Friday, September 21, 2007

Disparate Industry Factions Short Sighted On Takeout Issue

If youre a serious horseplayer wagering serious money, the news out of Kansas City earlier this week wasnt promising. Of greater significance, it doesnt augur well for the future of the game, either.

The occasion was the National Simulcasting Conference. Appropriately, the subject of takeout was among the more pressing issues. And the bottom line--for modern racetracks and for future horseplayers--wasnt good.

There were three glaring problems with some of the comments, however. In terms of growing the business, the takeout experiments conducted at second tier race meets in competition with the two 500-pound gorillas of summer; Saratoga and Del Mar, were doomed from the start.

The second is that the lower take experiments conducted at Laurel Park and Ellis Park didnt have a fair chance because they werent given nearly enough time, especially Laurels 10-day stand.

The third is the nature of simulcasting itself.
Starting in the 1970s at the New York tracks, the NYRAs non-profit model allowed for a sensible time period in which lower takeout could generate added revenue. Three extended lower-takeout periods were conducted and the lower rate produced increased handle every time.

The result of our experiment left us with a big question mark, said CEO Lou Raffetto by phone from Laurel Park Thursday morning. Our on-track fans came up and thanked me for the lower takeout. That was nice. But as I said before, it was a PR bonanza and a financial bust.

The lower take didnt matter when going up against Saratoga and Del Mar, he continued. And we were caught in a Catch-22 in that big bettors only want to play into large pools. Were handling about $3 million a day at the fall meet now but only about $1.5 million [at the 10-day summer meet]. The only gains we made were with Internet players who tend to be more savvy when it comes to takeout.

The concept of churn--the less you take the more you make--was not only hindered by the brevity of the experiment but by the nature of simulcasting itself. Pre-simulcasting, bettors had a choice of nine races a day and the more money returned to them, the more they bet back in the next race. Simulcasting changed that.

If one of our fans hit a $300 trifecta that paid $340 because of the lower take, he took the extra money and played the upcoming trifecta at Philly Park where the [trifecta] take is 30 percent. When it comes to takeout, some fans just dont get it, said Raffetto.

Lower takeout produced mixed results elsewhere under mitigating circumstances. At Ellis Park, new owner and track president Ron Geary lowered the take on the tracks Pick Four wager to four percent. Even with many outlets refusing to take the bet, Pick Four handle nearly doubled from $19,282 daily to $35,085.

Also in competition with Saratoga and Del Mar, there was no trickle down from the Pick Four to individual races. Geary will not decide until early next year whether to continue the experiment. In order to get it off the ground, there was much political compromise on how the lower revenues would be split. Outside the Commonwealth and in Maryland, for that matter, there was much gnashing of teeth over signal fees and projected lower revenues.

The area for growth everyone agreed on was the positive effect innovative wagers and fractional betting, such as dime superfectas and fifty-cent trifectas, had on handle.

But, once again, tracks objected to fractional betting, citing extraordinary gains in superfecta wagering with the new minimums but a cannibalization of other pools such as the trifecta and exacta.

Of course, this thinking is short-sighted. With superfecta payoffs being at least four times greater on average than trifectas, discerning players rightfully figured that the leverage provided by fractional betting more than compensated for the higher degree of difficulty.

The smaller exacta handle cited by some lower-tier tracks that experienced superfecta gains is counter-intuitive. Exactas are a perfect leveraging wager for superfecta players, at least from a personal perspective and bettors we talk with. Or maybe players simply prefer more bang for their buck. Everyone likes to bet a little to win a lot.

The $2 Magna Five was given as an example of how tracks successfully increased bottom line revenues. But the figures provided ignored other factors. Widely promoted, the Pick Five is a national wager combining races from as many as three tracks, two of them winter juggernauts Gulfstream Park and Santa Anita. The races often feature popular graded stakes.

The wonder is whether a $1 Pick Five would turn a mid-six-figure weekly handle into a seven- figure one. Contrarily, the MEC brain trust believes that carryovers produce a greater windfall the following week, increasing revenue overall, while in the interim they collect interest on the carryover money.

In terms of how takeout affects revenue optimization, modern math experts believe the rate of take that optimizes revenue lies between eight and 10 percent, which shows how much times have changed.

In March of 1991, the University of Louisville commissioned a study to determine the optimum rate of takeout. It was found at the time, when simulcasting was in its infancy, that number was 12.5 percent. Based on that figure, Raffetto came up with a blue skies scenario:

This would work best at tracks with slots to offset short-term losses, he explained. In a perfect world, takeout at all tracks would be 12.5 percent. All outlets then would have to agree to charge no more than 2.5 percent for its signal. The shortfall could be made up by charging rebate shops 4.5 percent.

Those figures might need some tweaking, but these rates would level the playing field for all bettors and optimize profits by structuring the precise price at which demand meets supply.

Because rebate shops boast huge per capita handle and low overhead, they can afford a fee increase and still operate profitably. This way, the small bettor can win the same proportionate amount as the whale. And while the whale gets a lower rebate rate, he still enjoys the benefits of lower takeout, a win-win.

Unless tracks and their states realize they would benefit more from getting a smaller slice of a much larger pie, that pie will remain where it is right now: In the sky.

Written by John Pricci

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Sunday, September 16, 2007

Coach Belichick Forfeits His Legacy

Racing is always attacked from all sides whenever the subject of integrity is broached. I contend that, despite its flaws, its the best policed game in the world of sports. And its precisely because the betting on it is legal.

Fans have recently learned that major sports--upon which there is much illegal wagering-- might be the real culprits in the cheaters arenas.

We know, for instance, that at least one NBA referee cheats. New York Giants manager Leo Durocher was legendary for taking a cheaters edge. With a pair of field glasses he raised the practice of sign stealing to an art form.

Just ask any remaining living member of those Brooklyn Dodgers baseball teams of the 1950s.

And now we know for sure that the eminently dislikable Bill Belichick--recall his disingenuous congratulatory handshake with Peyton Manning following last years Super Bowl and his boorish press conferences nearly every week--doesnt place sportsmanship high on his to-do list.

So now Belichick joins the ranks of cheaters for having stolen defensive signals in his season opening victory over a hated divisional rival and former assistant coach, Eric Mangenius, of the New York Jets.

The most condemning aspect in Laffaire Belichick is that he went high tech to do it. Indeed, its a lot easier to put a hat on a blitzing linebacker when you know hes coming off the weak side so that you can isolate your best receiver in man coverage.

But that doesnt insure victory for the cheater. King Football, so-called because it attracts more wagering than any other sport, illegal or otherwise, and is, arguably more than any other sport, about one thing: Execution.

Just because you know exactly whats coming doesnt mean you automatically can do anything about it. Just ask a remaining living member of any defensive unit that tried to stop the Green Bay Packers power sweep in the 1960s.

Call me cynical but I regard sign stealing--by definition, cheating--as little more than advanced gamesmanship. What makes signal stealing any different from putting footballs in a freezer to deaden them, or over-watering the playing field?

What about supplying sneakers to the home team in the second half after the tundra actually froze? The Giants beat the Bears in a title game that way.

Commissioner Roger Goodell did a good job doling out punishment. Maybe $250,000 is a drop in the corporate bucket, but a half million dollars is a lot of money for any coach. It really hurts and thats all it needs to do.

The loss of a first round draft pick can punish even a playoff team for years, as would the loss of a second and third round choice for a non-playoff outfit.

Belichicks punishment goes beyond money. His legacy, should he win one more championship, would have been assured, given the nature of a singular achievement. Instead, he always will be the coach who cheated. Then theres the matter of looking his own and other children in the eye, punishment sure to last a lifetime.

Goodells sentence was strong and commensurate with the crime. A forfeit in a 16-game season would have been over the top, punishing many innocent players along with a guilty coach.

The New England Patriots beat the New York Jets handily last week not because they took an edge but because they were, and are, the superior football team. Perhaps Belichick should have been fined one more penny. What were you thinking, coach?

Written by John Pricci

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Thursday, September 13, 2007

State Politics Deliver Another Blow to New York Racing

Saratoga Springs, NY--Given the state of affairs in Washington and Albany, it has become increasingly difficult--if not impossible--to believe that this country, and especially this state, will ever resolve the issues that affect its taxpaying citizenry the most.

For five years, taxpayers and horseplayers in New York State have been awaiting a resolution to New Yorks racing franchise issue. And if you dont believe that top class racing translates into dollars for state run programs, see the record handle figures for the recent Saratoga race meet.

Reasonable people would assume the process is finally in its 11th hour. After all, Gov. Eliot Spitzer recommended on Sept. 4 that the New York Racing Association retain the franchise for 30 years while ceding title of its three racetrack properties to the state.

Spitzers decision was rubber stamped almost immediately by House Speaker Sheldon Silver, a member of the same political party. But everyone expected that the Memorandum of Understanding would meet strong opposition from the other side of the aisle by powerful members of the State Senate at their meeting, Sept. 12.

There is only one conclusion that can be drawn after the State Senate hearing: The hijacking of our system of government is almost complete.
The only thing that matters in politics anymore is politics. Abuses of power, at every level, are rampant. True dialogue doesnt exist, only a series of monologues. The result is that problem solving in government no longer can be accomplished in an honest, efficient, economical fashion.

And horseplayers are not the only losers here.

There may be only one man capable of solving racings problems fairly for all involved parties and for the citizens of New York State; Bennett Liebman. A former racing commissioner, Liebman lost that job years ago because at the time he was perched on the wrong side of the aisle. He is now acting director of the Albany Law School racing and wagering program.

Speaking before the Senate panel, Liebman said that NYRA was a reasonable choice to run the franchise, but that provisions in the Memorandum of Understanding returns less video lottery money to horsemen than under previous accords, and that there were no safeguards requiring that NYRA officials and its board operate transparently.

Liebman said that the governors decision was based on a final inspector generals report that was extraordinarily sloppy and a particularly bad product. The fact that NYRA had pleaded guilty to felony charges and had not paid its taxes didnt appear to be part of the decision- making process.

The professor also was critical of the controversial findings of the state monitoring firm Getnick & Getnick declaring the existence of a new NYRA when, in Liebmans view, it is not enough to proclaim reform at NYRA but to achieve reform at NYRA. If you believe NYRA is transparent, you have blinders on, Liebman concluded.

Liebmans remarks that the original intent of a VLT operation at Aqueduct--to provide money for education and to insure New York racings preeminence in the industry--fell short of the mark especially rang true.

Under the terms of the MOU, 7% percent would go to NYRA for operating expenses and capital improvements, and 6.5% for purses. Originally NYRA had agreed to distribute more, on a sliding scale 7.5% of gross gaming revenues to purses for the first three years, 7.75% in years four and five, and 10 percent in year six and beyond. The share to the breeders was constant at 1.25%.

Along with the reduction to 6.5% for purses, the breeders share would be lowered to 1%. Considering that Spitzers proposal would forgive NYRA $130 million in existing debt to the state and give them $75 million more so that NYRA can clear bankruptcy and pass clear title of the land on to the state, the governors proposal certainly seems exceedingly generous. Which raises a question.

One of the four franchise bidders, Excelsior Racing, was awarded the rights by the Ad Hoc Committee on Racing appointed by previous Governor George Pataki. Did Spitzers advisors and the inspector general ever bother to check the proposal made by the original awardees?

Excelsiors proposal not only promised the same higher purse distributions from VLT revenue as the original NYRA accord, but it proposed to raise the percentage of the gross gaming revenue to the New York Breeding and Development Fund from 1.25% to 2% which, based on projections, meant $11 million more for the breeders.

Under the Excelsior plan, it was proposed the breeders would also receive 5% of out-of-state simulcast revenue, worth another $3 million annually. How did that get by everybody before Spitzer declared NYRA the winner of the franchise derby?

Worse, the fine print in the MOU indicates that the 6.5% figure allotted for purses is a capped maximum, as is 1% for the breeders. The real numbers starting out are more like 4.7% for purses and .7% for the breeders, begging a third question.

Why did the Spitzer administration proclaim this a great deal for racing when it allowed less to purses and breeders? It hadnt even equaled the original NYRA agreement, and was demonstrably less than what was proposed by Excelsior in the original Request for Proposal process. The truth is we may never know how this happened.

As Liebman suggested, there is no transparency. NYRA is not in the habit of disclosing the minutes of its board meetings nor its attendees. For instance, was board member Barry Ostrager, president of the New York Thoroughbred Breeders Assn., in attendance when the board agreed to distribute a lesser share to the breeders? Was he indeed a lone voice crying in the wilderness? And isnt his presence on the NYRA board a potential conflict of interest in the first place?

Of course, the other side is no better. Does the thoroughbred-loving Senate Majority Leader Joseph Bruno truly believe its in New York racings best interests to be run by more than one racetrack operator? Does he see no conflicting agenda there? In the 1970s, off-track betting was created which essentially competed with the tracks for the same customers. Now powerful out of state for-profit companies would come here to run this circuits other tracks? And this is a good thing?

Bruno knows better and eventually his agenda will be made known. In the meantime, however, he has promised there will be a lot of changes and the MOU is not going to be the final product. Until then, Brunos solution is no solution and hell wait for a shoe to drop.

Finally, after the MOU and the Senate Committee hearing in the past 10 days, we are no closer to knowing what will happen to New York racings future than we were in 2001 when, by the way, NYRA did not join the VLT coalition, help in the legislative efforts and tried to prevent Saratoga Harness from getting its VLT machines.

And what now? Bring Australia-based Capital Play to the table, a group that proposed raising parimutuel takeout by a devastatingly destructive five percent?

Or maybe invite Empire Racing to come in, replete with its proposed two percent takeout increase and with a casino partner, Delaware North, that gave Saratoga harness horsemen the lowest share of the gross gaming revenue possible, refused to fix horrendous backstretch conditions unless it came from the horsemens pockets and, seemingly on purpose, failed to integrate VLT and racing operations. And, of course, the improvements yet to be made at Finger Lakes from its VLT operations.

Liebman, one of the best legal minds on racing anywhere in this country and a man of integrity, passion and fortitude, said it best: I have to wonder if state government can get anything right."

Written by John Pricci

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