09/16/2004 11:00PM

Study blames wrong culprits


NEW YORK - A National Thoroughbred Racing Association task force has spent the last eight months studying why national betting handle is increasing while revenues for purses and track operations are declining. While much of the information in the final version of its 110-page report released Friday is interesting and overdue, the report unfortunately settles on the wrong culprits.

The fault, according to the most publicized part of the report, lies not with the racing industry but with some of its best customers, who have figured out how to reduce the game's ridiculously high takeout through mechanisms such as informed handicapping, rebates, and high-tech program betting. The report argues that these customers are hurting the industry by placing their bets with outlets that return less money to the industry, and that by playing at a lower rate of takeout, these customers are effectively raising takeout on less-informed players and discouraging them from participating.

Some of the remedies proposed border on the absurd, illustrating what a dangerously misguided area of focus this issue could become. For example, the report approvingly discusses an outrageous proposal under which lottery-like bets would be added to an exacta pool after betting had closed in order to make payouts unpredictable and specifically to reduce payoffs on those combinations most heavily bet in the final minute of wagering. Why not just throw a blanket over the odds board or bar people from using past performances?

This idea that a cabal of wildly successful bettors is taking bread from the mouths of horsemen and tracks is nonsense. First of all, these so-called successful bettors are not even winning. The rebate shops and program bettors are getting back 90 to 98 percent of their handle, not 120 percent, and while this mathematically reduces the overall return rate of the rest of the public, this is the nature of parimutuel betting, not an alarming new development. The game always has and always will feature three distinct classes of bettors: the vast majority, which loses more than the blended takeout rate, currently a punitive 20 percent; a small number of hard workers who will lose somewhere between 0 and 20 percent; and a tiny, tiny number of people who actually show a profit.

What rebates have done is allow some people in the second group to stay in action while hovering around a break-even point or eking out a modest profit. An 8 percent rebate turns a 4 percent loser into a 4 percent winner. The rebate does not come from the other bettors; it comes from the betting outlet's extremely high margin. This is not the bettors' fault but the industry's, for allowing its fees for signals and pool access to run as low as 2 or 3 percent of handle when they should be two or three times higher.

There are a few areas in which the most sophisticated bettors may have been given too much leeway. No one should be receiving odds feeds not available to the general public, and a few tracks have solved the late odds-change problem by enforcing a sensible cutoff of outside wagers at zero minutes to post.

Blaming the customers and promoting ignorance and random payouts, however, is not the way for the racing industry to improve its economics. Instead of trying to thwart its cleverest and highest-volume customers, racing should be overhauling its own pricing structure to make the game more attractive for players and more profitable for itself. The way to do that is through a combination of lower takeout for bettors and higher simulcast fees to retailers.

Racing failed to anticipate the growth of simulcasting into the driving force in the game. It considered simulcast fees found money and set absurdly low rates to importers. Then it failed to offer anything to compete with those retailers in the way of rebates, rewards and convenience. Why is anyone surprised that handle has migrated? And now, rather than addressing the problems that caused the current situation, racing wants to blame the customers who have taken advantage of it.

Racing wants to have it both ways: continuing to sell its product at a suicidal discount to competitors, while simultaneously complaining it is losing business to them - and then it says the customers are the problem for making a logical choice.

The task force was created in response to the release of statistics last January showing that handle had risen 0.8 percent in 2003 while purses had declined 1.7 percent. Industry leaders demanded an explanation for these numbers, but as the report clearly shows, this phenomenon has been going on for at least 15 years, mirroring the ongoing migration of ontrack handle to offtrack retailers. Until the industry fixes its pricing structure, nothing will change. Blaming and combatting the customers only obscures this underlying issue, while sending the unappealing message that only uninformed chronic losers are welcome to play this game.