12/05/2017 3:25PM

Symposium panel urges lower takeouts

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TUCSON, Ariz. – A succession of racing analysts appearing on a Tuesday panel at the University of Arizona Global Symposium on Racing urged racetracks in the U.S. to lower takeout rates for single-race bets such as win and exacta wagers in order to reverse protracted declines in betting on horse racing.

The panelists, appearing on the opening morning of the two-day Symposium, included an economics professor specializing in wagering markets, a former top official at the New York Racing Association and the Hong Kong Jockey Club, and the head of a rebate shop. All contended that both racetracks and their customers would benefit from the reductions, while cautioning that any proposal to reduce takeout rates would need to be endorsed long-term by the largest racetracks in the country to bear fruit.

“It has to start with the industry leaders,” said Bill Nader, a former chief operating officer of the New York Racing Association who was also the executive director of racing at the Hong Kong Jockey Club for eight years, ending in 2016. “And they have to make a big leap. This will not work in isolation.”

In a larger context, the comments from the panelists could be viewed as an unusually sharp rebuke to Keeneland, the central Kentucky racetrack that drew widespread criticism from the horseplaying community earlier this year when it raised the takeout rates for its bets for the fall meet. All three panelists cited the Keeneland decision while making their remarks, with several taking particular issue with Keeneland’s justification of needing more revenue from wagering to boost purses.

“There may be short-term gains, but there are long-term losses,” said Marshall Gramm, a professor of economics at Rhodes College who is well known in the horseplaying community and who described himself in his opening remarks as “a horseplayer first, and an economist second.”

Citing statistical models he built to examine the impact of takeout rates on the amount racetracks retain from wagering, Gramm said that reductions in takeout long-term would have no statistical impact on the amount of money retained by tracks because of the impact of churn. Under the low-takeout model, because players would bet more of their winnings back into the pools, racetracks would retain the same amount of money on betting over the longer period of time, Gramm said.

To optimize the impacts of churn, Gramm and the other two advocates for lower takeout rates said that racetracks needed to prioritize single-race bets such as win, place, show, exacta, and trifecta for the takeout reductions. They also claimed that lowering or maintaining low takeout rates for multi-race wagers like the pick 4 and pick 5, along with jackpot-style bets that only pay out if there is a single winner, is counter-productive, contradicting a handful of recent decisions by racetracks. (Keeneland raised all of its takeout rates with the exception of the pick 5, which it lowered.)

"I don’t personally understand why a 15 percent takeout rate is needed on a pick 5 when it only comes out once and that money is tied up for five races,” Nader said.

Both Nader and Gramm pointed out that bettors are more likely to cash a winning bet on single-race wagers, and that they are also more likely to bet the winnings from those wagers back into the pool. As an ancillary benefit, Nader and Gramm said, racetracks should also push new horseplayers to bet on the simpler low-takeout bets in order to maximize the possibility that those players will have a rewarding experience when playing.

Todd Bowker, the general manager of the rebate-shop Premier Turf Club, backed up the opinion that the industry needs to target single-race wagers for reductions, based on internal reports that Bowker has run on Premier’s own customers, who generally receive large rebates for their play. Those reports indicate that players who focus on multi-race wagers have far lower churn rates than those customers who focus on single-race bets, Bowker said.

Gramm and Nader also both called for racetracks to experiment with “sliding takeout rates” that would rise and fall depending on the size of the field. Under that proposal, races with fewer runners would have lower takeout rates, to encourage betting on races that are many times unattractive to bettors who do not have an extremely strong opinion on one or two horses in the race. Gramm also called for the elimination of breakage, the rounding of payoffs to the lowest 10-cent or 20-cent multiple, which would have the greatest impact in win, place, and show pools.

While the economic theory underlying takeout rates is relatively straightforward, the issue of takeout rates has become one of the most divisive issues in racing, a sport in which many racetracks have razor-thin operating margins and takeout rates are invisible to a large percentage of players. The debate over the issue has been magnified by Keeneland’s decision to raise its rates, which came four years after Churchill Downs raised its own rates.

Horseplayers have been calling for racetracks to implement takeout reductions for years, but short-term experiments over the past five years with lower takeout rates have not produced supporting evidence that takeout cuts lead to better outcomes for both tracks and players at the same time. That has complicated the argument for both sides, with racetracks claiming that they would gladly lower takeout rates if it led to both higher revenues and better payoffs, and horseplayers countering that the piecemeal and short-term nature of takeout reductions has invalidated the results of those decisions.

Gramm, Nader, and Bowker all claimed that the precise impact of takeout reductions would not be clear unless the industry’s largest tracks agreed to reduce their takeouts to the same rates, at the same time, for at least a year. But Bowker also said that he doubted the industry would embrace the calls.

“I think the industry knows what it needs to do to move the handle needle forward,” Bowker said, “but it doesn’t want to do them, and that’s probably because it’s going to take some short-term pain.”