05/23/2016 3:18PM

Zoccali: Fallacy of guaranteed pools

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Guaranteed pools have become one of the major marketing tools within horse racing, with the intent being to attract more handle in specific pools, usually multi-race exotic wagers.  But, how valuable are they and are the racetracks being hypocritical in their practice?

A guaranteed pool is presented to the betting public with two features that are keys to its selling point.  First, it offers the promise of a pool with high volume handle, which in turn, can produce higher payouts.  Secondly, if the pool doesn’t reach its guarantee, the racetrack has to make up the difference between what was actually bet and the guarantee.  This is often promoted as “free money.”

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By adding money to a pool to reach a guarantee, the racetrack is essentially greatly reducing the takeout rate for that pool.  For example, if a pool is guaranteed at $50,000 with a 15-percent takeout rate and only receives $45,000, the track must put an additional $5,000 into the pool.  The pool then is made whole with $5,000 of money that was never bet, effectively reducing the takeout from 15-percent to five-percent.  Therefore, racetracks promote the potential for missing a guarantee, thus reducing the takeout rate, but they refuse to lower takeout rates on other wagers.

Another interesting question is, why promote the guarantee when the average pool will always be higher than said guarantee? If it wasn’t wouldn’t the guarantee be lowered?

What is a better marketing tool, advertising a pool that is guaranteed at $50,000 or advertising a pool with an average handle of $66,000?  Call me crazy, but advertising the bigger number will be more attractive to those wagering into the pool.

The latest fad that has emerged is the “instant guarantee.”  This is the guaranteeing of a pool that is being fueled by a carryover.  Bottom line, this is completely unnecessary.  A carryover sells itself.  Interestingly enough, for the same reason a missed guarantee has appeal, the effective takeout is lowered.  Again, the concept of “free money” is presented.  It is ironic that two of the biggest tools racetracks are using, guarantees and instant guarantees, center around the idea of selling the potential of a lower effective-takeout.  Yet again, racetracks refuse to lower takeout rates out of fear that it won’t fuel enough handle to offset the lower retention percentage. But no racetrack would debate the fact that a carryover creates an increase in handle.

Harness racing has definitely become “guarantee happy,” and while guaranteed pools exists in thoroughbred racing, many bettors don’t know how much the guarantee is on Belmont Park’s late pick four, for example.  They clearly don’t view the guarantee the same way that harness racing views the guarantee.

Furthermore, does the difference between a $40,000 guarantee and a $50,000 guarantee really generate that much difference in terms of handle?  Has anyone ever done a study or analysis to this point?  We spend a lot of time when it comes to guaranteed pools and discussing their benefits, but the discussion revolves around opinion, not necessarily facts.

I submit the following theory: guaranteed pools are not a proactive tool, but rather a reactive one.  For the most part, racetracks do not create wagers and slap bold guarantees on their pools with only the hope the guarantee will be reached.  In contrast, they do one of two things.  They either create a pool without a guarantee or with a very reasonable guarantee.  From there, the racetrack will track the pool’s handle and/or growth and then raise the guarantee based on the numbers they see.  Hence why I maintain guaranteed pools are reactionary.  Can we really refer to this process as a marketing tool when the players are establishing the market and the racetracks are just reacting by telling the players what they already know?

There is really one time and one time only that a pool really thrives by itself and that is when it is truly unique.  But now, every track has guaranteed pools; every track has pick fours and pick fives and jackpot super high-fives.  Now, if you don’t like the pick five sequence at The Meadowlands, you can handicap the pick five at Mohawk and vice versa.  As a reaction to that, for the most part, guaranteed pools on these wagers decreased more than they have increased because money is being spread thin.

For purposes of full disclosure, I learned this the hard way.  On Hambletonian Day 2015, I overestimated the power of that day and implemented one-too-many guaranteed pools, and thus two of the five pools did not reach their guarantee.  That mistake taught me something about how significant, or insignificant guaranteed pools have become.

My suggestion to racetracks, if you have a pool that averages $24,000, don’t promote the pool as a $10,000 guarantee, promote it as a pool that averages $24,000.  If an S.A.T. math tutor has seen his or her students produce and average S.A.T. math score of 650, should she promote the average score of 650 to gain parents interest and trust, or guarantee a 550?  It’s the same concept.

Furthermore, forget about these “instant guarantees.”  Promote the carryover because the carryover will sell itself.  Maybe then racetracks will begin to understand the connection between a carryover and an effective lower-takeout and can begin to apply it to other wagers as well. When that occurs, this business can start to show some real growth.