Tuesday, September 12, 2017

The 15-30 Takeout Solution

If the clown in the White House can a make a deal with ineffectual Congressional Democrats, then surely racing’s stakeholders can compromise and find a solution to the parimutuel takeout problem.

The problem of course is that it’s too high. It’s just one of several issues why lifetime horseplayers are walking away from the game, and racing can ill-afford to lose any more old-schoolers who choose to walk away.

Takeout might not be right on the top of the list but it’s the kind of problem that’s fixable. Cost-cutting is never a bad thing; it’s promotable, gambling-centric and a way to lure young adults who prefer to mix some critical thinking with their gambling.

If do-able, a deal that helps all of racing’s stakeholders--from horseplayers of every stripe, to racetracks, to horsemen—is one that makes sense and long overdue.

This industry is one that does not work collectively because at once there as many agenda as there are racing jurisdictions. Lowering takeout won’t fix the drug problem or equine and human safety concerns but its good business.

Just as climate deniers are famously not scientists, I’m no mathematician. I leave that to better analytical minds than mine. So if someone wants to tweak the numbers that follow so that they make more sense and dollars, please have at it.

As the deck is stacked now, the only horseplayers that catch any type of monetary break—one that still makes sense enough for them to continue playing the game--are the 1 percenters, the whales.

The math that follows is easy enough for me to understand: If you bet a million dollars a year, thoughtfully arbitrage your bets to break even, and get 8-to-10% on your money in the form of a rebate, that kind of return can support a family, even at today’s prices.

But that $80,000 to $100,000 is made at the expense of powerless rank-and-file players who can wager $500 per session and at the end of the day collect the dollar equivalent of bangles and beads.

A friend and grassroots activist made a suggestion that was thought provoking and makes sense. Think of takeout rates as the difference between a main course and dessert menu. Daily churners, the meat and potatoes guys, need help.

The bettors we’re talking about here are those who wager a couple of thousand dollars per week—every week, and receive the equivalent of shinier bangles and multi-stringed beads.

In its simplest terms, bet-takers won’t punish their best customers to help the serious middle-class players, fearing that takeout reductions will result in revenue reductions, which will happen in the short term. Their concerns are understandable.

But it takes time to convert added churn into higher revenue, and tracks have been unwilling to take haircuts for several years for their own long term growth and that will have a deleterious effect on the entire industry going forward.

So let the rank-and-file, the solid everyday churn player, meat-and-potatoes: The straight and duel multiple pools; daily doubles, exactas and quinellas.

Meanwhile, allow the whales, score-seekers, racetracks, ADWs, and the horsemen have their cake and eat it, too.

We’re aware of the catch, the reason this pipedream won’t happen: This entire industry is incapable of sitting down in one room and make a compact, a compromise; 38 racing jurisdictions sending one message to the states which give them license to operate.

Consider this: Drop the takeout on straight, place, show, exactas, doubles and quinellas to 15%. Simultaneously, increase the takeout on three-tiered and greater multiple wagers to 30%.

According to the HANA 2017 Track Ratings chart, average takeout on straight wagers at 64 North American racetracks is a quite high 17.25%. A 15% rake would increase payoffs by 13.01%.

The average cost of playing the Pick 4, considered by many the most popular horizontal wager especially given the number of guaranteed pools offered ubiquitously--as opposed to Pick 5 or Pick 6--is 22.28% at those same 64 tracks.

Raising the takeout on three-tiered and greater wagers to 30% represents a 25.7 percent increase which, with rounding, more than offsets “revenue losses” from the straight and two-tiered payouts.

The 15-30% solution—or whatever figure serve all stakeholders--accomplishes several goals. Everyday players who grind their money need bigger payoffs to survive by increasing churn; straight and two-tiered wagers are, simply stated, more winnable.

By returning more money to winning players, higher payoffs make the game an easier sell to thoughtful, upper scale Millennials. The 15% rate is still too high—10-12 percent probably is closer to optimal levels that GIVEN TIME, will increase revenue.

While 30 percent takeout from three-tiered and larger sequences makes bettors wince, the 25.8% increase will encourage most bettors to make less complicated, easier to win, churn-friendly wagers in straight and two-tiered pools.

This is especially true of exactas, by far the betting option of choice by a majority of players.

Since successful wagers in pools with three or more tiers requires a hearty capital investment, tracks and horsemen will be able to retain more handle revenue.

Promotionally—and there is a preponderance of multi-race, score-oriented advertising--betting precincts can offer higher rebates to everyone; per usual the biggest bettors would receive bigger rebates.

The rank-and-file would get a bigger share of rebate money too, providing bet takers put in language that guarantees them a bigger share of the new pie.

Since my personal handle represents a wide range, from a low of $25,000 per year to $50,000 or more, I personally prefer that Pick 5 takers would offer consolations, as is done at Gulfstream but not at NYRA tracks.

Big players and racetracks shun consolation pools, preferring perfect-only payouts that helps to generate carryovers and jackpots, resulting in higher handle both in terms of dollars and number of overall players jumping into those pools.

It follows that consolations probably should be eliminated in the new higher takeout multi-race world, except pf course in instances when no bettor completes a given sequence.

Admittedly, this approach is a little like trying to legislate morality; it gets a message across but doesn’t completely solve the problem.

But some sliding scale version of a takeout-decrease/takeout-increase/rebates-for-all process would be a good place to start. Even if sliding-scale-takeout rates based on degree of difficulty fails, at least horse-racing would be sending out a better message.

PLANTATION, FL, September 12, 2017

Written by John Pricci

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