10/10/2013 12:55PM

Steven Crist: Pick five good example of how reduced takeout sparks handle

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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.