If you’re a serious horseplayer wagering serious money, the news out of Kansas City earlier this week wasn’t promising. Of greater significance, it doesn’t 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--wasn’t 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 didn’t have a fair chance because they weren’t given nearly enough time, especially Laurel’s 10-day stand.

The third is the nature of simulcasting itself.
Starting in the 1970s at the New York tracks, the NYRA’s 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 didn’t 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. We’re 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 don’t 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 track’s 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.