28 August 2010

Dropping Track Takeout Sounds Counter Intuitive....But It Will Grow The Business

Lets hope this isn't lip service. It looks like NYRA is starting to get it.

NYRA Chair Steve Duncker from an interview earlier this week:

"Duncker noted the blended rates in New York were 15% in 1960, 17% in 1970, and 19.81% in 2010. Over that period, racing has faced growing competition from other forms of gambling that employ takeout rates of 2%-10%.

“What business people in this audience think that’s the way to increase business?” Duncker said. “We’re being priced out of this market. We need to bring the cost of our product down in a competitive market.”

And on CNBC, NYRA CEO Charles Hayward was interviewed. This is a must see video (not very long) for anyone who cares about the growth of horse racing:

I personally love the use of the description "counter intuitive" that Hayward uses to describe the effects of track takeout.

"We're taking too much out of the customer's pocket.....the more money we put back in the people's hands, the more they'll bet back in."

The interviewer was pretty much representing the intuitive point of view, which is wrong, that the price to "put on the show" forces takeout rates to have to be higher. This is far from the truth. The cost to put on the show is pretty much a constant (except when it comes to cutting or adding dates, or adding or cutting purse money...which is predicated on the amount of betting the track takes in). Using the example of Fort Erie Slots. Lets say it costs $25 million operate the slot side 7 days a week. This cost has no bearing on how much is lost by customers.
The only thing that matters is the price of the bet. Slot operators have found a long time ago that their optimal payback rate (the amount of money that maximizes profits for slots) is around 92-95%). In terms of a racetrack, that equals a track takeout of around 7%. What this means is that if the slot takeout is doubled, for example, to 14%, it would attract less than half the long term betting than at 7%.

It doesn't matter if the operation costs were $2 million or $30 million. What matters in gambling is how much the customer gets in return.

Yes, it is counter intuitive, but that is how gambling works. The longer a player lasts, the more they enjoy it, the more they are likely to return. The more money a customer leaves a gambling establishment with, the more likely they are to come back quicker.

Three more good things happen when it comes to growth by reducing takeout. First, the longer a person lasts, the more likely they are to expose friends and family to their hobby. This potentially creates a new audience.

Secondly, a player who spends more time handicapping and watching races will likely devote more of their entertainment and gambling bank roll to horse racing and less to other forms of gambling.

And third, the lower the takeout, the more likely some visible winners will be created. Visible winners helped poker explode. For the most part, there has to be a good reason for a newbie to begin tackling horse racing's enormous learning curve. They need to be able to rationalize a reason to buy a handicapping book in the first place. If long term winning is impossible (with a 20% chop it certainly is impossible), why even look into betting on horses?

I should also make it clear, that takeout can be reduced to as close to zero as possible. There is an optimum takeout, where tracks and horsemen make the most money, but it differs for each type of gamble. The optimum takeout or house edge in blackjack or poker is lower than the optimum takeout for horse racing wagers. One of the main reasons for this is the frequency of wagers per hour, and the fact that no matter how enticing horse racing becomes, there will still be quite a few players who will only play a little per week, month, etc. Much of their churn will go elsewhere, other than back to the track.

In fact, each type of wager has different optimum takeouts associated with it. Show betting has a lower optimum takeout than win bets for example, and much lower than triactors.

Since, there is no empirical evidence to use when it comes to horse racing (as horse racing as always charged its customers too much), I can only estimate. Right now, I figure the optimum takeout for show betting is around 5-6% with no breakage. Win betting is probably 7-9%. Exactors and doubles around 9-10%, and triactors and other exotics fall in the 12-14% range.

Those Morons In California
Those morons, yes morons, in California are going to learn a very big lesson. It is going to get ugly there very soon. I think this is the first time HANA ever got mentioned in the DRF. Personally, if they do raise takeout in California, I will not even look at another past performance from there (except for Breeders Cup Day). I won't be the only one who will personally boycott their racing. They need leaders there who get it. Those who understand that it might be the intuitive thing to do to raise takeout so purses will grow, but who know that it will lead to a very bad decline in their bottom line.

The infighting continues as some of California finest imbeciles like the takeout increase but are dead set against exchange betting. If I didn't know better (and I don't), it appears that bill AB 2414's sponsor, Assembly speaker John Perez, has screwed up by seemingly being bought off by nincompoop's who believe that upping the takeout will benefit California tracks and horsemen, and Betfair at the same time. Politicians sometimes do things that street whores wouldn't do when it comes to campaign contributions and other perks. I don't expect Perez to be different, but he really messed up by attaching both exchange betting and a takeout hike on the same bill.


"I would accept that an increased take out of any kind would be unpalatable. However, as that same horseplayer, I want to see a healthy sport that has the chance of a long-term future and people with much more knowledge than me of California racing believe this will help the sport. It is worth noting that other states already have take outs that exceed California. In the UK, there is a healthy Tote industry and some of the most successful bets have a take out of 30%.
To me, we should be looking at how to rebate price sensitive customers so that skilled horseplayers who put a lot of money into pools are given a loyalty bonus or rakeback. I struggle to understand why US racing is so willing to cooperate with offshore rebate shops that suck the life out of the sport. We should be exploring ways of bringing that business back onshore and, at the same time, rewarding regular players with rebates. It should be the operator that stands the price of those rebates and not the sport but they could only do that if working out the right pricing formula all round. Irrespective of what happens to AB2414, I hope that issue will be explored by the industry."

-Stephen Burn TVG CEO(via Paulick Report)

I find what Burns said to be disingenuous to an enormous degree based on his comments.

He of all people should realize that rebates or lowering takeout isn't about appeasing price sensitive and big players, but giving all players an opportunity to last longer, spend more time betting on horses, and opening the door to the chance that some can win which will create a whole new market of wannabes (this has been the key to Betfair's success).

Andy, I agree, he is full of it. He isn't a stupid guy.

He realizes that the higher the takeout in California, the more likely people will turn off parimutuel and bet on the exchange.

Secondly, he realizes he needs to invent reasons why a takeout increase makes sense so as to support the bill, which will get Betfair in the door.

Now, I'm not saying exchange betting is bad for the industry, in fact, parimutuel wagering has risen wherever Betfair has shown up. But Burns is playing with the media right now.

There is no way he believes that the increase in takeout will add to the health of the racing industry in California. I'm not buying it for a minute.

Delaware Park Doing Something Good
Delaware Park is doing a two month "experiment" starting September 4th. They are lowering the takeout on exactors for those who bet live at the track from 19% to 10%.

It isn't a huge thing. Not a lot of money is wagered on exactors per race on track at Delaware (most of their handle is from other tracks and ADWs across North America). However, it is a small step in the right direction.

They are hoping this will bring some extra people to the track who would normally bet through one of the bigger ADWs. And they will hopefully get bigger wagers on their product live.

What will happen is that Horseplayers will get more money to play with if they hit an exactor. That money will be churned back almost automatically either on the next few Delaware races or simulcast races. Players will last longer, but the reality is that they will quickly lose that money back into high takeout bets for the most part.

Reduction in takeout to work, needs to be long term, and needs to be an industry wide thing if you want to measure total success.

The Delaware promo will be successful, but it won't be huge. But when it comes to horse racing, baby steps in the right direction are better than standing in your excrement, something horse racing seems to be famous for.

Bruno Schickedanz denies temporary stay at Woodbine by ORC
Some emotional quotes by other trainers and his former trainers didn't help Bruno's case. No reasons yet have been given as to why Schickedanz can't race or stable at Woodbine, other than Schickedanz did something against the good of racing.

I think they need to revise the rule books at the ORC so that a case like this will be clearly against the rules, and should never happen again.

I don't know how that ORC can justify a Woodbine ban, but allow Schickedanz to continue to race and stable at Fort Erie.


Good points are made in this TrackMaster blog post about the harness game and why there is good value in using their past performances.

18 August 2010

Will Online Gambling Hurt Ontario Horse Racing Badly?

The OLG announced that they are going to enter the world of online gambling (though they like to use the word "gaming").

First to clarify. Online gambling has been gray area legal in Canada for years. Canadians can openly bet through places like Betfair. Everything from poker to horse racing to sports betting has been but a mouse click away for every Canadian.

So now with the OLG entering the picture, what changes? The main change will be convenience (getting money in and out of your accounts), advertising (it will be in the face on most Ontarians), and the increase of locations to make wagers (I assume you will be able to bet sports at convenience stores in the near future much like Pro-line but with better odds).

Speaking of odds, if the OLG does not compete with bookies and other online casinos when it comes to payouts, this endeavor will fail miserably, at least the revenues will not even come close to its potential, nor will they be able to lure the big money away from offshore houses. This is the same problem Woodbine racetrack has (though it is self inflicted).

I expect the odds to be very competitive, and if that is the case, we will see slots get clobbered, and we will see a dramatic drop in horse racing in Ontario.
Deer In The Headlight Syndrome
Horse racing reacts like a deer in a headlight. Instead of being proactive and dealing with their biggest problem, which is a product that is too highly priced (so high, it not only prohibits growth, it actually promotes negative growth), horse racing looks for subsidies to exist, looks to cut dates, and if these two things don't work, purse cuts are inevitable.

Is horse racing looking for a cut from the OLG from the proposed online betting platform? Of course they will. Will they get it? Most likely not. The only thing they might get are more table games and the ability to take in sports wagers on track (and possibly through HPI, in Woodbine's case).

Sports wagers are a gamble for the house because it is not parimutuel. Though in the long run, the house usually does OK.

But more people betting sports will most probably mean less people showing any interest in horse racing. More people betting online poker, for sure, less people will be interested in horse racing.

Again, if prices are competitive with everything else that is out there, horse racing will get hurt plenty.

They had a very good window with the internet, and with the convenience associated with it, to attract a bigger crowd and grow horse racing. And their lack of foresight and their lack of tackling their pricing problem has now put Ontario racing in Deer In The Headlight mode. And we have only started seeing it. It will only get worse.

Northlands Park Doing Something Really Smart

Who would have thought that a Prairie Province racetrack would come out with a what looks like a fantastic marketing scheme? On Saturday they have a $2 Pick 10, and if anyone picks all ten winners, $1 million dollars will be awarded. Now, there is no way the pool will even come close to a million, and I believe that Northlands Park has the bet insured (I would love to see the math behind the insurance policy especially since the entries haven't been drawn).

I know one thing, I'm handicapping Northlands on Saturday, and I'll most likely be playing the $50,000 Pick 4 at least (now that pool will most likely be over $50,000).

Canadians can bet on the Northlands card through HPI. Most Americans can bet the Northlands card here, as well as many other ADWs.

Cal-Expo is also doing something good. They are lowering the takeout on their Pick 4's Saturday nights. Why just Saturday nights? A small step in the right direction is better than nothing.

ORC Acknowledges No Rules Broken By Schickedanz

When I did some minor research on the subject, I kind of thought that Bruno Schickedanz didn't violate any rules in the ORC rulebook. Though perhaps in the near future, what happened with Wake At Noon will create rule changes that make what intuitively should be wrong, a real violation.

Schickedanz's appeal is still not over. It continues next Thursday. It has yet to be determined if he violated Woodbine's own track rules.

My guess is that he will be reinstated. It is kind of like the building of the Mosque near Ground Zero, that the majority of Americans are against. The majority may want Schickedanz banned for life, but laws of the land override what the majority wants sometimes. Laws need to change so it doesn't happen again.

Craig Walker at the TrackMaster Blog asks if peer to peer betting is good for racing
My answer is yes. But it would be more profitable for the industry if it isn't done through Betfair. Winners are created thanks to the lower takeout rates exchange betting has to offer. Players last longer as well. Younger players are easier to introduce through exchange betting than the regular parimutuel betting racing has to offer right now.

As Craig points out, betting during the race opens up a brand new niche market. And those who handicap races looking for winners to back or loses to bet against may also find exotic bets throughout the day to dabble in.

More Deer In The Headlights Syndrome: Suffolk Downs Slashes Purses By 26%
I actually like handicapping Suffolk Downs, but it does have one of the highest takeout rates in North America. HANA ranks Suffolk as having the 2nd highest takeout rate, just below Assiniboia Downs. Fort Erie has the 3rd highest takeout rates in North America.

I find it amazing that tracks cut dates and/or purses yet they don't consider cutting the takeout....the price of the product. Good luck with that.

10 August 2010


A friend of mine, who happens to be a Horseplayer (go figure), also happens to be a Proud Grandpa. He sent me the following photos of his 6 month old grandchild. Her name is Alexandra. And yes, she was named after her father's favorite horse, Rachel Alexandra. In fact, he lobbied to name the kid Rachel Alexandra, but because there is another parent involved, a compromise occurred, Rachel was vetoed and Alexandra won out, followed by a couple of customary middle names (named after a couple of grandmothers).

Alexandra gets a quick tutorial on how to read the past performances:

Alexandra gets to work on Del Mar's 8th:
Why Del Mar? The kid lives in Ontario. I guess Woodbine's track takeout is too high for her.

Finally, she comes up with her analysis:

According to her father: "She hit the tri in that race ($2 TRI 1-6-5). She won $26.80 but I kept the winnings."

Alexandra's first words were "If California raises takeout on exotics, Del Mar will be dead to me."

I wonder what Alexandra's first name would be if her dad's favorite horse was Zenyatta instead.

Speaking of Zenyatta. Here is a song about her:

The heat is definitely not off Bruno Schickedanz for his "what was he thinking" moment in regards to Wake At Noon's tragic demise, but trainer Doug O'Neill is now under fire for running a mare named Burna Dette a Los Alamitos last week. She was claimed for $25,000 in late June, but wound up running for $2,000 and breaking down violently Friday night. Read more about it at Paulick's Report.

By the way, Bruno Schickedanz is appealing his Woodbine ban. There is an ORC hearing set for August 17th

Tony Adamo's license has been restored in good standing.


Horse racing isn't about to lower takeout collectively anytime soon. It is a good thing that many astute Horseplayers have some options.

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7 August 2010

Why Lower The Takeout? Some Evidence

What happens when you lower takeout?

Balmoral Pick 4 handle is up 84% since they lowered their takeout from 25% to 15%.

Want more evidence? At the beginning of the year, Tioga Downs horsemen allowed the track to lower the takeout, as low as the state would allow them. Vernon Downs voted NO. So far, Tioga Downs is up on the year when it comes to handle, while Vernon Downs is down 13%.

Lowering takeout does take time for the results to kick in, and Tioga is starting to notice a nice ramp up lately. Export handle was up over 20% in July.

It is key to keep takeout down, so existing players won't leave, but by dropping them, new players will be created as existing players last longer, come more often, and are more likely to introduce newbies to the game.

Speaking of evidence. What evidence is the CHRB using when it comes to their desire to increase takeout in California? I'd love to know. How could they possibly think that taxing their customers more on each bet will result in more revenue for them? What studies are they using? What empirical evidence do they have?

The reality is they "think" that they must be selling a necessity big ticket item. The fact is they are not. Gamblers only have so much money to lose collectively. Pay them off less, and they will come back less, or quit, or find a competing form of gambling. No matter how you slice it, up the takeout, and the result will be less revenue bottom line. And more importantly, negative growth when it comes to future horseplayers.

Even the guys at Bloodhorse are laughing at California's stupidity:

The last time California increased takeout, they "thought" it would be the answer to their short term woes. Empirical evidence proved otherwise.

New Anti-Gambling Laws Come To Canada
Whoa, does this means that office football and hockey pool participants and organizers risk a minimum sentence of five years in jail?

Well, at least she gambled legally
...but the way she acquired the funds to play with, well that is another story. I guess with her in jail, casino revenues are bound to drop a bit.

1 August 2010

Are Super Trainer's Percentages Going To Drop Thanks To Delahoussaye Indictment?

The Grand Jury is learning a lot about how trainer's cheat and hopefully they will learn how broad the cheating is.  From milk shakes to cobra/snail venom to Red Bull to EPO/DPO to plugging horses in, it is pretty clear that if a trainer like Darrell Delahoussaye, who didn't have tremendous stats, was cheating as much as it is alleged he was, those trainers with stats exceeding 20% have to be using undetectable drugs or illegal methods to keep their stats so high.

I really like the fact that this has now turned into a criminal matter.  It rightfully is.  Not only is the cheating trainer cheating the betting public, but they are cheating the horsemen who are not cheating, by stealing purses using illegal substances and methods.

Hopefully, racing commissions across North America will take this as a wake-up call and become extremely vigilant and aggressive towards the cheating trainer.  I know that as a bettor, it almost sickens me to watch certain trainer's horses consistently run against biases and rebreak when the real running starts even though they exerted much energy early on in the race as well.  Almost like they have an oxygen bottle on their back instead of a jockey.

The heat is on right now.  And I think we will see some nervous super trainers turn it down for at least a little while, probably counting on the heat to go away like it usually does.

In other related news, Anthony Adamo is suspended pending the outcome of a Pennsylvania  ruling against him.


HANA (Horseplayers Association Of North America) was first to put this confirmed rumor out there regarding the proposed takeout hike on exotics at California racetracks.  

Raising takeout works only if the amount bet over the course of a long time remains the same. Anyone who believes that this happens has no idea the way things work.  Though that is the assumption being made and being pitched to politicians.

Gambling is all about churn. The more a horseplayer cashes, the more they wager. The less they cash, the less they wager. This is true of blackjack, slots, horse racing, you name it.

There is an optimum takeout price for every form of gambling, and it differs from gamble to gamble. This is the price where the house makes the most money bottom line long term.

Horse racing has never tried to discover this optimum price. Other forms of gambling have, through trial and error, from blackjack to sports betting to slots.

Double the slots takeout, and the house will make less money bottom line. And all they have to do is have half the betting. Problem is they won't and they know it. Players don't last, and when they don't last long enough, some go less, some quit, and some find other ways to lose their money. More importantly, the less a person lasts, the less likely they are to expose friends or family to their habit. This also helps for growth, and this is why slots gets extra players. Many of us have been dragged to a casino by a friend or family member or many of us dragged a friend there.

Tracks that already have sky high takeouts have seen less and less live players because they simply wiped them out.

A takeout increase in California, no matter how large or small will have the same affect. Some players will lose what they would have regardless of the takeout (a fixed player), but many will wind up losing a lot less over time because they will give up or go a lot less.

Looking towards the future, any track or tracks that hike takeout are just killing the sport even more by taking out more players.

One thing is for sure, more new money won't be lost when you raise the takeout. Collectively existing players only have so much to lose regardless of the takeout. However, by taking out the growth factor and factoring players quitting or going a lot less and finding other things to bet on. California horsemen will wind up with purses lower than ever before over the next couple of years.

Most players don't openly care about takeout, but it affects everyone's play just as it does with slots. Slot players don't have a clue. Why not up the takeout from 6 or 7% to 15%? Won't the casino make more money? Of course not.

The big players who don't look at takeout, will have their bankrolls erode faster, and over time, they will become less enthused about their hobby. It has happened everywhere any takeout increase has occurred. In fact, it has happened to the collective fans, as over the years, more bet types (with higher takeouts) have been introduced, coupled with the fact players can bet a lot more than 8 races a day.

Owners understand the concept that bigger purses (ie more money that is given out for win place and show fourth and fifth) means more owners as owners last longer, and more even make money (more partnerships too, growth occurs, more new owners get in the game). What happens when you lower purse money available? Less owners and less horses. The same thing happens when you give less money to the players, you eventually create less players. Give players back more money and you have a growth scenario.

Roger Stein discussed the proposed takeout increase on his show at the 50 minute mark of yesterday's show (July 31).
Listen here.  Roger and his guests made great points about how negative track takeout increases are.
I wish they would start thinking takeout decreases instead and applying the same logic they were using as to why a takeout increase is idiotic.

Pull The Pocket has a very good post on the contrast between the mentality of horse racing versus those who get it (in this case the California Lottery Corp.)   If you've read my blog in the past, you may have seen the post I made regarding California dropping the takeout on Scratch N Win lottery tickets.  This occurred in the spring.  Sales have been brisk ever since, and players are churning like crazy and they are actually losing more money than ever before because their odds got better.  Revenues have jumped 16%.  The state and the lottery company are making more money bottom line, just by giving back more to the customers.

Tracks that hike takeout despite all this are helping kill the sport even more.  The future will be here soon enough, and if you think it is bad today, it will be worse in a couple of years unless takeout reductions occur.

Even with all the logical points made, it seems like most of us have resigned to the fact that this takeout hike will happen.  Just as it did at Los Alamitos (so far we've seen a 27% reduction in live handle there, and it will only get worse).

Personally, I'm with a few others on this.  Let them do it.  I know what will happen.  And maybe, just maybe, the industry will get it.  My only reservation is that this will prolong the decline and stifle growth for another couple of years until they finally realize that lower prices are DEFINITELY NEEDED.

Rick Cowan Optimistic Fort Erie Can Become Viable 
Interesting article citing many of the obstacles new COO of Fort Erie has to overcome to turn to the track around.

One thing that really caught my eye was this:
Player rewards: While Players Club members earn rebates for their slot machine play, the Ontario Lottery won't allow them to use cards to get rebates on horse bets. However, Cowan said, "We are looking at a rewards system" for horse bettors.

There are two obvious choices here.  One is to have their own ADW servicing the Niagara region.  The second is to simply reduce the track takeout.

The track takeout affects the live customer the most.  The higher the takeout, the less they cash, the less they have to bet back, and the less they last, and the less they desire to come back to the track that quickly.

Those playing Fort Erie at tracks, OTBs and ADWs across North America would play more if takeout was reduced, and Fort Erie advertised it well.  There is a lot more awareness these days regarding takeout than ever before.  Plus, the venues that have Fort Erie's races pay a constant signal fee.  The takeout is really insignificant as Fort Erie gets a set percentage on every bet regardless of whether it is WPS or a triactor.

Lowering takeout will create growth potential both amongst the local on track bettors and those who play from other venues.  It is a win win situation.  Problem is getting it through some of the horsemen's thick skulls.