those who understand that it might be the intuitive thing to do to raise takeout so purses will grow, but who know that it will lead to a very bad decline in their bottom line.

The infighting continues as some of California finest imbeciles like the takeout increase but are dead set against exchange betting. If I didn't know better (and I don't), it appears that bill AB 2414's sponsor, Assembly speaker John Perez, has screwed up by seemingly being bought off by nincompoop's who believe that upping the takeout will benefit California tracks and horsemen, and Betfair at the same time. Politicians sometimes do things that street whores wouldn't do when it comes to campaign contributions and other perks. I don't expect Perez to be different, but he really messed up by attaching both exchange betting and a takeout hike on the same bill.


"I would accept that an increased take out of any kind would be unpalatable. However, as that same horseplayer, I want to see a healthy sport that has the chance of a long-term future and people with much more knowledge than me of California racing believe this will help the sport. It is worth noting that other states already have take outs that exceed California. In the UK, there is a healthy Tote industry and some of the most successful bets have a take out of 30%.
To me, we should be looking at how to rebate price sensitive customers so that skilled horseplayers who put a lot of money into pools are given a loyalty bonus or rakeback. I struggle to understand why US racing is so willing to cooperate with offshore rebate shops that suck the life out of the sport. We should be exploring ways of bringing that business back onshore and, at the same time, rewarding regular players with rebates. It should be the operator that stands the price of those rebates and not the sport but they could only do that if working out the right pricing formula all round. Irrespective of what happens to AB2414, I hope that issue will be explored by the industry."

-Stephen Burn TVG CEO(via Paulick Report)

I find what Burns said to be disingenuous to an enormous degree based on his comments.

He of all people should realize that rebates or lowering takeout isn't about appeasing price sensitive and big players, but giving all players an opportunity to last longer, spend more time betting on horses, and opening the door to the chance that some can win which will create a whole new market of wannabes (this has been the key to Betfair's success).

Andy, I agree, he is full of it. He isn't a stupid guy.

He realizes that the higher the takeout in California, the more likely people will turn off parimutuel and bet on the exchange.

Secondly, he realizes he needs to invent reasons why a takeout increase makes sense so as to support the bill, which will get Betfair in the door.

Now, I'm not saying exchange betting is bad for the industry, in fact, parimutuel wagering has risen wherever Betfair has shown up. But Burns is playing with the media right now.

There is no way he believes that the increase in takeout will add to the health of the racing industry in California. I'm not buying it for a minute.

Delaware Park Doing Something Good
Delaware Park is doing a two month "experiment" starting September 4th. They are lowering the takeout on exactors for those who bet live at the track from 19% to 10%.

It isn't a huge thing. Not a lot of money is wagered on exactors per race on track at Delaware (most of their handle is from other tracks and ADWs across North America). However, it is a small step in the right direction.

They are hoping this will bring some extra people to the track who would normally bet through one of the bigger ADWs. And they will hopefully get bigger wagers on their product live.

What will happen is that Horseplayers will get more money to play with if they hit an exactor. That money will be churned back almost automatically either on the next few Delaware races or simulcast races. Players will last longer, but the reality is that they will quickly lose that money back into high takeout bets for the most part.

Reduction in takeout to work, needs to be long term, and needs to be an industry wide thing if you want to measure total success.

The Delaware promo will be successful, but it won't be huge. But when it comes to horse racing, baby steps in the right direction are better than standing in your excrement, something horse racing seems to be famous for.

Bruno Schickedanz denies temporary stay at Woodbine by ORC
Some emotional quotes by other trainers and his former trainers didn't help Bruno's case. No reasons yet have been given as to why Schickedanz can't race or stable at Woodbine, other than Schickedanz did something against the good of racing.

I think they need to revise the rule books at the ORC so that a case like this will be clearly against the rules, and should never happen again.

I don't know how that ORC can justify a Woodbine ban, but allow Schickedanz to continue to race and stable at Fort Erie.


Good points are made in this TrackMaster blog post about the harness game and why there is good value in using their past performances.

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