SARATOGA SPRINGS, NY, April 17, 2014—I was trying to think of a possible headline to address the recent takeout increase at the upcoming Churchill Downs spring meet and “tone deaf” immediately came to mind.

Almost instantly, however, that description was too moderate to define this absolute unknowing decision in terms of what’s been learned about the economics of parimutuel takeout in recent years.

HorseRaceInsider has written extensively on this subject since 2010. What I have to say now I’ve said over and over and over and over again. Other websites and bloggers have done the same during the same period of time.

Can racetrack institutions and horsemen’s groups really be this obtuse?

Horseplayers often disagree; it’s in their DNA, their differences making all things a horse race. On this topic, however, they speak with one voice, with the exception of the top four or five percent that account for roughly 25 percent of total handle.

Those bettors, and the tracks that covet and woo them, do so via a rebate system that reimburses personal handle somewhere in the neighborhood of 8 percent. It’s in their vested interest to keep takeout rates high.

They apparently never consider that the laws of diminishing returns will hurt them in the long term. But never mind the long term; get the quick fox now and the hell with tomorrow.

Our position, as Cary Fotias always explained, is that a takeout reduction is the universal rebate the game needs to survive, much less prosper.

If rebates to the best customers were THE answer, why hasn’t this approach helped put a fiscal finger in the dike of a national handle decline of 30 percent in non-inflation-adjusted dollars since reaching its zenith of $15.1 billion in 2003?

The causes for racing’s slide are myriad and can be recited from memory by anyone even remotely tethered to the industry. Undeniably, the biggest reason is that the game’s rank and file have been walking away in droves. And why?

Because they are losing their money at a faster rate than any other popular form of gambling that benefits from residue of “square money.” If racing is to survive its challenges, keeping the fan base liquid longer is a must.

With continued high takeout, the “sharps” will continue to cannibalize each other. As the fictional Larry the Liquidator once opined: continue taking a bigger slice from a smaller pie, down the tubes.”

Unlike Churchill Downs Inc., there are other wagering companies that get it and have done something about it: The introduction of a fractional low-takeout “Players Pick 5” at Santa Anita reversed the negative trends created by the player boycott of 2010.

Die by the Horseplayers Association of North America, who supported the Santa Anita boycott; live by the Horseplayers Association of North America, who introduced the Players Pick 5 concept. *The boycott was spearheaded by the Players Boycott.org.

In that case, and virtually all others, lower-takeout fractional bets have not only grown handle significantly but has had positive, unintended consequences of increasing handle in the vertical pools of “Pick” races and in its sub-sets--Pick 4, Pick 3 and Doubles—working at once as an optimizing and hedging mechanism.

The unintended bad consequence is that, even for top “Pick” practitioners, it’s a long time between drinks. Without a significant bankroll, it’s nearly impossible for the average bettor, defined here as a fan starting with $200 per wagering session, to sustain droughts.

There never have been long term studies of the effects a reduced takeout. Tracks, horsemen and the states simply don’t have the patience or believe they’re entitled.

However, every significant short-term study I’ve seen, dating back to the 1970s in New York, has shown that reduced takeout increases churn, understanding that the more money returned to winning bettors the more they bet in return. Call it human nature.

The problem with low takeout “Pick” wagers is that they don’t allow for churn in straight pools and betting to win only is still the most efficient route to horseplaying success. Unfortunately, we’ve become so inured to instant gratification that making a score via complex wagers proves too tempting and for casual players and weekend warriors, too much fun.

The rake on losing wagers remains 100 percent.

With respect to the Churchill increase, it’s amazing how non-gambling execs put pen to paper and came up with a percentage increase they believe will raise money for purses and increase revenue, hanging their decision on the Derby’s extreme popularity.

The problem comes in the Fall meet when lower handle will result in reduced purses or fewer races.

If Churchill executives haven’t learned anything from the past re the economics of player liquidity and churn, they probably also are underestimating the resolve of today’s horseplayers that have become an Internet force to be reckoned with.

Horseplayers, through the auspices of HANA and various social media are united as never before. Chat rooms, forums and player-centric sites like HRI are full of players set to boycott Churchill Downs racing, including the Kentucky Derby.

Many of those have closed their Twinspires wagering accounts and the idea of an organized boycott is gaining momentum. Players have demonstrated their disapproval in the past by not supporting racetracks they view as player-hostile, choosing instead to make their wagers on player-friendly circuits.

For an example of how increased takeout results in handle loss and vice versa, the Equinometry website has a comprehensive study based on the California that goes beyond the player boycott at Santa Anita’s in 2010 into 2011. The trend began to reverse in 2012 and 2013 due to the low-takeout Pick 5 cited above. (

Parenthetically, checkout Tom LaMarra's Wednesday post on the Bloodhorse site which contains excellent background on simulcasting.

While CDI is certain to make revenue gains in the short term because of the unusually high number of Oaks-Derby fans, price sensitivity won’t be a strong factor until Fall when rank and file horseplayers again will dominate the pools.

To reiterate: Increasing takeout decreases handle. Lowering takeout increases handle. Boycotts have been very effective in the past and players are more united than ever. Very interested to see how this one shakes out going forward.

*Correction addendum posted 10:33 am 041814