10 February 2010

If California Wants Bigger Purses

There is a strong rumour that California is strongly considering increasing takeout at their major tracks (even in light of the fact that Los Alamitos is suffering since increasing their takeout rates). The horsemen are in panic mode right now. Let me try to settle them down with some legitimate suggestions:

Increasing takeout is not the answer. Every study out there concludes that the optimum takeout (the takeout where tracks and horsemen make the most most money bottom line) is maximum 14%, according to studies done. Most suggest 10-12% the optimum is 10-12%. The farther a track is away from the optimum rate, the more it is costing both the horsemen and the tracks.

Why is a lower rate more profitable? It is a matter of horseplayers lasting. The same concept is true of slots. Slot operators have found that they make more money (the public loses more money collectively) at 8% instead of at a 16% takeout, for example. If a slot player has a hundred bucks to blow, and say they only last 2 hours on average, they go home more discouraged than if they last 4 hours. The longer they last, the more likely they are to believe the game is beatable too. What happens is that when they are discouraged, they are less likely to come back so quickly. On the other hand, the more they come back, the more likely they are to focus more of their expendable entertainment money on slots, and the more likely they are to expose friends, family and even coworkers to their hobby. This is true of horse racing too.

California already has some of the best takeouts in horse racing. But they are not promoting this fact very well. Promote it. In fact, drop takeout on WPS to 15% and tell everyone. Drop takeout on exotics by a half a point to a point too, and promote it.

Secondly, California could benefit from an ADW owned by the horsemen to capture a bigger percentage of the bets made by Californians. But they need to do it right. Offer rebates. Attract back the Californians that are betting offshore. Get the money back into your pools. Promote the ADW. Get people at the track to sign up. Again, rebating will attract these players too. White Label solutions are available. They don't even have to invest in the technology. The state laws may need to change though, regarding rebates.

Third, sell your signals to whoever wants them. Horseplayers with accounts at ADWs that don't have California content, don't play California. Online horseplayers generally play where their money is.

Fourth, more tracks to bet on at tracks. California limits their on track customers to something like 32 races a day from all over the country to choose from. Give horseplayers their choice back. If takeouts are lower, players will bet more, and show up more often, and churn more.

High signal fees also hurt California. There is a trend out there now to increase these. What is happening is that price sensitive rebate players are shifting to tracks that charge lower fees. This is a reality. Dropping these fees would most likely increase the bottom line as well.

Follow the advice above, and betting and purses in California will go up substantially.

Another thing that California and other tracks can do to increase handle is to stipulate in their simulcast agreements with Woodbine (HPI) that Woodbine pays actual track odds on all exotics to prevent them from jacking up the takeout on exotics that have a takeout of less than 25%. Pull the Pocket stresses the point here. An example from a few nights ago: The 15% pick 4 paid this at the Meadowlands:

$1 Pick 4 (Pool $101,888) (1-1-6-10) $4,605.90
At Woodbine for the same bet:
$1 Pick 4 (1-1-6-10) $4,064.05
The money bet through HPI or at Woodbine is commingled. It goes into the pools.
There is no good reason for this. Stating the takeout is too low doesn't cut it. Don't take the signal if you don't want to compete fairly. And the excuse makes no sense, because Woodbine pays off track odds on many WPS pools that have takeouts of 16% or less. Quit ripping the customers.

What ends up happening, and California or The Meadowlands, if you are reading this, is that many Canadian players avoid playing these type of races at Woodbine, and have very few options to play them anywhere else. And I know this for a fact, that not only do they stop playing the triactors, they stop handicapping the races altogether.

Nick Eaves Has It Upside Down

Nick Eaves is doing a wonderful job of alienating industry members and he isn't even the head cheese yet.

First, he was nonchalant when it came to knowing the Fort Erie situation when it looked like there might not be racing this year at the Fort and he seemed to not care and be OK with its closing, yet he seemed concerned about Quebec harness racing.

Now he is pissing off many Ontario harness horsemen with his "Too Much Product, Not Enough Demand" stance. This is a dangerous way to think, but it is typical of what happens when tracks receive monies from other forms of gambling other than racing. Horse racing becomes a necessary evil.

The reason there isn't enough demand needs to be dealt with, not the too much product. Livelihoods are at stake here. You don't cut jobs before you try cutting prices first. And by prices, I mean the takeout. Woodbine's culture and failure to compete, contagious in all of racing I might add, has caused the lack of demand by failing to compete, or even try to compete with other forms of gambling.

Economics 101: When demand drops, the price of the product (takeout) should drop.

Cutting dates before cutting takeout is a band aid solution, and it will not help create any more demand. Cutting takeout will create more demand.

Barry Irwin Calls For A 12% Takeout Across The Industry As Well As Other Suggestions

I disagree with Irwin that contraction is needed. It might be needed, but lets reduce takeout or embrace rebates first. I also disagree that selling horse racing as a sport over a place to make money will do much. Horse racing is not NASCAR, and never will be.
Horse racing must focus on the winners, the owners and partnerships that make money, especially the smaller outfits, and it should focus on winning horseplayers as well, which at a 20% collective takeout rate is an impossibility right now.

Popular Horse Thorn Bird Is Dead or Is He?
The thing is that he supposedly died months ago, and his now bankrupt owner, Ahmed Zayat, collected lots of insurance money on him.

Bizarre is the fact that trainer Mike Mitchell said "It's a small chance" that Thorn Bird could have been entered in the Breeder's Cup, apparently after the horse was put down, or maybe he wasn't.

Horse Racing In Alberta In Terrible Shape
The economics of owning a horse in Alberta just don't make sense. With 1000 thoroughbreds in training and 500 standardbreds in training, there just isn't enough money to go around. Less than $11 million is given out in purses there, and the horses aren't good enough to ship in order to race all year round.

The article says it costs $20,000 a horse to train. That is possibly on the high side depending on how many horses are trained by the owners there. But lets say it is $15,000. After paying the jockey, only $10 million is distributed in Alberta, and the total cost to own horses in Alberta is between $22-30 million.

Unless you have a real good horse, it makes no sense economically to own a horse in Alberta. The odds are stacked way too much against you.

Alberta is another victim of a jurisdiction that failed to compete for customers with other forms of gambling. High takeouts created less and less players over the years.

Sad News: Woodbine Icon Michael Burns Sr. Passed Away At 84
He started taking pictures at Old Woodbine (Greenwood) in the mid 1940's. A picture from last year won the Sovereign Award a couple of weeks ago. He is also in the Canadian Horse Racing Hall Of Fame as a builder.


bullring said...

You could lower the take at Flambingo and Georgian to 5% ATB and people still wouldn't bet it.

For the most part, a lot of these harness tracks in Ontario produce terrible product.

It is sad to think of people losing jobs and whatnot, but the demand isn't there at all. I have to agree with Nick on this one.

Cangamble said...

I think at 10-12% betting would increase significantly and the game would have a shot to grow.
Of course, many horseplayers are not attracted to harness racing, especially bullring tracks. They wouldn't play if takeout was negative 5%. But those who do play will play more, and it would attract more value players, especially if pool size starts to rise.

Anonymous said...

Usually you are astute in your analysis, but this time you are way off base regarding Mr. Nick Eaves stance on harness racing. Mr. Eaves is 100% per cent correct in saying there is too much product. In fact the quality of harness racing at (for example) Flamboro & G/Downs is so abysmal that only compulsive gamblers or bettors lacking self-respect will wager on that product.

Case in point is myself: Prior to the G/Downs strike racing at Flammy and G/Downs was still ok and I was attending and betting 99% of the time. Since that stike my attendance and betting has declined to about 3% of available cards.

Mr. Eaves did not go far enough. He should have called for the closing of at least half the Harness tracks in Ontario. Only then would competitive racing be restored. As it stands now bettors perceive trainers and drivers are entered in races only to pick up whatever piece of the (huge slot-inflated) purse they can. Meaning winning the race would be dandy, but is not the goal, 2nd 3rd or 4th is ok, and save the horse. This translates into bettors having no confidence in the past performances printed in harness programs, thus leading to handles of $2,000/race for races where the purse is 5x-10x higher than the handle.

Current situation is that the Ontario Gov't is providing public money (ie. Slot revenue)to an industry (harness racing) whose business model is broken and is dying a slow death.

If harness racing cannot sustain itself via wagering levels. the Ont Gov't should end its support from slots. As it stands now harness racing participants are in fact being enriched with "welfare paymets" that should be going to more worthy members of society.

Cangamble said...

Anon, if you really want to knock off racing because it couldn't stand alone without subsidies, you could also elimate Ajax and Fort Erie and every track in Ontario other than Woodbine and Mohawk, and even they would struggle without slots if they only relied on betting.
In fact, many tracks in the USA would be elimated as well.
My point is that the industry should be using the fact they are subsidized so much by slots to experiment with lower takeouts before they start eliminating tracks.

That Blog Guy said...

The lower the takeout the more wagered, the better the racing gets. It is common sense.

I am glad you are calling for horsemen to form their own ADWs. I don't think horsemen can form their own ADWs due to the capital required; I suspect you may have meant the racetracks. If racetracks formed their own ADWs they could lower their takeout and the threat of the other ADWs to drop their signal due to the lower takeout would be meaningless.