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Thursday, December 18, 2008

Lotteries Test; We Flounder

If you have to drive 10 miles to buy a [lottery] ticket, you are three times more likely to be killed in an automobile accident on the way than to win the jackpot."

Everyone knows this and no one would ever call lottery players price sensitive, yet even government lotteries have worked to find an optimal takeout level - they know returning more to the lotto players increases sales and revenues.

A proven strategy for lotteries across the country to generate additional funding for their beneficiaries has been to increase prize payouts. Higher payouts generate more winning experiences for players. This makes the games more entertaining and increases sales dramatically. Every lottery in the U.S. that has increased prize payouts has increased sales.


Two of the poorest performing lotteries, California and Louisiana, have a limited prize payout of only 50 percent of ticket sales.

The Massachusetts State Lottery is the most successful lottery in the nation. It also has the highest prize payouts in the nation ranging from 60 percent to 79 percent of ticket sales. With a population of only 6.4 million, compared to California's population of over 35 million, Massachusetts out-produced California in 2002 total revenues by approximately $1.3 billion.


OK, years ago Massachusetts decreased lottery takeout to (in some cases) 21% and they are kicking some major butt; including beating a state with a population 5 times more than they are. They have given "more winning experiences to players" and they are being rewarded.

Why in heavens name does a lottery have less of a takeout than your average trifecta? Why when HANA asks racing to decrease takeout to give "more winning experiences to players" and grow our sport is it considered like asking for something radical? Will someone from racing respond here and tell us why a lottery decreases takeouts to grow, but you can't?

Is your goal to "not" grow?

h/t to Equidaily.com for the news story and Chickenhead for the article.

11 comments:

Anonymous said...

That is UNBELIEVABLE!

A Lottery with a lower takeout than a RACETRACK!?!?!?!?

Who is running racing? Is there anyone home?

Anonymous said...

That post right there explains everything you need to know about why our game is stagnant and being passed by all others.

There are alot of good posts here, but that is the only one we have to read.

Will racing read it? No. They will ignore it and look for government help instead.

Cangamble said...

This just proves my point that people don't have to understand or be cognizant of track takeout or lottery takeout to increase or decrease their participation.
They bet their money where they last longer, where they get their best bang for the buck. You don't have to understand takeout or even know it exists to figure out where you feel your dollar will stretch the farthest.
I'm sure that most lottery players in Mass have a clue that they are getting the benefit of smart lottery execs.

todd said...

Wake Up people. It takes very little electricity to power a fan to blow ping pong balls into a tube. Comparing the take out of a lottery to putting on a live horse race with purses, labor etc. is insane. you whiners find a better comparison. this is the lamest excuse for your cause to date.

Anonymous said...

Todd,

It costs billions to make and put lotto machines in stores (much more than racing spends). They lowered takeout.

It costs billions to run and make long distance phone lines, they charge 4 cents a minute.

If your model worked, racing would be popular.

HANA said...

That is a very good post. Of course it has nothing to do with average cost, although the poster is correct that lotteries spend more than horse racing on their product.

The point of the post is that lotteries have found their price point by experimenting. They have really only been around for 30 years. They found that when they lower takeout, profit goes up. So much so that a state with 6 million beats a state with 35 million people.

Everyone in racing agrees, even militant horseman groups, or some of the status-quo tracks, that takeout is too high and profit would go up if it was lowered, just like the Massachusetts lottery.

What is the optimal price? If a lottery's is 20%, a skill game like racing should be probably half that - maybe more. But who knows?

We have had 100 years to figure out our optimal pricing and it is still not done.

There is no excuse for this lack of vision of finding our optimal price point, and in my opinion, it is one of the reasons we are in this mess. The most important and malleable feature of every business out there, if they are selling vet work, hamburgers, lottery tickets or horseshoes, is their price. Except us.

Anonymous said...

Of course the point that Todd is missing (let me guess, you work in the industry Todd) is that revenues went UP. That means more money to pay for things, not less. What part of that don't you understand?

Since racing has very real costs that need to be paid, don't you think that maximizing revenue would seem like a pretty good idea? If I worked in the industry, that would probably be my concern. So I might look around for what other similiar businesses have done to increase revenue. And I might commission some experts in the industry to do some studies to suggest what we could do to increase revenues. Guess what, they all point to the same thing, takeout is too high. It needs to be cut to maximize revenue.

Rather than deal with that fact, the industry puts on blinders, and sticks their heads in the sand. And sometimes decide to outright insult their customers who point it out. Good luck with that.

Cangamble said...

Todd, you must be a race track exec or horseman.
Either way, thanks for displaying your brains and grasp of reality here. And keep pretending the ship isn't sinking. It is doing the industry a whole lot of good, isn't it?
One more thing, racing isn't a charity, and gamblers have choices. Thanks for playing.

Anonymous said...

the other possibly interesting thought experiment to try out...if study after study showed that racing could increase revenues by doubling takeout, and if all of racings competitors were doubling takeout and having great success...do you think racing would struggle with the decision in any way shape or form? Of course not! They would try to double takeout post haste.

Now, I don't really think the only motivation racing has is in further bending over it's current customers, and I don't really think racing execs have no interest in gaining new customers. So what is the explanation then? Why the resistance, without even a reasonable argument to back them up? How can an entire industry be so wrong?

I think a lot of it is just the institutional imperative. It is risky to try to change things. So long as everyone is doing things the same way, even if they are all failing at it, at least none of them can be singled out individually. So long as the industry is failing across the board, it's a nice cozy environment, and everyone can slap themselves on the back, and be comfortable, and pretend they're doing what needs to be done.

The biggest risk to this way of life, the biggest risk to that kind of comfort, is someone somewhere actually trying something new. And having it WORK.

Anonymous said...

I think that explanation is sound, anonymous.

Track fellow says to himself, gee takeout should be lower, yes. But who do I ask? Which state do we lobby? Which groups do we get aboard? It's too much work.

I wonder why horseman groups are not pushing this. Many horse owners are businessmen, and trainers and such make it a family affair. One would think they would want to maximize profits so when slots are reduced or taken away, they have a business for their sons and daughters to partake in. I think it is curious why they have not pushed the business to lower takeout and find the maximum revenue point for contribution to purses.

Anonymous said...

Realistically, cutting some slack (not too much, but some) is in order I think, because it is somewhat risky. Risking short term revenue for long term gain is something that I think is hard for any business, they have to justify it to their stakeholders. Anytime you make an investment like that you have to sell it.

The actual US racing experiments to date were largely doomed to be unsuccessful because they were made on only a tiny section of the menu, or for a very limited time period. To take the lottery experience as a guide, do you think they saw any improvement after 10 days? I would guess decidely not. Do you think if they only cut the takeout on every 5th Tuesday, they would have seen a marked improvement? I would guess not.

It's a sustained, long term investment, with metrics that stretch out over months and years. It's not a silver bullet. Wham, bam, thank you ma'am, everything is jolly all of a sudden. It requires persistance and some vision, and some willingness to risk looking wrong for a while, maybe (I'd hope not, but maybe) a long while.