14 April 2013

The Canadian Track Takeout Landscape

I want to first say, I love horse racing. To me, nothing beats it when it comes to intellectual gambling. I'd love to see horse racing grow instead of what we see today, which is an industry that paddles against the rapids. Horse racing fails to compete with other forms of gambling like sports betting, poker, and slots which have much lower takeouts (house edges, rakes, whatever you want to call it). And please lets not use the lottery argument, as it is apples to oranges, because when one buys a lottery ticket, they aren't looking for a gambling fix so much as they are buying a dream.

The other argument that I hate to hear is that most people don't know what the takeout is. That was probably very true 10 years ago, and it is partially true today. However, it doesn't matter if players know what the takeout is when they gamble. Gambling for most is probably 90% plus psychological. What I mean by that is that when one gambles continuously there is a scale of satisfaction that determines how long they gamble and what they gamble on. If someone has the idea that they are close to winning or winning, they will play more, if they constantly go broke quickly, their desire to come back diminishes.

Horse racing is plagued with a high learning curve and no real visible long term winners (though some exist but that is sort of a secret). Why should someone learn to handicap horses if there is the idea the game cannot be beaten long term? Sure, slots has no long term winners (except possibly for the odd huge jackpot winners), but it has no learning curve and because of the low rake (4-8%) there are enough wins in an hour for most gamblers to give them the impression they are close to winning, and frequent cashes satisfy their brains the same way inhaling crack does for a drug addict. Editor's note: If I had my way I would limit slots and roulette (not expand them) because the games are unbeatable in the long run no matter the level of expertise one has, and especially when it comes to slots, the game intentionally prays on trying to attract the addict in you.

Horse racing needs to give players more satisfaction, and that comes with higher churn, which means lower takeout. A lower takeout means that some visible winners may be able to show their faces, and that will draw more players just like it did with poker.

In Canada, especially Ontario, it seems the opposite approach has been taken. Ontario racetracks and horsemen had slot revenues subsidizing their operations and purses for the past 14 years. Did horse racing grow? No way. And taxes can't be used as an excuse either. Only 1.3% of what is wagered go for provincial and federal taxes (the federal portion, 0.8%, goes towards drug control, photo-finish, video patrol and audit services). Check out the chart below. It looks like most track didn't even try to compete or grow. For comparison purposes, I added Keeneland (HANA's number one rated thoroughbred track), and the Meadowlands, which would most likely be the number one harness track if HANA did harness ratings:

Racetrack WPS Ex/DD Tri/Sup P3/P4
Woodbine TB 14.95/16.95 20.5/20.5 25.0/26.3 26.3/25.0
Woodbine/Mohawk H 16.95 20.5/20.5 27.0/26.3 26.3/25.0
Hastings 15.00 21.8/15.0 27.3/26.3 15.0/15.0
Fraser Downs 15.00 21.3/21.3 26.8/26.3 22.3/15.0
Assiniboia Downs 19.00 26.0/26.0 29.0/29.0 29.0/15.0
Alberta Downs 15.80 24.8/24.8 24.8/24.8 24.8/24.8
Fort Erie 16.95 26.2/26.2 28.2/26.2 26.2/26.2
Ajax Downs 24.60 24.6/24.6 26.6/24.6 N.A./N.A
Western Fair 21.40 26.3/26.3 28.3/26.3 26.3/15.0
Rideau Carleton 24.05 24.0/24.0 27.2/24.0 24.0/24.0
Kawartha Downs 21.30 21.3/21.3 23.3/24.3 24.6/24.6
Flamboro Downs 24.70 24.7/24.7 26.7/24.7 24.7/24.7
Georgian Downs 24.70 24.7/24.7 26.7/24.7 24.7/24.7
Grand River 24.00 24.9/24.9 26.9/24.9 24.9/24.9
Keeneland 16.00 19.0/19.0 19.0/19.0 19.0/19.0
Meadowlands 17.00 19.0/19.0 25.0/20.0 15.0/15.0

Ontario racetracks are now faced with the reality that they need to nurture and grow their customer base. Fans are good, but Ontario racetracks need bettors. Since, for the most part, very little handle comes from live wagering, it is time for Ontario tracks to do a massive overhaul when it comes to takeout reductions, in order to compete with other tracks on ADW and simulcast menus but also to grow their own local customer base. Lower takeouts keep seats in the crowd longer, and the more often the regulars go, the more likely they are to introduce newbies.

On a bright note, Woodbine seems to be coming along. They recently announced that they are dropping the takeout on win bets to 14.95%, which is the lowest win takeout on the North American continent. A year or so ago, they dropped takeout on triactors to 25% from 28.3%. These are steps in the right direction, and I really like the fact that Woodbine, by lowering takeout on win bets, is recognizing the power of churn. Lowering exotics like Pick 4's or Pick 5's are not recognizing churn but an attempt to compete with other tracks, which is important, but these type of initiatives do little or nothing to gain more business for the industry.

When it comes to Canadian tracks, kudos go out to Hastings. If they can just get their field sizes up, I believe we would see handle sky rocket. Yeah, field size is very important too.

The one thing I don't get is why didn't Woodbine drop place and show, which have even higher churn than win. Sort of reminds me of this Seinfeld scene:

How to get field size up for thoroughbreds? Take the normal purse structure, give out only 70% for 6 horse betting interest fields or less, 80% for 7 horse fields, 90% for 8 horse fields, 100% for 9 horse fields, and add 10% per betting interest over 9 horse fields. A field of 12 would be going for 130% the base purse. It only makes sense that if a horse beats 12 it more of an accomplishment than beating 5, but what really makes sense is that field size is probably the biggest factor when it comes to the relative amount bet in total on a specific race. Now just to get the Horsemen on side for this one:)

Just remember, lower takeout is the Horseplayer's friend, and what is good for the Horseplayer is good for the growth of the industry.


Anonymous said...

"Horse racing needs to give players more satisfaction, and that comes with higher churn, which means lower takeout."

good points, but new kinds of wagers could also give the satisfaction of winning on a regular basis. I speculate that sports betting is more popular is because most wagers have 2 outcomes, ie either a wins or loses, covers the spread, etc.. Fewer outcomes means you're more likely to cash tickets throughout the season. Racing could benefit from their version of a spread wager... eg track oddsmaker sets # of favourites that win on a card, eg 3.5, and people can bet over/under. Or perhaps jockey wins per card could be the wagering focus. The jockey challenge bet does exist in HK and Australia...

Just some thoughts

Cangamble said...

Over under bets were tried in Kentucky without much success. I think we need bigger pools which probably means less betting options to begin with. More betting options makes things more complicated, and racing is in a rebuilding phase, it needs to be less complicated.