Horseplayers disagree with California's plan to raise takeout on exotic bets

The business world generally agrees that the last option for a struggling industry should be raising prices. But the California racing industry is contemplating just that option in legislation that would boost the takeout on exotic and superexotic wagers by 2 or 3 points.

Racetrack executives contend that the increase would funnel more money to purses, entice more owners to enter races and, ultimately, stay in the business. Horseplayers contend that the industry’s problems stem from takeout rates that are already too high compared with other gambling and that the best solution is to lower the takeout.

“They look at it like this: the handle is going down, so they need to raise the takeout to get purses up, when really the opposite is true,” said Jeff Platt, the president of Horseplayers Association of North America, which has tried to rally opposition to the legislation. “They need to lower takeout to get handle up.”

Platt said that a survey of 510 of the group’s 1,600 members indicates that takeout was the “number-one issue our members identified that keep them from betting more money than they do right now.”

On a larger scale, the proposed increase underscores the pressures facing racetracks at a time when revenues and handle have been falling and racing secretaries are struggling to fill races with a smaller population of horses that year after year make fewer and fewer starts. The pressures are persistent and stubborn, and the easiest way to raise revenue is to take a few points on to the takeout, even if it comes at the expense of bettors.

“We certainly hear them,” said Craig Fravel, the president of Del Mar, referring to horseplayers, “and we hope that if we can keep field sizes up, we can offer them some better opportunities.”

The proposed increases – contained in legislation that would also legalize betting exchanges – would raise the takeout on two-horse bets such as the daily double and exacta from 20.68 percent to 22.68 percent. The takeout on superexotic bets such as the trifecta and pick six – California’s signature wager – would rise three points, from 20.68 percent to 23.68 percent. All of the money from the increases would go to overnight purses, an account that has sagged over the past three years.

California racetrack executives have said that the increase is partly justified because of the state’s low takeout rates on exotic bets. That’s certainly the case for trifecta and other superexotic wagers, which are typically subjected to at least a 25 percent takeout at most racetracks, with some tracks, like those in Pennsylvania, charging a rate of 30 percent or more.

“We would still be more than competitive with other states that have much higher takeout rates,” said Jack Liebau, the president of Hollywood Park.

The effect of the takeout increase would not be confined to California. Under the current model, offtrack sites that take a racetrack’s signal retain the difference between what they pay for the signal and the takeout. So, barring any increase to the fee that California tracks charge for their signals, simulcast sites would retain an additional 2 percent of the handle on two-horse bets, and 3 percent of the handle on three-horse bets.

California racetrack officials declined to discuss whether they would seek higher rates if the takeout increase were approved, but Fravel said “there obviously have to be discussions on that.”

Economists who have studied takeout increases have contended that raises lead to depressed handle, at least when takeout rises above a certain rate. Most significantly, economists say, an increase in takeout reduces the amount of churn, or money available to bettors to wager back into pools, because payoffs are reduced.

Experiments with lower takeout rates have been attempted, but almost all of them have produced inconclusive results. In 2007, the Maryland Jockey Club cut its effective takeout rate to 11.4 percent for a 10-day meet, but handle actually declined over a comparable period in 2006 – in no small part because many simulcast outlets refused to offer the signal because the lower takeout cut deeply into the amount of money they retained from the signal.

That has not stopped other tracks from trying. Just this week, Delaware Park announced that it will cut the takeout on its exactas to 10 percent for all ontrack bets. In announcing the cut, the track’s senior vice president, Michael Vild, said that the industry needs “to be creative and find more ways to enhance the ontrack experience.” It helps that Delaware derives the majority of its revenue to fund horse racing operations from its slot machines, mitigating the risk of the experiment.

Increases to the takeout have the potential to drive bettors to out-of-state or off-shore rebate sites, operations that reward bettors with cash back based on volume of handle. The rebate programs are typically designed so that the largest bettors play against a fixed takeout, and increases to the takeout are typically refunded to the bettor.

Fravel said he believes that racetracks will try to improve their own rebate programs if the takeout increase is implemented. Currently, the program awards its largest bettors with a 3 percent rebate, far lower than the rebates offered by off-shore sites, where the biggest whales have migrated over the past decade, including those using sophisticated robotic wagering systems.

“I’d like to find ways to expand our own program,” Fravel said.