28 December 2011

NYRA Goof Up A Long Term Win For The Industry and NYRA

Lots has been written regarding NYRA's overcharge. They were supposed to drop takeout to 25% on all exotics that had a 26% rate 15 months ago.

The end result is that mutuel payouts were shortchanged by $8 million. And contrary to what many think, NYRA didn't come out ahead by that $8 million. In fact, I'll argue that virtually nobody benefited from the mistake, until now.

Those betting through NYRA or their ADW were shortchanged $1.1 million. The reality is that most, if not all of that money would have been rebet until eventually lost. The game doesn't have very many winners, especially those who pay 26% takeout rates. So what really happened here is that New York Horseplayers didn't last as long as they should have. Most likely, there was little financial loss by the player in the scheme of things, except when players last longer they tend to add more new money (which most inevitably lose). The opposite of course occurs when takeout rates are higher and payoffs are lower.

Since 26% is higher than optimal takeout (a rate we can only speculate on), it only makes sense that bottom line revenues would have been higher had the takeout been
lowered on time. So NYRA probably lost out.

However, NYRA has vowed to pay back those who can prove they were short changed who played on track or with a NYRA ADW. The rate of shortchange isn't 1%, but 1.351% of all cashed tickets for all exotics except exactors, quinellas, and doubles, oh and Pick 6's (75% divided by 74%).

Since the damage has already been done regarding lost churn and gambler satisfaction, when NYRA actually gives the refunds back, much of this money will eventually be churned again, and those getting the refund will have a temporary jump start with a replenished bankroll. And to top it all off, they will be betting into lower takeouts as NYRA is now reducing takeout on the overcharged betting types by 2%.

Now what about the other $7 million that didn't make it to the payout prices?

Tracks sell their signal to ADWs, simulcast outlets and other tracks for a percentage that is lower than the actual takeout rate. The bet taker keeps the difference between the takeout rate and the signal fee which is used to pay track expenses, purses, technology expenses, marketing, tote fees, and wages, and in the case of ADWs that give rebates....rebates.

In the case of tracks and ADWs that either don't give rebates or don't rebate based on specific wager types and tracks, the NYRA mistake wound up with them. Instead of the difference between 25% and the signal fee, these outlets wound getting the difference between 26% and the signal fee.

However, again, gambler satisfaction (which is mostly innate) was damaged as they received less money than they should have, and couldn't churn as much as they should have. So using the same logic as with NYRA in house players, these bet takers probably showed an overall decrease in revenue than they would have had if the error was caught in time.

Regarding rebate ADWs that give specific rebates based on bet type and track, the Horseplayers there most likely wound up slightly ahead. Had the rates dropped by 1%, the rebates too, would have dropped by 1%. So instead of getting back the extra 1.1351% on cashed wagers, these players wound up getting back and extra 1% on all monies wagered on the affected bet types. Pretty much a stale mate. The industry didn't lose on these players overall, nor was gambler satisfaction and churn affected. Exception, of course, to anyone who showed an overall profit on the affected NYRA wager types, and rebate or no rebate, that number is most likely minuscule.

So going forward, this faux pas by NYRA has resulted in a takeout reduction. A forced experiment which may lead to further reductions, not just by NYRA but other tracks as well. Churn will now increase and along with that, player satisfaction is about to rise.

I'm not defending the mistake at all, but I hope NYRA handle starts showing tremendous increases. It will be great for the game if that happens.

This mistake could be the beginning of a brand new phase of growth, a turning point, much like the turning point when the first chimp actually spoke in the Planet of the Apes series. Instead of the rise of the chimp, it is the Horseplayers turn, one can only hope:)

One more thing, on a quasi related note, RIP Cheetah 1931-2011. The 1930's, those were the days, a 10% average takeout....they were onto something back then.

1 comment:

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