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Steven Crist: Pick five good example of how reduced takeout sparks handle
The topic of takeout took a beating this past week at the International Simulcast Conference in Lexington, Ky., with several frustrated industry officials belittling its importance and telling customers not to hold their breath for any reductions in the foreseeable future.
“The blogs say this is a simple fix,” said Chris Scherf, executive vice president of the Thoroughbred Racing Associations. “They can’t understand why we’re so stupid. They think we can lower takeout and watch hordes of people come to our facilities.”
Several other speakers echoed this view, saying that takeout rates were of little concern to the general public and that their effect on business was difficult to gauge. The general tenor was that rather than fretting about responding to calls for lower takeout, the industry needed to think more like the proprietors of non-gambling entertainment enterprises.
These officials’ weariness, if not their conclusions, is understandable. Enlightened horseplayers have been talking about the negative effects of racing’s high takeout rates, which vastly exceed those in casino and sports betting, for decades but the tenor of the discussion has changed in recent years as self-styled “horseplayer advocates” have demanded massive and immediate takeout reductions as if this were a simple solution to all the sport’s ills.
While this approach is useful in prompting discussion, it is unrealistic on two counts. First, in most cases track operators are powerless to set takeout rates, their hands tied by government regulators and budget officials who are unwilling to experiment with accepting short-term revenue losses in exchange for long-term growth. The other is that the kind of changes some are demanding are simply economically unfeasible.
It’s a bit reminiscent of what happened in 2010 at Monmouth Park, when a one-time subsidy from the state allowed the track to run an “elite” meeting with vastly inflated purses. Business increased, and the architects of the plan were hailed as visionaries who had found the winning formula for the sport going forward – until it became clear that it was an unsustainable plan and a financial disaster that would never be repeated.
While the experiment did not succeed, an important point was made: The public did respond, and dramatically so, to a better product. The concept wasn’t wrong even if the math was in this particular case. Similarly, the fact that there is no feasible way to cut racing’s takeout in half overnight without plunging the game into economic chaos does not mean that the idea and importance of lowering takeout is invalid.
On the contrary, every single long-term experiment with takeout reduction has shown that it increases handle, participation, and customer satisfaction – not necessarily because players are consciously aware of higher returns, but because they find themselves with a bit more money on hand that they reinvest over and over. They stay in action longer, and they receive more positive reinforcement to keep playing the game because their money seems to last longer and go farther.
While it is difficult for tracks to roll back existing takeout rates in many cases, a slightly different strategy that accomplishes the same thing is proving successful: Introducing new bets where one of the selling points is a lower-than-usual takeout. The success of the new 50-cent pick five in California last year, and now in New York over the last six weeks, owes something to a reduced takeout rate of 15 percent, up to 9 points lower than the usual bite for a multi-race exotic wager. This is a case where awareness of a reduced takeout by players sensitive to the issue, rather than a long-term churn increase, was the key: There is an important segment of players who will respond directly to what sounds like a bargain.
One thing that studies of takeout do not take into account, because it is impossible to measure, are the side benefits of inducing a takeout-sensitive player to participate in races he might otherwise be passing. Before the pick five began in New York, I rarely played the first few races on the card, waiting for the pick six or the late pick four to begin. Now, partly because I think I am getting a very good deal spreading a 15 percent takeout over five races, I am playing the pick five and handicapping races I otherwise would not have, and as a result playing some of those races separately or hedging my position in the pick five.
Whatever the track is losing by taking 15 rather than 24 percent vigorish on my pick five bets, it is more than making up for by my increased interest and action on races I otherwise would be passing.
Steve, this column and particularly all of the comments in response to it are collectively amusing. Together they represent all of the sheep and the herder being wooed down the wrong path which is 180 degrees from common sense. Takeout has been an effective 'constant' since any of us can remember, and only fools suggest that horse racing's demise has been "caused by" takeout or increased takeout. (Please cite a time in your memory where, when comparing apples to apples, "pari-mutuel takeout on horse racing" was significantly lower than it is today) It is bets like the pick-5, and those endorsing said bets for everyone all around, which are causing the auto-cannibalism which is destroying horse racing. Some of these (fine, brilliant commenters) are suggesting that some/any other force aside from they themselves is 'making them' opt for the higher-takeout wagers vs. those which have had the same, lowest takeout since the beginning of modern times. Furthermore, the detrimental prophecy that are the pick-X multi-race wagers requires leaving money on the shelf for an hour or three and then re-allocating that money to a scant few fans, very few of whom are inclined to reinvest their newfound coins. This is a triple-disaster (money on the shelf, no churn, and relatively few winners) for anybody and everybody in racing management, although even they can't seem to wrap their heads around the obvious. It doesn't really matter whether you have the pick-5 on the first 5 races or the last 5 races, given the high probability that so little of it will be redistributed into other mutuel pools anytime soon after. The attention by those wishing to stop, and then reverse the deadly flow of racegoers out the collective doors and never to return, should be directed not toward any of these multi-horse bets, but instead toward the would-be newcomers to racing. As it stands in 2013 there isn't a track in the land which can fairly say that it does a damn thing for new fans in the way of truly helping them to feel the first bit of "competitive" with all others. Most new fans don't give a **** if they lose a few bucks during their first couple of visits to the track, but this insane mentality by track management which appears not to care to help those newcomers to feel competitive has stymied the growing of the fan base for decades. It is racing's own fault that this is happening, and herding all of these sheep down the wrong path, and telling them to blame what are insignificant tangents is only a disservice to all things racing. While seasoned racegoers can tune-in, comprehend and enjoy your columns, the guy who bought his first copy of DRF last weekend probably can't even understand half of what you're saying or meaning. The new racegoer in 1975 could more easily comprehend Joe Hirsch's penned offerings there in DRF, and this has nothing to to with the comparative command of the English language known to you or Hirsch. In summation, parimutuel takeout has not changed markedly in decades, when comparing proverbial apples to apples, so thus it cannot be that parimutuel takeout is "causing" any part of horse racing's present slide. The idea that you and all of these others are championing/endorsing the absurd, in the way of more and more pie-in-the-sky bets which are unattainable to newcomers, is what continues to drive them away from racing one visit or two after they first turned up. Go to the cash machines on the mezzanine at your local track after the 3rd race and see just how many of your own racing buddies you can count in the lines there. We all know that the answer will be approximately "none" - so just who do you think those people ARE?
Ann, it is the customer who drives revenues and profits, not horsepeople. Horsepeople put on the show. If that principle was in effect more often in horseracing, it would provide more opportunity for everyone.
Ann, it is more about what drives revenues and profits in the game. The customer drives the revenues/profits, not the horsepeople. The horsepeople put on the show. It is a basic principle that is all too often forgotten in the game.
I would also like to say that Formulator is the greatest handicapping tool that I could possibly imagine. More than enough information and editable. I've learned to project workouts enabling me to single longshot firsters. It allows me to derive a more meaningful "par" number for a given field of horses. Allows me to track the trajectory of horses like Sahara Sky which won a stakes as the longest shot. The list is goes on. This program is far superior to the newsstand version.
Steve Christ: I want to convey to you the my utter disappointment in the changes to the formulator program. To me, it's the classic example of fixing something that isn't broken. The old version was sleek and nimble. As a handicapper it allowed me to be agile and efficient. The new version has too many little menus and buttons to click. And the location of these points take up valuable space in the header portion, at least an inch on my screen. It seems like a curtain is hanging over my past performance, very distracting. The only thing good about the new Formulator is the color. The blue reduces eye fatigue slightly. Perhaps more color yet would help. I don't know if this issue has been blogged to death already, but I had to weigh in.
You think you guys are getting a raw deal? What about the horse owners? Not talking about the Phipps or Repoles - most horses are owned by folks for whom running a horse is a money losing deal, when purses are at a level where it takes several wins a year just to pay expenses. Simulcasting deals failed to replace purse money generated by the on-track take-out and purses stagnated while handle increased, leading to the need for an extra source, like racinos, to bring them up to match inflation. Like it or not, bettors depend on owners to run their horses and if the owners can't afford to keep doing it while losing money year after year, you guys are left with nothing worth betting on. Take-out is not a topic that can be viewed in isolation.
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All one has to do is look at the success of PokerStars. It went from a brand new entitty in 2001 to a multi-billion dollar company. Why? Because the players can actually win and make a living playing. Even the losing player gets tons of rakeback and rewards for playing. And the games have about a 3% takeout, and then you get rakeback. Horses take 17-25%, and then they have the lovely thing called breakage, where they round down every payoff to the nearest .20 (.10 in NY) which takes another 3-5% of the WPS pool. That's why there is no professional WPS wagering in horse racing, because nobody is dumb enough to try and beat a 20% rake. The professionals only gravitate towards large pools with carryovers and pick 3 and 4's where they can buck the takeout somewhat by spreading out the rake over 1,000's of combinations, giving value when they use longer priced horses. You're dealing with a subsidized industry of beuraucrats and racino's that have no sense of what gambling is all about or how to run a viable sport. And having a lower takeout for pick 5's does not bring professional action. They want to make single race bets in volume to lower variance, and they want 2-5% takeouts and fixed odds if they can get them. Otherwise, it's a waste of time.
Someone hit on this in a previous comment. Giving rebates to whales and computer batch bettors is hurting the average player. They are crushing the payoffs on all the LOGICAL possibilities because the rebate compensates them to do that. Sure, when two bombs connect they might not have it , and neither do you. Lower the takeout for everyone. Even the playing field. If you bet more you win more, you shouldn't get a BETTER PRICE on the horse. If I buy a share of IBM and you buy 10,000, you basically get the same price. You might even pay more to get that fill. The whales get 6.60 on a 6.00 horse. Give or take. Fair?
Steve: Anyone who doubts the insidious nature of takeout should read your treatment of the subject in “Exotic Betting”. As someone who in recent years has largely walked away from “the greatest gambling game of all”, I can tell you that a fuller understanding of how even modest increases in takeout dramatically affect one’s ability to overcome it is one of the primary reasons I did so. Racetrack executives may be affronted when the “clearly uninformed” suggest that lowering takeout be one component of their strategy to improve business, but I feel the exact same way when I’m charged approximately $20 to place a $100 win wager. I have come to the unfortunate conclusion that many racetrack executives would tell you that, from their perspective, handling $20 million at 10% takeout is no different than handling $10 million at 20% takeout. Still, despite the many problems that plague racing, handicapping is still a fascinating cerebral endeavor and while a gradual, sustained reduction in takeout rates is hardly a panacea, it might be enough of a reason for lapsed bettors to consider returning.