Saturday, August 18, 2012
Rebates v Takeout: On Leveling the Playing Field
August 17, 2012--Bennett Liebman, Governor Andrew Cuomo's consultant on all things gaming, equates gambling on races to purchasing consumer items and regards rebates as “free-enterprise ingenuity.” What he didn’t consider, perhaps, is that racing’s customers aren’t simply consumers, they’re competitors.
Unlike fixed-odds events in casino games and sports betting whose customers “play against the house,” racing’s customers themselves determine what the payoff for winners will be. Thus the “free market” is already built-in to racing and it is being tampered with to make it likelier that bettors with the biggest bankrolls will be profitable.
The “ingenuity” that spawned rebating is the same as that which divined off-shore bank accounts, tax shelters, skimming, and other vehicles to divert funds away from their intended destinations.
Even if the ethics involved weren’t suspect, the capacity of rebating to support money laundering, book-making, and excess Advance Deposit Wagering profits (at host track expense), should be a sufficient deterrent.
The rebate “problem” is a takeout problem. Rebates are possible only when direct takeout rates are too high. If rates weren’t excessive, there would be no “wriggle-room” to subsidize a favored few while fleecing the rest.
Not all venues want to keep the playing field tilted against recreational bettors, but they are reluctant to lower takeout rates; afraid of a precipitous drop in revenue if the rates decrease doesn’t immediately fuel a handle increase. They also fear the formerly-rebated will reduce their play without their virtually insurmountable advantage.
Although I was unsuccessful in accessing any examples, perhaps Mr. Liebman subsequently explored alternatives to selective rebating of individuals that could be considered more equitable approaches for ALL bettors/customers. I can suggest at least three and, hopefully, this article will inspire more.
I’ll use the term “Qualifying Pari-mutuel Pool” (QPP) to represent any pool in which an equitable adjustment to payoffs will be authorized once defined levels of handle are reached:
(1) Paying rebates at an equal rate to all participants of any QPP regardless of an individual’s wager size
(2) Paying bonuses at an equal rate to all winners in a QPP
(3) Dynamically lowering equal direct takeout for all participants in every QPP
(4) Others to be determined
Multiple objectives are involved:
(a) Restore a level playing field on which competitors of all bankroll sizes have an equal opportunity to come out ahead given sufficient skills, information, and good fortune.
(b) Increase long-term handle at levels capable of supporting purses, operations, and capital improvements as well as generate revenue for appropriate taxing entities.
(c) Minimize short-term cost of adjustments to existing process
(d) Increase popularity of racing and attendance through greater opportunity and transparency
What is required is a commitment to continually experiment with takeout strategies to find the “optimal” level of direct takeout in support of (b) for each wager-type/race-condition combination at each race meeting. As the relationship among wagering competitors changes so should the distribution of wagers. Depending on the priorities established, some combination of (1) through (4) may be appropriate.
One approach to experimenting, while attempting to minimize negative initial impact, would be to first concentrate on pools where whales actually participate. The TRPB should already know that by now. Handle thresholds for each member of the QPP subset could be established to automatically adjust takeout rates once handle reaches the next defined level.
Of course, bet cancelation policies would be a factor, but - as the rebaters have already demonstrated – where there’s a will there’s a way. We just need guys in white hats establishing the criteria, ensuring
they are legitimately met.
It’s my understanding that rebated players were not affected by the 1% overcharge to NYRA customers that the Administration deemed a “scandal” justifying its intervention. That 1% is dwarfed by the 5% minimum rebate that the average player is effectively also overcharged; making rebates racing’s real takeout scandal.
If the state is going to run racing in New York, then there is no justification whatsoever for its providing an “edge” to a tiny subset of its customers comprised predominantly of professional gamblers that is not extended to the overwhelming majority of recreational bettors that includes New York residents, voters, and taxpayers.
Level the playing field, Mr. Liebman, for horseplayers as well as for horsemen.
It should be clear to anyone who has actually sampled the wealth of Liebman’s work available on the Internet, that the man has carefully considered, clearly articulated, and occasionally debated a preponderance of the issues that need to be addressed by the NYRA Board and executives.
The optimist in me believes that at least some needed reform will result from the Cuomo-Liebman connection. On the other hand, there is no guarantee that the Governor will agree with his advisor’s recommendations and priorities, or that he has the political will to overcome established opposition to some of them.
The Governor, the Senate, and the Assembly should not make their chosen board appointments a “fait accompli” without feedback from concerned parties outside the government, politics, and “Old” NYRA – all of which Liebman himself has been a part. The sooner the Administration resumes open communication with the media regarding the takeover of NYRA, the more likely it is that the entire racing community will benefit from the Governor’s act.
Written by Indulto
Friday, August 17, 2012
Rooting for Bennett Liebman and New York Racing
August 16, 2012--As the process of finding “new” NYRA Board appointees continues outside the hearing and view of the media, the resulting information vacuum has so far spurred more negative speculation than positive expectation. Indeed the prolonged silence from long-standing, transparency-in-New-York-racing advocate, Bennett Liebman, leaves the impression he is being held incommunicado.
With nearly a quarter-century’s experience dealing with racing’s administrative, political, legal, and ethical issues - documented through extensive public communication of his positions on those issues – Liebman is certainly the best-known (and arguably most-qualified) advisor on racing that New York Gov. Andrew Cuomo could have chosen. Not many merit a favorable endorsement, such as Paul Moran’s “Appointing Liebman a good start” (http://espn.go.com/blog/new-york/horse-racing/tag/_/name/bennett-liebman
Perhaps by reviewing some of Liebman’s archived opinions, we can anticipate the characteristics of new NYRA board members and what their objectives might be. Prior to becoming Cuomo’s Deputy Secretary for Gaming and Racing, Liebman himself served on the NYRA Board as an appointee of Gov. David Paterson.
Liebman’s lone vote against pay raises for NYRA executives proved prophetic. It may have also reflected his thoughts from a February, 2006 article, “NYRA Trustees and the Duty of Loyalty: The Koala in the Board Room,” (http://www.governmentlaw.org/files/nyra_trustee_loyalty.pdf
), in which he wrote, “The concept that board members owe a duty of loyalty to the New York Racing Association ought to be an issue for every one concerned with New York racing. …
The NYRA Board’s federal monitor – working with the State Comptroller and the NYRA board itself – should be establishing specific guidelines and standards … Board member understanding of their duties at NYRA can only help create a more transparent, better-governed NYRA, which should be in the best interest of the sport of horse racing in New York State.”
In his September, 2007 “Prepared Remarks to the New York State Senate Committee on Racing Gaming and Wagering” (http://www.governmentlaw.org/files/LarkinPresentation.pdf
), Liebman confirmed his credentials as a champion of racing’s customers’ interests.
“What we want in a franchise holder is what is best for the fans of horse racing.
"That means the best quality racing at the best price, at the best facilities, and with an assurance of fairness in the racing.… it’s the one sport where the fans through their wagering dollars are true participants in the game. If we aren’t working for the fans of racing in government, we’re not working at all.”
Fewer of Liebman’s quotes appeared in other writers’ articles during his tenure on the NYRA board, but his perspective as a racing fan was expressed more frequently in his own blog for the N.Y. Times. Among the issues he covered in “Reasons for the Decline of Horse Racing” (http://therail.blogs.nytimes.com/2010/06/06/reasons-for-the-decline-of-horse-racing/
“…Takeout Issues. Again, maybe this didn’t matter when racing was the only game in town, but how with a 20 percent overall takeout does it compete with slots (a 5 to 10 percent takeout), and many table games (skill games such as blackjack and poker) which give you an even better chance at winning. When you hear from the major rebate shops, that without the rebate, even their most skilled players almost never beat the takeout, you wonder why you play the game.”
My personal concerns with Liebman’s stated positions involve the issue of rebates, In his November, 2003 piece, “What Do We Do About Rebates?” (http://www.governmentlaw.org/files/rebate.pdf
) and later in his March, 2004 presentation, “Rebates and Takeout: Can Racing Satisfy Its Biggest Customers and Still Survive?” (http://www.harnesstracks.com/2004_annual_meeting/Rebates_And_Takeout.htm
), Liebman supported the practice of selective rebating based on wagering volume despite recognizing its opposition. The remaining quotes preserve the full context of Mr. Liebman’s remarks. His concept of “player equality” struck me as somewhat Orwellian.
In the earlier piece, Liebman wrote, “…Who wouldn’t want to get more bang from their gambling buck? Who wouldn’t want a 50% discount off the retail price of a bet? …
“If takeout at an average American [track] is 20%, the rebaters are likely to give between 5% and 12% back to their major bettors. …
“Proponents believe that it has the capacity to significantly increase handle in horse racing. Bettors who win or who lose far less are likely to increase the size and frequency of their bets. …
“Opponents of rebates believe that it creates a two-tier system in racing where only the $2 bettors pay more. They believe it ends the mutuality in the pari-mutuel system. …
"So the idea should be to devise a system of rebates that maximizes the benefits of the rebates while minimizing their downside. We want a system that encourages innovation, increases handle, contributes to the overall benefit of the industry, and treats all players equally. … To assure equal treatment of bettors, the determination of the size of rebates should be determined only by objective factors.”
In the later article, Liebman argued, “…Rebates are here to stay. Let’s make sure they work for the entire industry. Here are the five goals that a coherent, rational rebate system ought to fulfill:
: Let’s develop a system where everybody knows where the rebates are. Let’s make sure that the rebates are open and available to all eligible customers. Let’s fully disclose the extent of the rebates to enable tracks and horsemen to make intelligent use of their simulcast decision-making status under the Interstate Horse Racing Act, and Let’s disclose the rebates to the customers so they know which rebate service or which track they should be betting at.
: let’s begin by recognizing that the free market has come to horse racing. Maury and Dave and others have just taken their business to Wal-Mart instead of Woolworth’s. They are buying their Calvin Klein jeans at Sam’s Club, not from the CK store. Under these circumstances, governments setting the takeout rates need to react so that racetracks don’t just turn into Woolworth. Fairness to bettors, who are also taxpayers, requires lower takeout rates. We have established a system where horse racing is largely uncompetitive with casino gambling. As casino gambling spreads throughout urban and eastern America, racing will need to lower takeout rates. They have to realize that a fair parimutuel system is one that does not gouge its customers.
overall legalization of rebates allows racetracks to be flexible. As I have said before, the market is now in control of racing. If racetracks want to be in the rebate game, there is no longer any reason for them not to be. It is absurd to see casinos and racinos offering rebates to their casino customers through player reward cards while being unable to offer rebates to their racing customers. Let’s s at least get our tracks in the game.
: and I have not heard anyone discuss this. The reason for our parimutuel system is mutuality. All bettors are supposed to be treated equally. This has legitimized and distinguished our system of wagering from the old bookmaking system where bettors were not treated equally. In fact, there is an element of unfairness in offering rebates to a select few. My suggestion is to realize that mutuality does not require arithmetical, exact treatment. All it requires is that all people are eligible to have the opportunity to receive rebates. Make it the Discover card for racing--bet $100, get back two percent, bet $1000, get back five. Everyone can’t participate. Their level of participation determines the reward. What is wrong with that?
One thing that might be wrong is the criteria for a rebate. Now if I am running a track, and I can do anything I want to with a rebate, I am giving them to horsemen and owners. That will keep them racing as many horses as possible at my track. I am giving rebates to friends and contributors to the governor and leaders. Unfortunately, that is not what we want. That would be wrong. The criteria for rebates should be limited to the amount of wagering, the types of bets, and the tracks on which the player is betting. Again, the point of a responsible rebate system should be to preserve mutuality. Every bettor ought to be potentially eligible for the same rewards.
this open mutuel system lets us see what is going on. We can tell if someone is sending their wagers through different hubs. We can track bets. We know what is happening. A rebate system with these elements can give players more confidence in the system and can help regulators track suspicious wagers more efficiently.”
The reader may recognize some “Doublespeak” in the preceding quote as defined by George Orwell in his novel, “1984.” If not, then perhaps the relevance to paraphrasing Orwell in another of his novels, “Animal Farm,” - All bettors are created equal, but some bettors are more equal than others - is more obvious.
TOMORROW: Rebates v Takeout, Leveling the Playing Field
Written by Indulto
Monday, August 06, 2012
On the Backside or Frontside, Racing’s a Numbers Game
In an era where horses struggle to compete at classic distances, the 9-furlong Haskell offered three-year-olds the best first post-Triple Crown opportunity for a Grade 1 win and a million dollar purse.
You’d think trainers would be lining up at the entry box but this year’s renewal, won by Paynter, attracted only 6 starters; hardly a vertical exotic player’s dream and a surprising disappointment to the leadership of the horseman-operated Monmouth meet struggling to stay solvent.
The Grade 2 Jim Dandy at Saratoga, run the same weekend, historically has cannibalized the Haskell field. But now that NYRA also cards the ungraded Curlin at the same distance as the two graded stakes, fields shorter on quality and entrants is virtually guaranteed.
One thing seems certain; without slots revenue to fuel purses--a situation to which NYRA could revert—all tracks will have to alter their strategy for funding marquee events.
In a breakthrough if not breathtaking announcement, Churchill Downs introduced a change to the eligibility criteria for its Kentucky Derby. No longer would earnings determine which horses entered the Derby starting gate. Rather, performances in fewer qualifying events regardless of purse size will determine eligibility.
Stronger fields are the expected result for an event in which field size is now never less than excessive. No other race enjoys such urgency of participation among horsemen. It remains to be seen how the purses of the impacted preps will be affected in the future.
However, it’s the relevance of the established system for grading stakes races that is the real victim of CDI’s ground-shaking edict. Indeed the current process is a controversial, subjective one where the quality of competition in actual races is not as important as subsequent performances in fields that may have been diluted by injury and non-cooperative scheduling.
Although perhaps suitable for juveniles, current grading is a better tool for breeding than handicapping--or for qualifying performances for either race eligibility or Eclipse awards.
I can’t argue with those who feel there are too many graded events for the good of the game, especially in the light of steep declines in recent foal crops. If there were a National Horse Racing Commission (NHRC), it could trim the fat from stakes schedules more equitably and eliminate divisional conflicts.
Absent that, the answer may be to ensure that horses are rewarded with purses and graded-based rankings that more accurately reflect what actually happened on the track, and which horses showed up to compete.
We could start by reducing the purses of all graded stakes to the minimum for its current grade and then increment it by an amount assigned to the highest [and/or latest?] graded-stakes Win-Place-Show performances of each entrant.
Now, suppose any stakes race for older horses could receive an automatic upgrade effective when the starting gate opened for a full field of graded-stakes winners with a specified minimum number of winners at levels above the original grading for the race?
Further suppose that any graded stakes race would similarly receive an automatic downgrade if no graded stakes winner at the original level or above were in the field?
With some adjustment, such a system could maintain itself without questionable choices by a committee of breeders. If the horses won’t go to the mountain to compete, let the mountain come to where they will compete and when.
Where is it written that excess leads to success, anyway? Graded stakes aren’t the only races suffering from small field sizes, but motivations differ between connections of horses seen to still have a future and those whose horses only have a present: One could argue that the likelihood of increasing field size by increasing purse size is inversely proportional to the value of the horses involved.
There is increasing evidence suggesting excess leads to even more excess. The industry is awaiting results of a study of breakdowns in low-level claiming races whose purses were elevated by slot subsidies to nearly 5 times their claiming price. The fear is that such reward relative to risk reduces inhibitions to run horses of questionable soundness.
That spotlight on subsidies to horsemen should be shared by subsidies to horseplayers through rebates on wagers placed predominantly on non-stakes races, if only due to their overwhelming numbers: Non-stakes handle is dependent upon racing’s core customers, i.e., the dedicated, the determined, and the deep pocketed; whereas stakes races attract media attention and recreational handle as well.
Excessive takeout, excessive purses, and excessive margins awarded to off-track bet-takers have combined to destroy what was once a symbiotic relationship between horsemen, track operators, and horseplayers. By failing to maintain the delicate but workable balance between takeout, handle and purses, racing’s “leadership” has already lost several generations of customers.
Excessive direct takeout rates enable off-track bet-takers to play Robin Hood in reverse, i.e., rob the “poor” to give to the “rich.” The practice of rebating players selectively based on their wagering volume (and/or state of residence) is based on the premise that a smaller piece of a larger pie is more profitable to the bet-taker. Few foresaw that the pie would eventually shrink because players either fell off the tilted playing field or were turned off by it; never to return or be replaced.
If direct takeout were equally lower for all bettors, more money would be returned to all winners in the form of higher pari-mutuel payoffs. What’s happening instead is that some players are being rebated an amount reflecting a portion of the high direct takeout on their wagers which is “returned” whether the bet itself wins or loses.
The benefits to those recipients are at least five-fold: 1) the effective takeout rate is lower on their wagers, 2) the effective return on straight wager investment is higher, 3) more exotic wager combinations can be purchased for the same actual outlay, 4) there is always something left to churn the next time and 5) a marginally unprofitable player might be turned into a profitable one.
The practice is defended --by its beneficiaries as well as its enablers -- as discounts on volume purchases to their best customers and with claims that the overwhelming majority of players are not profitable anyway.
A friend of mine sees the categories of winners and losers as being in a state of flux--containing most players at one time or another. Such statistics are somewhat dubious. When it’s “winning time,”, whether the game is slots, sports, craps, cards, or Thoroughbred racing, one wants the full benefit of ending up a winner.
Written by Indulto