02/11/2016 6:07PM

Zoccali: Tackling the takeout issue

Derick Giwner

There are many opinions regarding what needs to be done to “fix” the model of harness racing.

While we can debate ad nauseam about a counter-productive stakes calendar, a triple crown that is a far-cry from that of thoroughbred racing, a lack of a television presence or the need for uniform racing rules, the bottom line is this industry comes down to wagering dollars.  It is a very simple notion.  If there is more money in a customer’s pocket, there will be more money put through the betting windows.  While we can’t control a customer’s means of income outside of racing, we can control what their return on investment is within racing.

There is no question that the sport has become so dependent on revenue from slot machines that opportunities to improve wagering platforms have been missed.  Speaking of slot machines, according to the UNLV Center for Gaming Research in a report issued just last month entitled “Nevada Slot Machines: Historical Hold Percentage Variations,” the average “hold” of a slot machine in Nevada falls somewhere between five and seven percent.

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If you asked any Las Vegas casino operator their opinion on raising the slot “hold” rate to 15, 20 or 25-percent, the response would likely be incessant laughter.

Many gamblers like to compare poker to horse racing in its similar betting patterns and that both are games that include skill in addition to luck.  In racing, pools are pari-mutuel, in that the racetracks hold onto the wagers for each pool, retain a share known as takeout and pay out the rest to the winners.  In poker, the “house” holds on to the bets placed in a “pot”, retain a share known as the “rake” and pay out the rest to the winners.  Now, envision a poker game in which the “house” kept a rake of 20, 25 or 30-percent.  Who would play that game when the current model at most casinos offer a poker rake between three and 10-percent?

But racing has it all figured out.  Charge more for signals and charge higher takeout rates, thus making it increasingly difficult for its players to win in the long term, which makes perfect sense given that a racetrack does not benefit from more losing wagers.

The argument opposing the lessening of takeout rates appears on the surface to be a valid one.  Many horseplayers don’t understand takeout rates; some don’t even know how much they are.  In fact, many horseplayers look at races, find a horse or horses they like and bet, regardless of the takeout rate.  This is entirely true.  However, there are two critical errors with this rationale.

First, the “whales”—high-end players—do understand takeout.  They understand the margins they are working with and it is a critical aspect to their wagering plan.  When you limit where and how much your high-end players wager, you are already at a massive disadvantage as an industry.

Second, it does not matter one bit if the average horse player understands the impact of takeout rates.  Why? It’s a matter of simple math.

If a win pool has a takeout rate of 17 percent and that takeout is reduced to 10 percent, there is seven percent more put back in a horseplayer’s pockets.  A horse that would have paid $8.00 to win now pays $8.60.  A horse player holding a $20 win-ticket collects $86 instead of $80.  He has $6 more in his pocket without even knowing it and without understanding it.  Now, what does he do with the additional $6 he doesn’t realize he has?  He’s a gambler, he’s going to bet it.  That is called increasing churn and that is how you increase handle.

But, there is still one major hurdle that if it is not cleared would make lowering takeout as an industry impossible.  Simulcast locations are paying a fee for every racing signal, let’s say an average of four percent.  Therefore, if a $100 win wager (17% takeout) is placed at Parx on a race at The Meadowlands, $17 comes off the top, of which The Meadowlands receives $4 (assuming a 4% host fee) and Parx receives $13 (less taxes and statutory payments).  But if The Meadowlands decides to lower its takeout rate to 10 percent and still charge four percent for their signal, they still earn the $4 dollars on the $100 win wager, but Parx has their margin cut from $13 to $6.  So, Parx tells The Meadowlands they will no longer pay the four percent host fee and if the fee is not lowered, they will no longer offer The Meadowlands signal.  Now, The Meadowlands is forced to reduce host fees on top of lowering takeout, which quite frankly, most racetracks would be afraid to do, because handle would now need to increase substantially to offset the losses caused by the lower host fees. And round and round we go.

Unfortunately, there is no end in sight when it comes to the problem of high takeout rates and the hypothetical scenario described above is a big part of the reason why.

If you don’t think takeout rates matter, look into how many high-end players use “rebate shops,” which effectively reduces that player’s takeout rate on each wager by returning a substantial portion of the bets back to the player.

This industry is all about churn.  It needs people to win and if you are taking too much out of the pool, it becomes impossible for people to win enough long term to sustain the industry going forward.  While it would be nice if a player who previously came to the races with $100 showed up with $200, it’s not necessary for racing to be successful. All we need to do is figure out how to make that $100 last longer. Lowering takeout does that.

Several people consider me an “expert handicapper.”  Last year my return on investment was $1.957.  I lost 4.3 percent of my money.  Sadly, that is considered pretty good in racing and that is a major problem.

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