29 July 2009

Ten Percent (Track Takeout) Is Sufficient: DRF May 13th, 1935

A Pace Advantage member, "Quarter Crack," posted a great link to DRF archives that go way way back in time.

Sure, the nostalgia of looking at past performances and charts that go back to the late 1800's is a great way to kill time, but I immediately to it upon myself to search the term "takeout."

The two earliest articles available are the most telling, and one can trace the demise of horse racing that we see now, to the words that were printed in 1935 and 1953 respectively.

Here is an article, most likely written by a DRF editor from May 13th, 1935:

The California legislature is considering an amendment to its parimutuel betting
law reducing the takeout allowed the tracks from eight per cent to six. A Los Angeles assemblyman introduced it, but the change is being opposed by William P Kyne and John W Marchbank operators of the Bay Meadows and Tanforan tracks, who say
they cannot operate successfully if the reduction is made at this time. The law does
not have to be changed if a track wishes to have a smaller take, and it will not be
surprising if Santa Anita voluntarily makes a reduction for its meeting next winter
When the law is altered, however, the state should cut its percentage, which is now
four. A total of ten per cent is sufficient and if anything is done by the California
legislature it should at least make the tracks take seven, and the states cut three
per cent. The smaller take, the better.

Can you say Holy Cow? California racetracks were getting around 8% of every dollar bet on horses back in 1935. Yes, the tracks had a good gripe against the government trying to get more of a cut back then. But at 10%, it is no wonder that the stands were full, even though America was just getting out of a recession.

Nowadays, many states have reduced their share of the cut from the pie dramatically. Around 12 years ago, Ontario opted to remove their 7% of what they were taking on each bet. Of course, the ORC, now WEG, didn't reduce takeout by that amount. They just scooped it.

Now Woodbine cries that they had to increase the takeout on Tracknet, Magna, and California tracks to 27% on triactors (even though Churchill and Keeneland have a takeout on triactor of 19%). They pay a whopping 1.3% on each bet to the government. Sure, 4% on triactors goes to the breeding program, but they wind up splitting the remaining 22% with the purse accounts.

Can you imagine that back in 1935, they would be splitting 8%? And guess what?, people would be betting like crazy today, like they did back then.

Now for a very prophetic article. This is longer, but definitely worth the read. It happened at what we would call now, a Racing Symposium, originally printed June 11th, 1953:

NARSC Hits Excessive Turf Taxation

...The report of the Committee on State Revenues was of particular interest to the large assemblage of turf solons and representatives of various other organizations within racing, for the spiraling taxation has disturbing implications to those in every phase of racing and bloodstock production.

This report was presented by Michigan's James H. Inglis.

Inglis began by noting that increases in the rate of taxation on parimutuel
wagering are continuing, in spite of warnings from this and other turf bodies that
the patience of the long suffering horse players to an excessive takeout is wearing

Continuing, he said:
"We have apparently failed to get across to state legislators and other public officials the message that a takeout from parimutuel pools of more than 10 or 11
per cent is not only unfair to the patrons but also is unwise and detrimental to the
long term health of the sport.

The most serious setback came this spring with the decision of Governor Dewey
and the New York legislature to restore the full amount of five per cent O'Dwyer
"bite," boosting the total takeout in New York from the 14 per cent which prevailed
in 1952 to 15 percent. The descending escalator clause in New York, was also abandoned and there can be no relief from the 15 per cent by just waiting for it.

There are undoubtedly good reasons for what happened in New York involving local
politics and a serious financial crisis in New York City but this isn't the place and
there isn't time to analyze these factors here. Yet, it should be emphasized that the decision in New York has had and will continue to have serious effects in other states, because whether we like it or not, many other states look to New York for leadership in legislation of this type.

Legislators Point to New York, Florida

The task of a racing commissioner in Michigan or Ohio to try to hold the line
on horse racing tax rates is made very difficult when the revenue-hungry legislators
can point to the 15 per cent takeout in New York and Florida and a 14 percent takeout in Illinois, all three being important racing states.

Just within recent weeks Michigan, Ohio, and Massachusetts have joined the
parade. The new act in Michigan has not yet been signed but it calls for an increase in the takeout from 11 to 12 per cent for thoroughbred tracks and an increase from 11 to 13 per cent for harness meetings. Ohio has boosted the take out from 10 to 12 per cent and in Massachusetts the increase has been from 12 to 14 percent.

One of the unpleasant facts of life in the world of racing is that often the racing
associations with their well financed full time lobbyists are able to sell their views to legislators more effectively than are racing
commissioners and other friends of the sport. Add to this unpleasant fact another unpleasant fact to wit that too often racing associations for their own selfish gain,
have been willing to use higher parimutuel tax rates as the bait with which to secure
larger track commissions or other legislative gains.

An increase in parimutuel tax rates is usually dished up as part of a legislative
package which includes gains for the racing associations.

Cites Michigan as Example

In Michigan, for example, the tax rate increase has included as part of a bill
which also attempted to unload on the tax payer more than 100000 worth of auditing
veterinary work and chemical testing which had previously been paid for by the
associations. The package also included a provision taking away from the racing
commission the power to control price gouging by race track concessionaires.

The game of playing Santa Claus with other peoples money is not a new one and
I regret to say that some racing associations have played this game in their legislative campaigns. Thus we get back to this familiar and disturbing fact of racing. This is the fact that in the power politics of racing between the horsemen the organized employees. the racing associations, and the financially hard pressed state governments, every element of racing is able to force a larger slice of the pie for himself, except the racing fan, the all important lover and patron of the sport, who in the last analysis, is the man who keeps the show on the road.

The racetrack customers, whom it is our responsibility to look out for, have been
getting a smaller and smaller slice of the pie, but in spite of dire warnings, he has
not yet revolted and stayed home in sufficient numbers to cause the professionals
any serious worry

The total handle and the total tax revenue to the various states continues to
climb year after year. Since 1946,for example, the total handle has climbed from 1,830,000,000 to 2,326,000,000 last year, and state revenues have climbed from 93,800,000 in 1946 to 14,2500,000 last year.

How Much Will Fans Stand?

"It is hard to say how much longer the
racing fans will continue to allow themselves to be imposed upon.
But it would appear to your committee that there is an urgent need for this organization to find out without too much delay, the answer to the all important question of how much is too much and where and when should the line be drawn to stop
further compromises with expediency which have resulted in haphazard and parimutuel
tax rate increases among the several states.

There have been a number of studies
made of the effect of increased tax rates
on total handle. Unfortunately, none have been made recently and those that have been published in the past have been made by groups that have been seeking to prove
the justification of a position already adopted. In conclusion. your committee wishes to respectfully suggest that there is a crying need for a new and completely independent survey to establish authoritative answers to
these questions.

1 What is the maximum takeout that can be exacted consistent with good racing
good race track management and a continuation of the normal healthy growth of the

2 Having answered the first question, what is an equitable split of the total takeout
between the state and the racing associations, bearing in mind the possibility of
a graduated tax rate based upon the amount of the handle?

For what it may be worth to the public
lets gather the complete facts.

The gain in handle from 1946 to 1952 wasn't all that much (27% over 7 years), when you take inflation into account. From the end of 1946 to the end of 1952, the CPI rose by just over 24%. And lets not forget, the war was over, and North America was in an optimistic growth mode.

A dollar back in 1950 is worth around $8.50 today. This means that if racing stayed even with inflation since then, total hand would be around $20 billion. Right now it sits around $13 billion, and that includes the heavy increase that happened when internet betting was introduced.

Meanwhile, track takeout has increased to an average of around 21% today, from the 12% average that apparently was there in the early 50's. Where has it got them? Racing can't even keep up with inflation.

As for studies regarding optimal takeout. A very important one was done back in 2004. The Cummings Report does not state what that takeout is, but he concludes that it is a lot less than what is out there today.

It is great to see the acknowledgment by Inglis, that the horseplayer is one who "keeps the show on the road."

Great article at HANA "So Players Don't Care About Takeout, Huh?" Well worth reading, as it crushes the excuse that most bettors don't care or realize what takeout is. Though that might be true, the article clearly points out that most players are affected by takeout whether they care or not.

For the link to the Daily Racing Form Archives, it is available at this Pace Advantage thread.

I never saw this movie until last night: The Two Dollar Bettor

It is from 1951. Shows the dangers of getting hooked on betting horses:) Love the crowd scenes. Brings back memories from the 60's and 70's at Woodbine, Greenwood, and Fort Erie, when the stands were full of enthusiastic bettors.

The big crowds disappeared with lower takeouts.

A couple of notes about the movie. Barbara (Beaver's Mom) Billingsley has a small part as a secretary. And the nerdy "teen" who hangs around the main character's home drooling over one of his daughters is none other than the kid who played Alphalfa in the Little Rascals series, Carl Switzer.

If you like the information found on this blog, and you are a horseplayer, please join HANA, it is free, and it will take you less than two minutes to fill out the form.

Don't forget to check out the new ADW Horseplayersbet.com, if you want to maximize your chances of beating the horses. Unfortunately, Horseplayersbet does not take Canadian customers.


Steve Zorn said...

Maybe 10% IS the right number. Sure, some whales would be squeezed out, but the increase from the rest of the public would be huge.

Anonymous said...

More exciting, riveting and totally mind-boggling information. Why is takeout so large? I always found it cheap if you know a good place for takeout.
Kwi Chang Cain

Cangamble said...

Steve, it sure looks like the optimal takeout would be something in the neighbourhood of 8-12%.
But the whales wouldn't be squeezed out. There would be no reason why they wouldn't be betting at the same net takeout they are now.
But they wouldn't need the same rate anyway, because theoretically, the lower rates would bring in an awful lot of new money into the game, and hopefully we can get the dummy money back into the pools as betting on the horses becomes more and more mainstream.

Anonymous said...

WHy leave out that the minimum bet is now the equivalent of a 1950 penny?

Railbirdbrad said...

great movie