A forum member csperberg posted a Sports Illustrated article entitled "The Intolerable Squeeze" by a Johns Hopkins professor Dr. Albert Hammond. The article, which is all about track takeout, is dated 1963, but many of the points and facts in the article are as relevant today as they were then.
The first thing to really catch my eye was this:
"Some favor an increase in the take because they want the tax to discourage, inhibit, penalize betting."
Yes, those who didn't gamble, and were against gambling, understood the economics of track takeout more than groups like the TOC and CHRB seem to understand it today.
Tracks understood it right from the start, as the article points out that they fought any imposed takeout increases by the government. Those were the days.
It is important to understand that although the points in the article are mostly in tune with racing today, there are some major differences. When the article was written, racing still had monopoly status. You had to be at the track to make a parimutuel bet, there were only 8 races a card, and one or two exotic bets tops. Churn was the name of the game, and a good percentage of Horseplayers left with at least something in their pocket so as to entice them to come back as quickly as possible.
Another point that can be paralleled to today is that when takeout rose, it was good for bookies. They had less risk and more incentive to operate. Something not mentioned in the article is that bookmakers were probably the first rebaters. I remember as a teenager in the late 70's, there were a few bookies in the stands at Woodbine. Almost every regular remembers Woody (who passed away recently). He used to hang out on the second floor at the far left of the grandstand. Not only providing credit for those who didn't have money at the track, he also rebated up to 10 points to his best customers. He got pinched a couple of times, barred a couple of times, but when he wasn't around, there were other bookies to play with.
Nowadays, horse racing's competition isn't only off shore bookies, but other forms of gambling and lotteries.
When Dr. Hammond postulates that if takeout were 99%, there would still be line ups to make bets, that may be true in a monopoly situation, and he does concede that there would be much turnover amongst the patrons. Today, that turnover isn't there anymore, but tracks seem to ignore that. High takeouts wipe out players quickly and when someone finally has had enough there isn't a replacement gambler waiting in the wings.
I also enjoyed the history of track takeout outlined in the article. It caused me to do further research. Doing a Google News archive search I found that New York raised takeout from 10% to 15% in 1946. It helped the state coffers immediately but it began the slow kill of racing.
Some things haven't changed unfortunately as seen by California's latest takeout rise. The typical attitude prevalent in the industry was the same then as it is now:
Racegoers may well be the most put-upon and the least represented of groups. Last winter a good race writer, discussing a proposal for the conduct of racing and an increased take, said that "for once all parties concerned" were in favor. He listed the parties, and nowhere was there a mention of the most numerous—and financially most indispensable—party: those whose dollars keep the totalizer flickering. The Jockey Club and tracks, stockholders, management, state commissions and their association, officials, horse owners and trainers, riders, jockeys' agents, veterinarians, farriers, mutuel clerks, stable help, concessionaires, cooks, waiters, janitors, charwomen—all these sometimes speak and sometimes act in their own interest. But not the vast, miscellaneous, disorganized racegoers—33,073,712 last year—on whose patronage the well-being of the others depends.
For horse racing to grow going forward, all decisions should be based on what will attract more Horseplayers and betting, not what will make Horsemen happier.
It is kind of interesting that Hammond states that takeout was a secret from the 1940's to the early 60's. Again, pointing out the number doesn't stop a player from playing in most cases.....if the takeout number is high though, it stops the player from playing in the future, or at least really slows the player down.
Some track takeouts from 1963:
Maryland 13% (increased from 12% in 1962)
New York 15% (no increase since the big one in 1946)
The thing that really is kind of mind blowing is the percentage the State took. In New York, two thirds of the money collected as takeout went to the government. In Maryland and Kentucky, the percentage of takeout going to government was between 28 and 35%. Those numbers are huge in comparison of what government receive today.
Tracks generally existed on 2-4% of total takeout, while purse accounts were funded with 2-4% of the takeout. According to Jockey Club stats, in 2009, 8.9% of money wagered went to fund purses (now this number includes alternative gaming subsidies so if there was zero coming from slots, etc., still over 6.5% of all that is wagered would wind up in purses.
In 1962, $2.6 billion was wagered on horse racing in the US. Today, race dates are up around 35-40% since then. The US population is up 72% since then. Around $11.5 billion was wagered last year. $1 in 1962 had the same buying power of $7.20 today. Taking population growth and inflation into account, if there was zero growth in wagering per person on horse racing, over $32 billion would have been wagered last year. Horse racing is available to just about anyone, anytime of the day. You don't have to be at the track anymore. This should lead to major growth one would think, even enough to make up for competition from alternative gambling (but that would require optimal pricing). The rise of blended track takeout from 14% to 21% is surely one main factor why horse racing is faltering badly.
The article ends off:
At first the states, then the tracks, and now the horsemen have learned they could not only be cut in on the take, but could be allotted more of that bonanza of hidden extortion from undiscourageable bettors. Certainly it is the cumulative cupidity of the state that is primarily to blame. But one wonders sometimes if all those concerned are not forgetful of simple mercy—if not justice—to the fellow who pays the bills. A motorist would not be quiet if he were asked to pay twice the cost of his car in order to get it. But he would at least have his car. The racegoer who pays the present cut in order to take a chance on winning is almost at the point of paying double for what has become a chance to lose but not to win. In any event, it appears to be time for the victims themselves to reflect, retract, resist—or perhaps find some means of avoidance. As a beginning, every track should be required to put prominently on its program a full and clear schedule of all cuts and fees and taxes, and who gets how much of each.
Well, we finally have HANA to give Horseplayers a voice, place takeout rates out there in everyone's face, and to finally say ENOUGH IS ENOUGH!
California is in the process of learning a very expensive lesson right now. I doubt we will see another takeout hike anywhere for a very very long time. In fact, I expect takeout rates to only come down from here on in as racetracks are now starting to get it.
To Join HANA, click here.
I felt like I was doing the bidding of blogger Colin's Ghost when putting this blog piece up. Check out his post about when horse racing finally eliminated breakage back in 1927.