Wednesday, November 23, 2011
Compel Racing Execs To Go All In
SARATOGA SPRINGS, NY, November 22, 2011--As all true racing fans know, their favorite sport is in trouble. There are myriad reasons for this, of course, and whether anyone wants to read more on this aspect of the issue or not, conclusions are inescapable:
There are not enough racetrack managers who understand how to maximize revenues because they forget that, in addition to providing great theater and exciting, colorful sport, they are in the gambling business.
Do you know what the requirement should be for getting a top level job at a successful, well known racetrack venue? Or put another way; do you want to see takeout rates plummet? Here’s how:
Any executive holding a title above that of a middle manager should be compelled to bet his annual salary over the course of one year! I don’t care if the degree of difficulty is no more complex than making a show bet, let these executives learn about the business of wagering first hand.
The reason trickle down economics doesn’t work is because the spoils never reach the level of those for which tax breaks are needed or were intended. It’s mostly flim-flam for those at the top to hold on to what they already have.
But the kind of tax cuts we’re talking about hear--lowering parimutuel takeout--gets profits to climb back to the top because those buying the product simply have more money to spend on what they want: Action and an opportunity to make a score.
The issue of takeout has become more salient with every monthly decline in national wagering handle. This is not a new phenomenon; it’s been happening for years now.
“What can we do,” racing executives ask? “The problem is in our state houses, not our board rooms.”
There is one way for them to be heard, but first they would need to fill their sacks. So the problem may lie inside their trousers.
Racing executives need to occupy their state capitals. Explain to lawmakers that if they cannot be allowed to lower parimutuel taxes to compete with other forms of gambling, customers will continue to go broke at a faster rate and disappear altogether.
Give them the Jerry Maguire line: “Help me help you!”
The Horseplayers Association of North America very recently did a detailed study of the effects of raising takeout and lowering takeout on betting handle.
Invariably, lowering takeout raises handle and raising handle decreases it. Tampa Bay Downs would be a prime example of the former; Santa Anita sadly would be an example of the latter.
And the value of the good will created by the former and bad as a result of the latter? Priceless.
In some examples, the numbers relating to the takeout results in the HANA study were astounding, yet historically predictable.
From 2009, when the takeout at Tampa Bay Downs in the Pick 4 pool was 20%, to this year, with an 18% takeout rate, handle nearly doubled at 97%. Revenue increased by 77%.
Parenthetically, it is not coincidental that in recent years Tampa management has found a way to reduce takeout in some of its pools and the bettors have responded. Eureka!
This year, Tampa is lowering the takeout in the straight pools and introducing a 50-Cent Pick 5 at a 15% rate.
HANA also measured the effect of raising takeout, using the Pick 4 at Laurel as an example. During a five year period, takeout was increased from 14% to 25.75%, an astounding 84% increase.
Anyone with a modicum of common sense and an understanding of Takeout 101 is not surprised that average wagering handle declined by 53% and the revenue from takeout declined by 13%.
The one year Laurel experimented with lowering takeout, wagering handle increased by 16%. Imagine what that number might have been if the trial had not been conducted during their short summer meet, while competing with Saratoga and Del Mar?
Parimutuel racing, like any other product, must be priced properly or the customers will find an alternative game to play, it’s that simple.
The HANA study correctly concludes that the current takeout rates at most tracks are unsustainable, and that if online poker is legalized, its much lower takeout rate would blow horse racing out of the gambling business for good.
Then where would those executives find the next cushy job with lots of zeroes before the decimal point? And who would American breeders sell all those pretty horses to?
Tomorrow and for every day that follows, racing executives should be thankful they don’t have to support their families by betting for a living. Most wouldn’t know the first thing about it.