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Keith Gisser: A close look at takeout
It’s the cost of doing business and a necessary evil, but the racing business tends to be its own worst enemy when it comes to takeout, the money removed from each wager to cover expenses. High takeout rates are killing the sport and driving horseplayers away. Or are they?
How does takeout affect the average horseplayer? In 2013, Tioga Downs offered some of the lowest takeout rates in the country: 15% on WPS, 17% on two-part wagers (exactas, daily doubles) and 21% on other exotic wagers. Head half-an-hour east on NY 17 (which has been the “future I86 corridor since before my adult kids were born) and then an hour or so south on I81 to Mohegan Sun at Pocono Downs, and those superfectas, Pick Fours and Pick Fives will cost you 30%. Not a lot of difference? Au contraire. The cost to wager at Pocono is nearly twice what it is at Tioga.
Let’s play a game. I have an imaginary $100 bankroll, betting superfectas at the two tracks. If we match the general performance of takeout (performing to the exact expected norm), after the first night, we will go home with $79 from Tioga and $70 from Pocono. After night two, it is $62.41 and $49. Three nights see us leaving with $49.03 and 34.30, while by the end of the week (five nights of play) I have $30.60 of my Tioga bankroll and just $16.81 of my Pocono bankroll. So while takeout may not matter much to the casual or occasional player (which why some tracks bump up takeout for special events when there will be more of the blissfully ignorant in attendance), for the regular player it is important. For the high volume player, even more so.
Of course, nobody plays and exactly matches takeout. This is just an example. Low takeout not only puts more money in the gambler’s pocket, but more money in track management’s bank and in the horsemen’s purse account. I can keep wagering with my limited bankroll for much longer at Tioga before tapping out, which means my total wager amount will be greater and Tioga will actually get more money from me than Pocono.
Economist/horse player and low-takeout guru Maury Wolf has railed for years against greedy racetracks (and racing commissions) and over twenty years ago began making a very effective argument that the ideal takeout rate was somewhere around 12-13%, as opposed to the 20-25% ABT (average blended takeout) most tracks charge. His thesis was that this level would allow enough churn to increase handle sizably, but also keep the tracks making enough money to show a reasonable profit. At a higher takeout, tracks make more money, but less money is available to be bet, he argued. At a lower takeout, more is wagered, but the tracks make less. Here is a parallel. Wal-Mart sells lots and lots of an item at a low profit margin (takeout) but makes it up on volume. Saks 5th Avenue sells fewer items, but makes a higher profit on each one. The problem is that many folks can’t afford to shop at Saks. So Wolf advocates what you might call a Kohl’s or Target-type approach. Good value, fair prices. It all makes perfectly logical sense and I have written about it in a number of places in the past.
Let’s go back to our mythical bankroll. If we use Wolf’s number of 13% takeout, my $100 becomes $87 after night one and by the end of the week I still have $49.40 left. That’s three times the balance I have while playing in the Scranton-Wilkes-Barre Metroplex.
The interesting part is that Wolf is also a big-time horse player and every percentage point he saves in takeout would go into his pocket. So you would think he would advocate for even lower takeouts. But his analysis understands the needs of tracks to pay purses, to operate and to pay taxes.
Surprisingly an informal (and somewhat small – only about 20 people) survey of horseplayers across the country seems to imply that takeout is not as important as we pundits seem to think. But, the more they wagered, the more important takeout becomes. But none said it was the main factor, until it approached 30%, as it does on those Pennsylvania exotics.
These horseplayers told me there were a number of other influences that were more important than takeout rate, although a common complaint was the higher takeouts on so called super-exotic wagers that seem to increase with the number of positions needed to cash. It used to be almost universal that exactas and daily doubles have higher takeouts than WPS; Trifectas and Pick-3s higher than exactas and doubles, and so on. Since the payoffs were relatively high, the effect of a high takeout was hidden. Everyone agrees that a $500 trifecta is a good score, even if it would have paid $525 with a lower takeout rate. However, many tracks now heavily promote special takeout rates of 15% on certain multi-horse and multi-race wagers, bucking the historical trend. And even though the survey said takeout was not that important, nearly everyone said that the 15% deals on certain wagers attracted them.
The biggest factor these players mentioned was pool size. The vast majority felt that large pools that could negate the effect of a single whale playing into that pool was a huge factor in deciding where they wagered.They also repeatedly talked about carryovers influencing a wagering decision. Yet, a carryover is effectively a takeout reduction, as is (in some cases) a pool guarantee.
Let’s say there is a $10,000 Pick Five carryover at a track that charges 25% takeout on the wager. The next day $50,000 is bet into the pool, meaning $37,500 is available to be paid out. But the $10,000 carryover is added in and that means $47,500 is paid out, creating a net take out of just 5%.
A pool guarantee is different. If the guarantee is met, there is no advantage. But by closely watching a pool that has not met a guarantee, there is also a possibility of effectively reducing takeout. If the guarantee is $25,000 and takeout is 25%, there must be at least $18,750 available to pay players to meet the guarantee. If only $18,000 is wagered into the pool, the track and/or the USTA have to make up the $7,000 (actually $5,250 after takeout) to make good on its promise. That bonus reduces the effective takeout to under 5%, which is about as good as you can hope for. The problem here is that so much money is co-mingled late in the wagering cycle that it may be may be impossible to accurately predict if the guarantee will be met. That means it is nowhere near as good a play as a carryover or a simple low advertised takeout.
Granted we still have to handicap and structure our tickets correctly, but taking some time to study takeout rates will improve your chances to show a profit, or (in my case) to minimize losses. Now go cash. See you next month.
The horsemen are a big problem with the lack of growth in this game. Would like too see you and others Keith interview several leading horseman on why their against lower takeout.
I rarely bet Penn. tracks because of the high takeout. I would wager at Tioga if they had bigger or guaranteed pick 4 pools. Takeout is a big factor in deciding where I wager my money.
DRF - Put this piece on the front page! It's something every horseplayer should read. Keith - well done! Takeout seems to be a hot topic right now, as it should be. Charles Hayward and Dan Needham also recently put up their thoughts on the topic for ThoroughbredRacing.com and I really hope that the powers that be are paying attention because the three of you guys bring up some excellent points. Let's hope that those powers that be are paying attention. It can only serve to help us horseplayers in the end