03/12/2004 12:00AM

Rebates for all: Lower the take


There was a poignant moment after a panel discussion on the very hot topic of rebates at the recent Horseplayers Expo in Las Vegas. An audience member, having heard how rebates can turn slight losers into slight winners or at least cut their losses in half, walked up to one of the panelists and asked him how he could go about getting in on this good thing. The customer was asked how much he usually bet.

"Ten to twenty bucks a race," he answered proudly, then eagerly added, "but I've gone for as much as fifty if I really, really like something."

The panelist had the decency not to laugh or tell him he was a clownfish trying to swim with the whales. The average horseplayer need not apply for rebates, which typically are offered only to those who are betting at least $10,000 a week. Well under 1 percent of American horseplayers gamble at this level, though they account for an estimated 10 percent of the annual $16 billion betting handle.

All the news and talk of rebates has prompted some of the other 99 percent of players to begin grumbling: Are rebates fair?

It's as complex and inflammatory as the comparable issue of whether tax cuts for the wealthy are the best way to stimulate the general economy. On the one hand, rebates are simply a discount for high-volume customers, a principle that permeates almost every aspect of modern capitalism. The higher your bank balance, the more you get in interest and the less you pay in fees. You pay less for almost any product when you order a truckload rather than a single piece. Spend more on your credit cards and you get points redeemable for cash or merchandise. Work for a big company rather than for yourself and you're likely to pay less for a hotel room or airline ticket than the guy sitting next to you.

Should state-regulated gambling be different? If the winner of the seventh race pays $4.60, shouldn't that be your return whether you've bet $2 or $20,000? At a blackjack table, you don't get 8-5 for a two-card 21 if you've bet a lot and only 7-5 if you bet a little. Everyone gets 3-2. That's ostensibly true, but the guy betting $20,000 a hand is also 7-5 to be getting free meals in the gourmet restaurant and a complimentary hotel suite with hot and cold running showgirls.

Yet casinos also offer comps and rebates to the clownfish, in the form of players' clubs and rewards programs available to the quarter-slots and dollar-blackjack crowd. Some enlightened racetracks have mimicked this model, even in California, where industry leaders rail against rebates on philosophical grounds while approving the Golden State Rewards Program. At the other end of the spectrum is New York, which offers its best players absolutely nothing but preferential seating on busy days. No wonder the whole rebating issue began when a few whales began fleeing New York for Las Vegas rebates a decade ago.

There is, of course, an entirely fair and democratic alternative to rebating: reducing the takeout. In fact, the growth of the former is due largely to the failure to do the latter.

"Reduced takeout is universal rebating," says the economist and writer Maury Wolff. "I now support rebating because it's easier to achieve, because reducing takeout has proven so difficult politically."

If takeout were somewhere in the optimal 10 to 12 percent range instead of up to twice as much, rebates would be both impossible and unnecessary. The problem is that state legislatures refuse to heed mountains of evidence that lower takeout leads to higher handle, and some track operators continue to raise takeout to solve short-term economic problems at the expense of long-term growth.

One thing that the current rebating furor has illustrated is that tracks can clearly get by while extracting less than the full 15 to 25 percent takeout rate. It is hard to sympathize with tracks that say they can't afford to drop their takeout rate from 20 to 17 percent when they are simultaneously settling for only 3 percent on most of their out-of-state handle, leaving the rest for betting-shop operators, whale recruiters, and fat rebates for the fattest players. A lower takeout rate, combined with a reset of rates and a more efficient distribution system, should allow for all that apparently expendable middleman money to be properly redistributed to both purses and players.

That rebates are necessary to keep the whales in the game speaks to the fact that takeout is too high. That the money to pay for rebates is available speaks just as loudly to the fact that there is plenty of money available to reduce the takeout for everyone.