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Here's a vote for Laurel's noble experiment
WASHINGTON - The 10 days of racing that begin Friday at Laurel Park would ordinarily be forgettable. But this short race meeting will attract attention throughout the U.S. parimutuel industry.
For these 10 days, Laurel will slash its takeout rate - the price it charges for a bet - to the lowest level in the nation and probably the lowest in the world. Typically, U.S. racetracks take about 20 cents from every dollar wagered - money that funds purses, provides operating expenses and profits for the track, and yields taxes to the state. The takeout rate nationally is around 20 per cent, but it varies from place to place and wager to wager. The take from a win bet at Saratoga is 15 percent; from a trifecta at Philadelphia Park, an extortionate 30 percent.
At Laurel, for 10 blissful days, the takeout will average an unheard-of 11.4 percent.
The reduction is the idea of Lou Raffetto, the track's president, who sought to promote a race meeting that exists to fill an awkward gap on the Thoroughbred schedule between closing day at Colonial Downs and opening day at Timonium. Raffetto said, "Once we agreed to run these dates, we asked ourselves, 'How are we going to be competitive in the marketplace?' We thought a reduction in takeout would get everyone's attention. We're listening to the experts who say that if you cut the takeout you can grow your business."
Only in horse racing would it be a novel concept that the price of the product has something to do with a business' success or failure. For decades, leaders of the industry thought that whenever they needed revenue they could raise takeout with impunity. Track owners would say: Nobody is going to notice if an exacta pays $78.60 instead of $83.20. So over the years, takeout crept up, up, up.
In the 1980s, Maury Wolff, an Alexandria, Va. economist and gambler, produced a study that showed how increasing the cost of a bet affected business. When a Thoroughbred, harness or greyhound track boosted its takeout, its handle (i.e., its betting totals) would usually decline. In 1986, the dog track in Wheeling, W. Va. had a takeout rate of 16.5 and was doing about $261,000 a day in business. It raised the takeout to 19.2 the next season and its handle dropped to $238,000 a day. In 1989, its takeout rate was above 20 percent and the handle fell below $190,000. At track after track, Wolff found the same correlation; raise your prices and your business suffers.
No, bettors probably didn't notice if an exacta paid $78.60 instead of $83.20. But over time, the higher takeout eroded their bankrolls so they had less and less money to churn through the betting windows. Ultimately, the size of the takeout may determine whether a horseplayer chooses to keep on gambling. If a bettor pushes $500,000 through the windows during the course of a year and ekes out a $10,000 profit, he's a happy and dedicated racing customer. Raise the takeout by 4 percent, and his bottom line turns into a $10,000 loss. If he decides he's wasting his time playing the horses, the sport might lose him as a customer entirely.
After takeout rates inched higher for decades, the betting world began to undergo radical changes - the advent of simulcasting, the proliferation of telephone and online betting services. With these changes, said Wolff, "The market has changed in favor of the customer."
Racetracks generate most of their wagering by selling their product to other tracks as well as phone and online betting services. The host track receives a flat fee - typically around 3 percent of the handle - while the seller gets the remainder of the 20 percent takeout. Such deals have made possible the rise of so-called "rebate shops," phone-betting operations that give back to high-end bettors as much as 10 percent of the money they wager. By doing so, they siphon away a track's best customers.
A track such as Laurel can no longer raise takeout and expect to generate significant extra revenue. It still would collect the same 3 percent or so that it receives from the outlets buying the Laurel signal. It would pocket more money from its on-track customers, but because the on-track business at Laurel is moribund already, trying to squeeze a few extra dollars out of a dwindling, long-suffering fan base would not be a productive move.
Accordingly, some tracks are experimenting with takeout reduction as a way to boost business. Kentucky's Ellis Park this summer has offered a pick four with a 4 percent takeout - a change that has more than doubled wagering on that bet. Rosecroft Raceway is offering a promotion this month that features a 1 percent takeout on Saturdays. But nothing has been so dramatic as what Laurel is about to do. The takeout on win, place, and show wagers will drop from 18 per cent to 11; on exactas and doubles, from 21 to 12; and on trifectas and superfectas from 25.75 to 10.75.
This adds up to significant money for bettors. A trifecta that returned $200 before the reduction would pay $240 now.
Unfortunately, the Laurel experiment is too brief to yield any definitive results. It takes time for serious players to learn about a new track, and it is doubtful that many will shift their attention to Maryland for a 10-day meeting. Moreover, in the modern simulcasting world, any evidence about the impact of a takeout reduction is going to be muddied.
A bettor at Laurel might collect a juicy $240 trifecta and then turn around and invest his winnings in a tri at Philadelphia Park with a 30 percent takeout.
Even though Laurel's takeout reduction is likely to be inconclusive, other racetrack operators will be watching to see if it boosts business, and horseplayers should try to give them some positive reinforcement. While bettors normally concentrate their attention on Saratoga and Del Mar at this time of year, they should bet Laurel, too, trying not only to collect some inflated payoffs but also to support a noble experiment.
(c) 2007 The Washington Post