27 September 2009

Why Not Increase Takeout To 40%?

It gets so tiresome on the internet, when horsemen and probably some racing execs use the same argument against lowering takeout over and over again. It happened again recently on a Pricci column "On Fixing A Broken Simulcast Model."

Here are their arguments followed by my rebuttal:

Most horseplayers don't know or care about track takeout
True. But horseplayers, like all gamblers realize when they come home with less money or more money. Lower the takeout, and bettors will come home with more money more often. This will be less discouraging than it is today with takeouts that average around 21% in the industry.
Lowering takeout allows bettors to last longer, and their desire to come back more often and play more often will increase.
If that increases, the likelihood that they expose friends, family, and/or coworkers to horse racing greatly increases.

Even horseplayers who know that takeout is lower on win bets will gravitate towards higher takeout exotics
Human nature. The horseplayer is out to make a score. That is why lottery tickets are bought. For many, if someone is going to gamble to begin with, low returns are not being sought by the masses. Horseplayers are gamblers, and dangling a triactor every race at them is too enticing, though in the end, it makes players go broke a lot quicker than a few decades ago.

All attempts at lower takeouts have not been successful
This is unfair. Those who tried to lower takeout were met with signal exclusion in many instances. Also, the extra money won by customers didn't go to buy new suits, it was in all probability churned back into the pools. However, they didn't necessarily go back to the tracks that had the lower takeouts. Simulcast and ADW bettors know that there are many many tracks on a menu to play once you cash a ticket.
Those who use this line of thought also conveniently do not take into account the ginormous growth we've seen at Betfair and online poker, where the house take is minuscule compared to the takeout at a racetrack. They also forget about the only growth aspect of North American horse racing where some ADWs essentially lower the takeout for customers by give decent player rewards.

Horse racing is a costly show to put on, high takeouts are a must
No one is denying that it costs a lot more to put on a horse race than it does to deal poker cards, and I don't begrudge any gambling venue from optimizing their bottom line returns, but horse racing has never tried to find an optimum price point.
The closest thing racing has ever come to having a real price determined by supply and demand is the signal fee each track charges to ADWs and other tracks. That is really what the product is worth to the real market, and that signal fee is usually 2% to 9% depending on the track.

For those who think that lowering takeout won't be good for the bottom line, let me use a reverse example:

Slots have a house take of around 10%. This number was arrived at by trial and error, most likely thanks to the years of experience Vegas has when it comes to different games of chance. This optimum price to gamble was determined by the market.

What this house take means is that a slots operator will see for example, $400 million bet over the course of the year. This yields a profit of $40 million in a year for the house. So what stops them and the government from increasing the house take to 20% (it isn't that they care about the gambler)? Surely, at least $200 million will be wagered in a year if that happens (and they will see at least $40 million in profit and probably more). Wrong! The slot operators KNOW this won't happen. What happens at anything over 10%?
Slot players, who are completely clueless about house take will not last as long. They may not know why, but many will stop wanting to go because they know they lose their money too fast. Most will definitely come back less, and when that happens, they are obviously less likely to bring friends and family along with them for a night out.

Every time horse racing increase takeout, their bottom line falls off. It isn't magic. It is gamblers natural sense of price sensitivity that lowers the handle.

For those "not too bright" horsemen and racing execs who "think" that increasing takeout means more money for them, it won't. Next time ask them why not double the takeout and see how they answer the question. The real answer can be seen above, but it fun sometimes playing with these yahoos.

But the same premise holds true with respect to the current takeouts at tracks in North America. If takeouts were 10% today on average, by increasing them to 20% or more would mean less money to the bottom line. This means there is more money if the industry would just get together and lower takeouts across the board.


Outstanding article by Bill Finley.
Some of the best visionaries and realists including HANA President Jeff Platt share their views on fixing racing going forward. It does include the comments of a few wannabe visionaries like Bob Evans as well.
It is an excellent read over at Thoroughbred Daily News. The downside is that you need to register for a free 2 week subscription, but the registration only takes 10 seconds.

The Score did a feature on Alex Brown. Here it is if you haven't seen it yet:

To learn more about Alex Brown's mission, go to Alex Brown Racing. I still disagree with one of his focuses, horses who made over $500,000 who are now running for $5,000 claiming. Once a horse blows conditions, especially a male horse, there is sometimes no difference in running times for $5,000 claimers and $16,000 claimers. If anything, the competition is easier the lower a horse runs for, thus the cheaper claiming tags are more humane. Also, these horses are hardly ever running for the outfits for whom the horse made the bulk of its earnings, so if anything, it is up to those outfits, and those outfits only to buy or claim and then retire that particular horse.

If the horse has real bad problems, it shouldn't be racing, regardless of how much it has made. The horse has no idea how much it earned.

H/T The Paulick Report

No shocker: Marsh Side DQ heading for appeal
I think the odds are around 75% in favour of an overturn.

More Industry Dysfunction. I don't know where to start so just read the article by Nick Kling.

Down The Stretch has a new online issue out. Good reading. They even got controversial this time around (they put an article in it regarding the Stein-Sutherland conflict). Good article by women's curling expert Perry Lefko on Eddie Robinson and Jennifer Burnie.

Northlands Park cuts race dates this year for both thoroughbred and harness racing. Gone are Oct. 16,17,18,21,23,24,25 from their original thoroughbred schedule. Harness racing will now not run on Nov. 16, Dec. 23,27, and 30.


10% Rewards*

*Bet $1,000.00 between now and October 4th and, upon wagering that amount, Horseplayersbet will provide you a 10% reward on that $1,000.00 worth of wagers. A minimum of $1,000.00 must be wagered to earn the 10%. Those who fail to reach the $1,000.00 minimum will be provided Horseplayersbet Standard Rewards (which are still very good regardless of the promo). Offer is available to new customers only and all promotional related wagers must be completed by end of day October 4, 2009.

Horseplayersbet does not take Canadian residents, as well as residents of some US States.


ITP said...

I tried to comment in the Pricci article but was blocked.

Anonymous said...

Dennis says:
06 Oct 2009 at 05:32 am | #
Alex Waldrop, NTRA CEO, asked after the summit:

How would you answer these fundamental questions? Are we selling the right product to the right people? Why have most track experiments with lower takeout failed to generate new handle? Do you pay attention to takeout when you play? Let me hear from you.
My comments fit there and here:

Dennis (10/01/2009 9:04 PM)
Gambling of any kind involves price; that is odds. And; equally; integrity. Horse racing has severe problems in both areas. They refuse to admit it. They refuse to accept the path that must be taken to correct it. So, decade after decade, they have meetings and discussions that always lead to the same results.

Nothing is done. More events involving bobble head dolls, 50 cent hotdogs and $1 beer. The class of gambler attracted by this offering bets very little and does not return very often. They play, they do not think or invest. Your thinking pros and semi-pros always consider price.

The direct affect of take/breakage on pools is always smaller odds. Small odds means one of two things to your real player. Wagering only when you are provided with the rare case of value. Or wagering with an entity that provides a percentage of return that offsets playing lower odds due to take/breakage. Neither of which increases churn. Your $2 bettor could care less.

Consider that, with less take/NO BREAKAGE, odds increase which in turn increases perceived value opportunities which increases wagers. More opportunity equals more churn. I also believe this provides tracks/ADWs a chance to compete with the offshore’s rebates.

Experiments, and that is all they were, in this area have been isolated, short lived and hidden. If you are going to do this, make the numbers real, make everyone do it, and advertise the hell out if it well before starting it. I played seriously for more than 30 years and quit after the pic-6 scandal when only lip service was paid to correcting the ancient system that is racing’s wagering system.

My opinion, racing has to die before it will make any real attempts to adapt. They must choose survival or extinction. $2 bettors will not replace serious players. And your serious players are dieing or wagering somewhere else that allows them to survive as well. A poorly publicized trial at some cheap bottom claimer track for two weeks with only WPS wagers reduced 1 or 2 points will NOT prove anything but what the tracks want to believe now, that less take/no breakage will not increase churn. They have a death wish and it is coming true for them.

I would return to racing if I saw cheating trully punished rather than overlooked/encouraged, a modern flow established for wagering info that instantly updates all outlets as each wager is placed (think wall street) and my own areas, WPS reduced to 10% with no breakage. That is my opinion.

For now, I continue to play poker and a few handicapping contests where I figure to have an edge. I see no value in racing as it is today, for anyone, tracks included…

Anonymous said...

Thanks for finally talking about > "Why Not Increase Takeout To 40%?" < Loved it!
my site: fill