Did The TOC Pull A Fast One?

It may not have been the intention of the Thoroughbred Owners Of California (the TOC) to have pulled a fast one on the California racetracks, but the consequences sure makes them look like geniuses while California track ownership and management are looking like pretty bad right now.

The track owners and the Horsemen may have actually believed that bettors would be attracted to the move to dirt at Santa Anita, and that bigger purses would attract more horses and create larger fields which would increase handle attracting new money, more than enough to make up for the lost money in reduced churn (a bigger chunk of the existing pie, though their action will reduce the pie even more).

The reality is that it still costs too much to own a horse in California despite the purse hike, and not very many outfits are bringing horses to compete there.

Trainers charge relatively too much and vets don't help things either.

It is speculated on that trainers who charge high prices look for the smallest field they can find so as to keep their win percentages high enough in order to justify their prices (you can't have a 10% win percentage and have too many owners pay $125 in day rate). This culture doesn't change overnight.

The wild card is that there has been player push back, speeding up the effects of raising takeout. No one was anticipating this.

Despite handle being off, the Horsemen are ahead of the game and here is why the TOC is in no hurry to rescind the recent takeout hike:

In a nutshell, the takeout increase has caused blended rates in California to go from around 18.5% to 20.5%. However, the entire increase now goes to the Horsemen.
Out of State signal fees could range from 3% to brick and mortar locations to much more when it comes to what ADWs pay. It was admitted that California racetracks could not get the full increase from out of state bet takers, but only a little more than half. Still, if the average signal fee was 6% last year, it means that they are now getting 7%, but when you look at it closer, it means that purses now get 4% on average instead of 3% of every dollar bet on their product from out of state. using this example, which means an increase of 33% over last year (again, I'm not sure of the exact numbers, but this is probably very close).

Domestically, from in-state bets, they now receive anywhere between 25-33% more over last year on average. Tracks, meanwhile receive the exact same percentage on every wager, if everything that has been made public is true.

In layman's terms, this means that for every thousand dollars bet last year, the track and horsemen may have received $50 each on average (again, this is an educated guess). However, now horsemen receive about $65 on every $1000 wagered, while tracks still get $50.

If handle is down 15% because of a combination of the Players Boycott and less churning created by higher takeouts, it means that in relative terms, tracks are now receiving $42.50 on every thousand bet, while Horsemen are still receiving $55.25 per every thousand bet (in adjusted dollars). So even with a 15% drop in handle, something devastating for the track, Horsemen purse accounts will be up by 10%.

Now, if you go a step further, the California racetracks could have been actually up this year if not for the boycott and reduced churn. Gulfstream Park and Fair Grounds early success this year may mean that handle might be on the way to recovery. So California track owners are not only down whatever they are down this year, but down what other tracks are up as well.

Unless handle drops at least 25% gross over last year, the TOC is unlikely to be motivated to rescind the takeout hike, unless the tracks are hurt so much that they are forced to cut back dates even more (they are currently running only four days versus five at Santa Anita right now), or even worse, threaten to close down. The tracks may have to run only 3 days a week (to cut expenses down), less races (more per day), and a hope for fuller fields to attract more betting per race.

Both Del Mar and Hollywood Park have a foot in the grave (well at least a big toe) to begin with.

How can this mess be fixed immediately?

The TOC has to be persuaded to look into the crystal ball. It is inevitable that things will be a lot worse for horsemen, and whatever tracks remain standing in California a year or two out. There is zero evidence to show that higher takeout leads to more money bottom line for Horsemen and tracks.

The tracks have now changed percentages on net takeout, and the TOC would be ill-advised to not consider this when negotiating. The cut on net profits need to be readdressed. If the TOC and tracks are reasonable, the Horsemen should now aim to receive between 55-60% of net takeout received on the California product.

This change would be good going forward. As there would now be motivation to make the most net takeout money, which means that the track is free to seek optimal takeout rates.

If blended rates don't come back down to at least where they were in California, California racing is at risk of losing Horseplayers who will never return. Most Horseplayers who are boycotting are not interested in anything but a return to the old rates before they will consider betting another race there.

C'mon guys and Bo, I want the game to grow. Get together and make it happen.


WOODBINE HAS A SIMILAR IMPEDIMENT

Woodbine's blended takeout rate is approximately just over 21%. 1.3% goes towards taxes. That leaves $200 on every $1000 bet to be split between horsemen and tracks. However, Horsemen get an additional 2% on all bets (4% on triactors), which means that on every $1000 bet on track, Woodbine gets $89 while Horsemen get around $111 on average.

If Woodbine drops takeout, the Horsemen get even more of a percentage on net takeout. The HBPA and Woodbine should get together and try to help grow the game, by changing this deal and make it a percentage of net takeout, not a percentage of what is bet. A 55-45% split in favor of the Horsemen on wagers made through Woodbine would not change things one bit, except it gives Woodbine the ability to experiment with lower takeouts.

Of course, if Woodbine could find another way to fund the 2-4% the Horsemen gets, they would be free to experiment with lower takeouts as well.


FORT ERIE SAVED FOR AT LEAST ONE MORE YEAR

Not very many people knew that Fort Erie was even in trouble until early this week, when it came to racing in 2011. They supposedly were good to go for 3 years, but they were not able to make payments for the increased payment to Nordic ($650,000 this year and next, compared to $100,000 last year) and the new HST on time. And they obviously didn't make enough last year to overcome the concern that they could actually come up short this year, and they realized that there is a question of who pays for the shortfall if it happens?

Details are not out, but it looks like a deal was carved out that does not place the indemnify the EDTC (the current managers of the track).

Still, if they think there is a hope in hell to grow a business with a 26.2% track takeout on exactors and doubles, whoever is guaranteeing the losses is guaranteed to be out money.

CLICK TO LISTEN TO A RADIO INTERVIEW OF PROFESSIONAL GAMBLER AND HANA VP MIKE MALONEY
It starts at the 17 minute mark. You might learn a thing or two.



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Ray Paulick, C'mon Man

I like The Paulick Report. Great source for news stories on horse racing. They also allow comments on many stories and editorials over there. It opens the door for lots of fact from informed readers, innuendos, debate, etc.

Over the past few months, it appears that Ray Paulick has drank the CHRB Kool-Aid and has fallen for all the bs coming from them when it comes to the takeout hike that is going to happen at all major thoroughbred tracks in California on December 26th.

There is some question whether his judgment is being influenced because of the fact that he is getting advertising dollars from California racing groups. I honestly don't know. I actually hope that is the case, for Paulick's sake. I'd hate to think he was either that stupid or gullible to believe a takeout hike will help horse racing in California.

Anyway, Paulick has hit a peak when it comes to either selling out or just plain stupidity with his post California's Push For Purses.

In the article he mentions "cost of putting on the show." Sorry, but the cost of putting on the show has absolutely no connection with what takeout should be. The only thing that matters with regard to takeout is the optimum takeout percentage (the percentage where tracks and horsemen receive the most money collectively from bettors).

He compares horse racing to blackjack when it comes to cost of putting on the show. Last I heard, it costs millions a year to operate a casino. But casino operator know if they made a push go to the house in blackjack, the blackjack tables would be empty. They also know is they raise the hold on slots from 7% to 12%, their bottom line would suffer in a big way.

The point that most tracks have higher takeout rates even after this hike is just bad propaganda. Any takeout hike anywhere helps kill the game. As you move away from optimum takeout, this is a gimme. There is no good rationalization for a takeout hike.

He also writes that "to my knowledge no studies have proven the point that reducing the cost of a bet will increase the revenue to tracks and purses."

Either he has a short memory or he doesn't bother reading many of the comments on his site. I know for a fact that the Cummings Report has been linked there on many occasions.

As Caroline Betts states in the comment section: Google Scholar is your friend. There have been many studies regarding track takeout and optimum revenue.

Two things are certain regarding these studies. Racing has ignored all these studies. Racing has never tried to find out what the optimum takeout really is (all studies conclude that it is much lower than 20%).

Again, I don't blame the horsemen here (though they aren't looking out for the future of the industry). They are now getting a higher percentage of the pie. For the life of me, I can't see how the track owners allowed it to happen. Again, if handle drops by around 15%, horsemen will still get the same money they did last year (obviously they are hoping handle will at least stay stagnant), but the track owners will absorb the total loss. On any extra handle loss over 15%, it will be split between horsemen and tracks.

The track owners would have been best advised to just change the split to December 26th new split, and even lower overall takeout, or at least keep takeout rates the same. 

This takeout hike has massive failure written all over it. Bigger purses, possible bigger fields, and a dirt track will not save the day.


In the comment section, well known handicapper/author Barry Meadow chimed in:

There are two types of bettors–those who care very much about the takeout (e.g., professional gamblers, big bettors, rebate players, etc.) and those who don’t.

An increase hurts both. A professional works off a tiny margin; if he bets $1 million to earn $50,000 after rebates (5%), an increase of just 2% in the takeout can cut his profits nearly in half. At that point, he may feel there is no reason to continue betting on that track. Handle is unlikely to increase after a takeout rise, and every dip in handle forces him to cut his bets; already, it’s virtually impossible to bet any serious money on a daily double in northern California, which on November 10 featured a live crowd at Golden Gate of exactly 753 patrons.

The casual fan who knows little or nothing about takeout is affected as well, since he has less money in his pocket. He may not notice it after ten races, but after 500, the effect kicks in, whether he realizes it or not. He cannot contribute to churn because he has gone broke faster. If this doesn’t seem realistic, imagine a 90% takeout and you will quickly get the idea.

What most people may not realize is that racing handle has been artificially propped up for years:
In the 1980’s, the advent of cash-sell machines resulted in handle jumps since patrons didn’t have to run to five different lines to make and cash their bets.
In the 1990’s, simulcasting exploded, so fans who wanted to bet Santa Anita could do so from 400 locations instead of from one, again resulting in handle gains.
As 2000 dawned, rebate houses made it possible for big players to turn losses into profits, and begat the high-powered computer groups who dominate rebate play today. (Some track executives complained of “Handle up, purses down,” but failed to understand that without the hundreds of millions of dollars bet through rebate houses, they would have had “Handle down, purses down” instead.)

Some people think that exchange wagering will be the next big thing to save racing’s handle, but exchange betting, while it will increase the action, won’t prove a panacea. It’s just for win betting, you need a computer (who is going to lug a computer to a racetrack?), and if the liquidity isn’t high enough right from the start, the whole enterprise may be reduced to just a sidelight.

Certainly, it makes little sense to raise the price of a product during an economic downturn, particularly when it’s been shown that fewer people each year care about the product. Yes, it’s nice that we have films like Sea Biscuit or Secretariat, and Zenyatta thrilled us all, but none of this has much to do with the overall trend of the game, which is on a straight downhill slide. The comments of the CHRB members show how out of touch they are with the realities of the game (Racing as entertainment? So why do networks pay the football and basketball and baseball leagues millions to televise their games, yet racing has to shell out millions to get its own product on TV?)

The old days of huge crowds and huge handles are long gone, gone the way of the telegraph and the stagecoach–and they’re never coming back. Not with rock concerts (the youngsters who attend these have no time, no money, and no interest in betting thoroughbreds). Not with social media (it’s like having a huge mailing list filled with non-prospects). Not with catchy slogans (how many serious bettors came from ”Go Baby Go”?). Not with T-shirt giveaways or mugs.

We’d all like a minuscule takeout, but there are costs to run the show. But that doesn’t mean the customers have to absorb all the costs. The talk of a players’ boycott, whether it materializes or not, is the customers’ visceral response to being asked, time and again, to pay a higher price for a lesser product. The customers are simply fed up. And no industry can survive with fed-up customers.

This triggered a response from yours truly:

Barry, that was an excellent post, but I will take exception to your comment about “cost to run the show.” The cost to run the show is separate from what would be the optimum takeout (the takeout which creates the biggest revenue for the tracks and horsemen). If that takeout number is 30%, then takeout should be 30%. However, we know it isn’t for the reasons you mentioned. You can’t have optimum takeout when there is money that could be on the table that from former horseplayers, or potential horseplayers that won’t go near the game because they know it isn’t beatable.

Takeout needs to be reduced because players who last longer are great for growth. Their family and friends are almost forced to see what the fascination is all about. Some may start going. The opposite happens when players don’t last as long. Letting players last longer opens up the possibility for new money for purses and tracks, from new players being exposed to the game.

Secondly, not all rebate players make money, far from it. But they all last longer, and most believe that with rebates, if they start improving on their skill and have a few more lucky breaks, that they can beat the game. This is the way it was back in the 60’s and 70’s for many who played horses every day (of course, without rebates). Especially because there were not very many exotics (collective takeout was much lower), there was no intertrack betting…you had 8 races to play, and there was a good likelihood that you would leave with enough money to keep your interest so that you couldn’t wait to come back the next day that was free in your calendar. There was also lots of dummy money in the pool (money which is now gone to casinos and lotteries) Those using speed figures back then were in the same boat as many rebate players today…some were marginal winners, and some were marginal losers…but there was a feeling that the game could be beat.
That feeling is gone today for almost any horseplayer who doesn’t get rebates or who isn’t able to bet on an exchange. With high takeout exotics every race, which temp just about everyone, and the ability to play 4-15 cards a day, it doesn’t take long before any horseplayer is completely discouraged.
It was a shame that horse racing couldn’t pick up new players thanks to the movie Secretariat and the build up to Zenyatta’s last race. The reason why is simple. Horse racing is about gambling, and the only way to get the masses interested in gambling is to have visible winners.
You can’t have them in today’s high takeout environment. It is impossible.
Poker gained momentum with the movie Rounders. Why? Poker is gambling, and it is possible to beat the game. Even if very few do it in a big way, they are in our face. This attracts new players galore. The fact that if you can have a beatable game that someone with a little study and a fairly inexpensive learning curve, can move from their parent’s basement to become a King. This is what gambling is all about. This is how horse racing needs to be marketed. But we need lower takeouts to begin with, so players can last while they are learning, and winning players need to have the light shone on them.

Racing can do it right now with those who make money at rebate shops, but that is pretty much a secret society, unlike the poker stars. Racing won’t embrace these players because it is an admission that takeout is way too high, and that the only way to win today or even have a chance is to play with a substantial rebate.

But doing what California is doing is just putting another nail in the coffin when it comes to growing horse racing. Shame on California, and shame on the Paulick Report for supporting their action in any way shape or form.

I do give Ray Paulick credit for allowing comments on his ridiculous post and also linking to Pull The Pocket's post Has Paulick Jumped The Shark

Not sure if it was done out of fairness, guilt/remorse, fear of losing readership, or maybe he just likes being compared to The Fonz.

Where do I stand on the California takeout hike? I think my comment over at Pull The Pocket sums it up:

I proudly haven't wagered on any California race since the bill was signed.

When a California race is on TV, I view it like a commercial, I either get up to grab a snack, handicap a race at a venue I do play, get up to take a wizz, or, if my wife is talking to me at the time of the race, I actually listen to what she is saying to me.