28 December 2011

NYRA Goof Up A Long Term Win For The Industry and NYRA

Lots has been written regarding NYRA's overcharge. They were supposed to drop takeout to 25% on all exotics that had a 26% rate 15 months ago.

The end result is that mutuel payouts were shortchanged by $8 million. And contrary to what many think, NYRA didn't come out ahead by that $8 million. In fact, I'll argue that virtually nobody benefited from the mistake, until now.

Those betting through NYRA or their ADW were shortchanged $1.1 million. The reality is that most, if not all of that money would have been rebet until eventually lost. The game doesn't have very many winners, especially those who pay 26% takeout rates. So what really happened here is that New York Horseplayers didn't last as long as they should have. Most likely, there was little financial loss by the player in the scheme of things, except when players last longer they tend to add more new money (which most inevitably lose). The opposite of course occurs when takeout rates are higher and payoffs are lower.

Since 26% is higher than optimal takeout (a rate we can only speculate on), it only makes sense that bottom line revenues would have been higher had the takeout been
lowered on time. So NYRA probably lost out.

However, NYRA has vowed to pay back those who can prove they were short changed who played on track or with a NYRA ADW. The rate of shortchange isn't 1%, but 1.351% of all cashed tickets for all exotics except exactors, quinellas, and doubles, oh and Pick 6's (75% divided by 74%).

Since the damage has already been done regarding lost churn and gambler satisfaction, when NYRA actually gives the refunds back, much of this money will eventually be churned again, and those getting the refund will have a temporary jump start with a replenished bankroll. And to top it all off, they will be betting into lower takeouts as NYRA is now reducing takeout on the overcharged betting types by 2%.

Now what about the other $7 million that didn't make it to the payout prices?

Tracks sell their signal to ADWs, simulcast outlets and other tracks for a percentage that is lower than the actual takeout rate. The bet taker keeps the difference between the takeout rate and the signal fee which is used to pay track expenses, purses, technology expenses, marketing, tote fees, and wages, and in the case of ADWs that give rebates....rebates.

In the case of tracks and ADWs that either don't give rebates or don't rebate based on specific wager types and tracks, the NYRA mistake wound up with them. Instead of the difference between 25% and the signal fee, these outlets wound getting the difference between 26% and the signal fee.

However, again, gambler satisfaction (which is mostly innate) was damaged as they received less money than they should have, and couldn't churn as much as they should have. So using the same logic as with NYRA in house players, these bet takers probably showed an overall decrease in revenue than they would have had if the error was caught in time.

Regarding rebate ADWs that give specific rebates based on bet type and track, the Horseplayers there most likely wound up slightly ahead. Had the rates dropped by 1%, the rebates too, would have dropped by 1%. So instead of getting back the extra 1.1351% on cashed wagers, these players wound up getting back and extra 1% on all monies wagered on the affected bet types. Pretty much a stale mate. The industry didn't lose on these players overall, nor was gambler satisfaction and churn affected. Exception, of course, to anyone who showed an overall profit on the affected NYRA wager types, and rebate or no rebate, that number is most likely minuscule.

So going forward, this faux pas by NYRA has resulted in a takeout reduction. A forced experiment which may lead to further reductions, not just by NYRA but other tracks as well. Churn will now increase and along with that, player satisfaction is about to rise.

I'm not defending the mistake at all, but I hope NYRA handle starts showing tremendous increases. It will be great for the game if that happens.

This mistake could be the beginning of a brand new phase of growth, a turning point, much like the turning point when the first chimp actually spoke in the Planet of the Apes series. Instead of the rise of the chimp, it is the Horseplayers turn, one can only hope:)

One more thing, on a quasi related note, RIP Cheetah 1931-2011. The 1930's, those were the days, a 10% average takeout....they were onto something back then.

16 December 2011


Reducing takeout in today's horse racing environment is a complicated issue. For future growth, it is a must, but tracks reducing rates are bound to feel at least a little short term heat.

The problem is that the majority of track handle, in most cases, comes from sources where that particular track is not necessarily the only focus of the bettor who plays it. Much of the money that is cashed on a track with a lower takeout rate gets bet back on other tracks. The majority of ADW and simulcast players are not price sensitive to the point that they choose tracks that are more Horseplayer friendly in the way of takeout. There is good reason to believe that the majority of players fly by the seat of their pants, starting with a certain bankroll (possibly adding to what they were willing to lose at the start of the day if they don't hit early enough), and they continue playing 2-5 tracks or more until they are tapped, or they actually run out of time or races to bet for the day (which ensures they will have a bankroll for tomorrow).

The bulk of the money being bet by the price sensitive minority. Whales for the most part, but also systematic players who only bet when they get value. Value is enhanced greatly by either low takeout, or through rebates (but generally, from tracks that don't charge high signal fees, therefore keeping net takeout for those tracks to be comparatively lower).

HANA (Horseplayers Association of North America) has done an excellent job in educating the Horseplayer when it comes to takeout and price sensitivity. There has been an awakening of sort, as we've seen tracks that have lowered their takeout and haven't upped their signal fees actually shown increase in handle, even though handle continues to fall overall (thanks mainly to increased signal fees, and increased takeout in California).

There have been enough bettors who have stopped playing California (and even some who recently quit playing Turf Paradise as they too raised takeout rates) and have diverted those betting dollars to more Horseplayer friendly venues.

This minor betting revolt has turned out to be good news for tracks like Woodbine, Hastings, and Zia Park.

Churchill handle dropped a bit, and this is most likely due to higher signal fees and the fact that their signal isn't available at all ADWs.

Again, it is critical that tracks allow their current customers to last longer. Churn is synonymous with gambler satisfaction in most instances. Being able to last, keeping the Horseplayer in the game longer, gives the player more hope.

I can't state this enough: A player who lasts longer is more likely to expose others to the game. But for optimal growth, horse racing needs to produce visible long term winners, and in order for that to happen, it must either embrace rebates and/or lower takeout significantly.

However, because of the fact that tracks with lower takeout rates can get hurt by tracks with higher takeout rates, a little collusion is in order. I don't think it is unreasonable for the entire industry to get together and place a cap on takeout with long term growth in mind.

I think the 17-20-22 plan makes sense for starter. That is a 17% cap on WPS, a 20% max on exactors and doubles, and a 22% cap on all other exotics.

I know that those numbers are still too high, but it is a huge step in the right direction.

At this time, only Keeneland and Churchill Downs are within the prescribed limits. Charles Town recently dropped takeout is extremely close, falling short by .25% on WPS. There are quite a few other tracks that wouldn't have to make too many enemies with horsemen groups in order to satisfy my proposal.

The big problem in getting this to happen is herding the cats that run the racetracks. Who is going to do it?

Harness handle isn't off that much this year. Low signal fees, enabling larger rebates, have kept them close to status quo. Standardbred Canada is trying to up handle by year end by linking to free past performances and giving selections on a new web page. Check it out.

Harness fans, don't forget about the USTA Strategic Wagering page which offer free TrackMaster past performances for guaranteed pool sequences. Good stuff!


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