Friday, July 20, 2007

Experiments With Lower Takeout Gaining Momentum

There has been no announcement as to whether the revolution will be televised. What is clear, however, is that the uprising might be coming to a simulcast venue near you.

Reducing parimutuel takeout to increase the bottom line is not a new concept. Its been tried before and has worked when given the right opportunity.

The New York Racing Association, for instance, lowered takeout three times since the 1970s if memory serves. Every time, the trial period resulted in a handle increase.

Keeneland tried it six years ago but its effect was unclear since both of their boutique meets are short in duration and the simulcast venues balked because they thought they would lose money and failed to buy the signal.

In the short term, they would be right. And since executives are paid for what theyve done lately and state houses shutter when any revenue shortfall fails to meet their bloated projections, the concept often doesnt get a fair shake.

Takeout is too high but politicians will pay lip service to lowering taxes and supply-side theory only when it suits their campaigns. But they just refuse to get it when it comes to the hold on parimutuel wagers.

The states believe that the revenue generated from wagering gives them a right to tax tracks, OTBs and horseplayers at a far higher rate than anyone else. The concept of churn is lost on them.

Then how do we know that when more money is returned to winning bettors the more they bet in return? Because every serious study proved it.

Instead, politicians and myopic track operators look at the bottom line and figure that low takeout is bad for profits as if the systems inefficiencies have nothing to do with it. Some OTBs even overtly campaign for a higher take.

But the tide may be turning. When the Ellis Park meeting opened recently, new owner and president Ron Geary instituted a Pick Four with a four percent takeout, the lowest parimutuel hold anywhere in America.

Despite a lack of promotion because Ellis was awaiting commitments from some simulcast venues and had a racing dates overlap with Churchill Downs, early results were very promising.

In week one, Ellis averaged daily handle of almost $19,000. After the word spread, week two averaged $46,148, with a record high of over $65,000 last Saturday. In 2006, the bet averaged $18,000 daily.

[Ed. Note] A chart of payoffs comparing the 4% Pick Four with a conventional four-race parlay and with last years payoffs with a 22% hold is available at

So far were very pleased, Geary said by telephone Thursday. Its growing every day. Our goal is to reach $100,000 when we host the National Claiming Crown [August 4th]. That will be our first national platform.

I applaud him said Lou Raffetto, chief operating officer of the Maryland Jockey Club, whose Laurel Race Course will institute a Ten Days at Ten Percent promotion at their upcoming 10-day race meet beginning August 10.

The short summer session will feature a blended takeout of 11.4 percent that includes a mandated 1.4% for the Maryland Million Fund. Its the lowest takeout of any race meet in the country.

We needed to do something to get people to focus on our races and this is a perfect time to experiment with a lower take. Not only does lower takeout increase churn but it takes rebates off the table. The rebate is built in, Raffetto explained yesterday.

Clearly, Raffetto and Geary get it. Geary already is reaping a financial benefit. In lowering his takeout rate to the lowest in the country, Raffetto put Laurel on the map at a time when all roads lead to Del Mar and Saratoga.

Not coincidentally perhaps, the trend seems to be spreading internationally. Two major betting platforms in Australia have reduced the takeout on their superfecta wager from 22.5 percent to 3.12 percent.

The superfecta is significantly more popular in Australia than it is here, attracting more than five percent of the betting market. Its appeal lies in the very large fields and huge jackpots that result when no one hits it.

Racing often is a strange game. The industry acts as if wagering is an embarrassment instead of its the life-blood. Handicapping is not promoted as an interesting diversion, an intellectual pursuit akin to poker in that its also a game of people, played with horses instead of cards.

There are lessons to be taught that would give customers an edge, giving them a better chance than the 52.5 win percentage needed to break even making illegal bets on NFL games. Racing doesnt teach that.

With forward-thinking track executives like Geary and Raffetto leading the way, all might learn what a great wagering game thoroughbred racing can be, including legislators.

There is that point where proper pricing allows demand to meet supply to optimize profits. The lowering of parimutuel takeout gets us closer to that truth.

Written by John Pricci

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Friday, July 13, 2007

The Approach Is Only Thing Wrong With Racing’s Product

Is there something wrong with racings product?

Thats the message Churchill Downs president Bob Evans sent to all of racing in a speech he made before the Kentucky Farm Managers organization earlier this week.

Is Evans right?

Without equivocation, we think the answers are yes, no, and this view doesnt go far enough.

Racings critics think theres no excitement in watching a bunch of brown horses running in circles around an oval. On its face, theyre not wrong.

But scratch just below the surface, as loyal fans do, and nothing is farther from the truth.
Observations that watching horses run around in circles indicates a clear misunderstanding of the sports nuances. In that context racing has itself to blame for doing such an awful job educating potential fans.

And nowhere does that manifest itself worse than when the sport is presented on television.

Racing broadcasts have tried without apparent success to present racing as a game, a puzzle to be figured out.

In the past, racing has partnered with one past performances disseminator in an attempt to sell the racing product. If anything, it winds up being a better commercial for the past performance company than it is for the game.

By using several data sources to reach a consensus, viewers could begin to learn about racing strategy. From pace analysis flows a conceptualized view of how a race could be run, and how different tactics might influence the final result.

The education process for potential fans shouldnt be dumbed down. Whoever gets it, gets it. Whoever doesnt, has no inclination to learn and wont. Contrary to the stereotype when racing was the only gambling game in town, todays most successful handicappers are highly educated and upwardly mobile.

Forget mass marketing to attract potential fans. Racing needs fans and gamblers with the mental acuity and wherewithal to get and stay engaged. What it needs is old school snob appeal.

Racing isnt a game that will ever attract a wide audience. The trick then becomes to attract the right audience, not the attention-deficit crowd that follows Paris Hiltons every move. Racing doesnt want or need fans that are highly likely to move on when presented with the next big thing.

Evans thinks theres too much racing but thats not a new theory. Last year in the U.S. 7,375 racing dates offered almost 52,000 races with handle of $280,000 per race. Everywhere else, 117,000 races attracted handle of $780,000 per. Actually, those 51,688 races are 35 percent fewer than in 1990, another of the games many enigmas.

Fewer racing dates and presumably clever condition-book writing helped produce larger fields; nearly eight in the U.S as opposed to 10 at foreign venues. Evans correctly argues that 10 starters attracting $780,000 in handle is an economic model that would keep tracks flourishing.

Evans also thinks we need to produce more horses for fewer races since the number of starts per horse is down 20 percent since 1990. What he failed to mention to the Kentucky Farm Managers is that the industry needs to breed strength and stamina back into the thoroughbred, too.

Too much racing isnt necessarily a bad thing. Too much racing can provide the kind of diversity that allows small market, second tier tracks to survive. Diversity is important for gamblers, too, especially horseplayers.

Many horseplayers actually prefer pedestrian mid-week fare to the tough big races on weekends. They reason the worse the quality, the greater the number of throw-outs. Ill bet the majority of racetrack executives would be shocked to learn thats the way many of their customers think.

Evans pointed to a Churchill Downs promotion, a contest to pick the Derby winner, the choices logged via text messaging. Churchill received over 90,000 messages after running only four contest promos. The fair assumption is that CDI reached a younger, tech savvy audience, a good thing.

What is needed is more of this kind of outside the box thinking.

Racing engages the vast majority of its audience through wagering via the participatory process of handicapping. What could be better than the latest technology servicing this data driven game to attract a younger audience? But, again, racing talks but doesnt actually embrace technology.

Tracks still dont get together to make a concerted effort to invest in software that would transmit betting information instantaneously. How can players have confidence in the overall integrity of the betting pools when odds continue to change as the horses reach the three-eighths pole?

Theres nothing wrong with racing's product, only with the way its presented to current and future customers. Nascar isnt popular because there are only 76 major races as opposed to racings thousands; its popular because it does a better job.

For instance, has anyone thought of pooling racings resources to buy those same full-page advertising supplements like the car folks do in all the local papers?

Have racetracks made a real effort to service existing customers by providing the latest betting information for informed decision making, as if tracks dont have a vested interest in the fiscal health of its customers?

Have the tracks done a good enough job lobbying their state houses for permission to do what other businesses do when income stagnates, such as lowering the cost of the product?

Supply-side economics dictates there is a price at which supply and demand meet to optimize profits. Shouldnt racetracks, like other businesses, be allowed to test its pricing structure to find that level, unencumbered by inflexible and arcane legislation?

Innovation comes out of competition, Evans said, referring to the likely failure of a handful of modern racetracks to survive.

All Evans and other track executives and state governments need do is look within the borders of the Commonwealth of Kentucky to see what one new track executive, Ron Geary of Ellis Park, did; instituting a new Pick Four wager with a four percent takeout.

On a small scale, this innovation already is beginning to show dividends. Last year, the bet averaged a mere $18,000 daily. On Wednesday, $36,000 was bet into the Ellis Pick Four.

In the long term, price will prove more important than product. As for the product, its fine just the way it is.

Written by John Pricci

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Thursday, July 05, 2007

Horseplayers Unite; Ellis Park Starts A Betting Revolution

Horseplayers love to complain then do nothing about it. Thats their nature. Or at least thats the way it was until July 4th when two of them just might have started a revolution within the racing industry.

If a grand experiment takes root and gets the support of horseplayers everywhere, wagering on horse races will become the best gamble in the world, bar none.

Independence Day was opening day at Ellis Park, a second-tier track with a first-tier attitude when it comes to catering to its base; the two-dollar bettor. Over 7,100 fans, second largest in track history, welcomed racing back to its Kentucky summer home.

What are the chances that an opening day success will portend how a moribund industry might revitalize itself?

The Triple Crown, Breeders Cup, Saratoga and Del Mar notwithstanding, racing is a sport where fans participate with their wagering dollars 11 other months of the year. Winning and losing money is the way fans keep score.

There is only one immutable rule when it comes to wagering: the deleterious effect of parimutuel takeout on horseplayers.

Two such players, one a professional bettor and handicapper, the other the most talented track-owning handicapper in the world, united to make a difference. What they created was a new spin on a popular established wager.

For the first time ever, horseplayers now have a positive expectation on their investment. The bet is the universally popular Pick Four. The spin is a four percent takeout. To repeat, a four percent takeout!
The seed for this idea was first planted during Derby week of 2006 at the Wynn Las Vegas on the occasion of the first Equiform seminar for well healed horseplayers. Equiform is a New York based company that generates performance figures.

A dozen horseplayers converged for a weekend seminar hosted by Equiform founder Cary Fotias and myself. One of the attendees was Ron Geary, who had an idea that he could turn Ellis Park into a kind of Saratoga of Kentucky. He put his money where his idea was. Some background:

In 1990, Geary, a bankruptcy specialist, was brought in to turn around the Louisville-based ResCare, a company with annual earnings of $60 million and 1,500 employees. When Geary recently retired as president and CEO, ResCare had 40,000 employees with annual earnings of $1.5 billion and is traded on NASDAQ.

Geary is still ResCares Chairman of the Board but now has time to devote his energy and turn-around skills to his first passion; horse racing. Last year, Geary bought Ellis from Churchill Downs Inc. In less than a year his grand experiment is to see whether a second-tier track can influence an entire industry with a single bet.

Takeout is a passionate subject for Fotias, who has given presentations on the subject all of the country as one of the original members of the NTRAs Players panel. Having graduated with an MBA in finance from Indiana University, Fotias has spent the last 16 years crafting his figures and betting on the races. But until Geary came along, he wasnt able to find a willing accomplice.

Geary, meanwhile, is a native hardboot who graduated from the University of Kentucky, where a statistics professor conducted field trips to nearby Keeneland to show his class how this whole supply-side economics thing works. Clearly, he learned those lessons well.

But its his career as a weekend handicapping phenomenon that sets Geary apart. Hes qualified as a finalist in the DRF/NTRA Handicappers Challenge in each of the last three years, the only time hes attempted to qualify. While never winning the championship, he is one of a handful to secure a Top 20 finish on two occasions.

At Fotiass suggestion, Geary began putting the pieces in place for a Pick Four wager with a four percent takeout at his new racetrack. Parenthetically, the normal withholding on this wager at the majority of American racetracks is 25 percent.

Together, the handicapping tandem correctly reasoned they had little to lose. Last year, the Ellis Park Pick Four handled $18,000 daily, next to nothing. After a decision was made to try this experiment, Geary won the cooperation of horsemen and the Commonwealth to lower the take.

Each understood, too, the enormous upside potential. All that remained was the cooperation of simulcast outlets. Of course, that was the area of great difficulty in achieving cooperation. Too many racing entities dont understand supply side economics. They think churn is something you did with butter.

But finally even unsophisticated bet-takers began to fall into line and the great experiment was on. The wager is available at most of the 1,100 outlets nationwide serviced by the Churchill Downs network.

Parenthetically, if the Ellis Park signal is unavailable, demand it from your neighborhood simulcastor. If you cant support an idea aimed to help you win, what will remain is staring mindlessly into a VLT because everyone should reap what they sew.

The Pick Four pool at Ellis opening day was $19,975, nearly 10 percent higher than last years average without benefit of pre-publicity and against major top-tier competition. Maybe there is, after all, something to the economic notion that a free market will determine the point at which supply meets demand to maximize profits.

The winners of the Pick Four races paid $9, 4.80, 6.60 and 37.00, respectively. A straight $2 parlay would have returned $1,318. The winning $2 Pick Four paid $10,858, roughly 800 percent higher despite the fact the bet is offered in 50-cent denominations. Digest that for a moment.

Heres another way of looking at the wager. Unlike betting to win, the parimutuel takeout, about 17 percent in many major jurisdictions, is extracted each time a win bet is placed. In inter-race wagers like the daily double or Pick Four, takeout is extracted once.

This makes the effective takeout rate on the Ellis Park Pick Four one percent per race. Now, if your handicapping is skilled enough to safely eliminate one 30-1 shot per race (on balance, a 30-1 has about a three percent chance to win), you have an expected positive return of two percent per race or eight percent for entire sequence. Think of it as free money.

Now how does that stack up against the 50 percent withheld by your states lottery?

Horseplayers must support this bet to send a message to an industry that only talks a good game. If 2,000 high-rolling off-shore bettors wagered only $200 into the Ellis Pick Four, daily handle on the bet would reach $400,000. If 20,000 $2-bettors wagered $20 into the pool whenever they went racing, potentially giving them 40 combinations at 50-cents each, were back at $400,000.

In the Pick Six pool at Hollywood Park last Monday, horseplayers spent $7.5 million chasing a $3.2 million carryover. The resulting $10.8 million Pick Six pool was the largest in North American history.

Were not talking Kentucky Derby or Breeders Cup here, just pedestrian week-day product. This total was amassed despite the much higher degree of difficulty, a 25 percent takeout, and a $2 minimum bet. Without a large bankroll, the majority of Pick Six players had little or no chance.

Not so the Pick Four, not now that one track is gambling that by making you happy and giving you a fair chance to beat the odds they can grow their own business. And send a message to the industry at the same time, that the horseplayer counts.

But unless bettors show that they really care and are willing to support a wager that gives them a real chance to win in the long term, horseplayers will have no one to blame but themselves.

Written by John Pricci

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