Thalheimer and Ali present an ominous scenario in their paper entitled, "Pari-Mutuel Horse Race Wagering -- Competition from Within and Outside the Industry" (The paper can be found in "Handbook of Sports and Lottery Markets" by Hausch and Ziemba). Their research shows that when video lottery terminals (VLTs) are placed at pari-mutuel facilities, pari-mutuel handle decreases by 29% at the 114 VLT level and 39% at the 3,000 VLT level.
This article in the Saratogian supports their findings:
According to the article, "purses are expected to reach $120 million by 2010; up from $35 million before gaming was introduced. However, handle has declined. NYOTB President Raymond Casey is quoted in the article as saying, "But there hasn't been a corresponding increase in handle -- the amount people bet -- an indication that VLTs haven't boosted fan interest in racing."
Why should racino gaming in New York boost fan interest? It hasn't boosted interest anywhere else where it has been introduced at racetracks.
Mr. Casey also said, "Perhaps some money now dedicated for purses should be reallocated to marketing efforts, to promote racing and generate fan interest."
It certainly can not hurt to spend money on marketing. However, if increasing handle is the goal, marketing alone is unlikely to achieve the desired result.
Handle peaked 31 years ago in 1977 and has been in decline since. The "Go Baby, Go" campaign could not reverse the trend.
When VLTs are operational at NYRA, pari-mutuel handle will likely decrease. If NYRA continues its policy of not sending its signal to all licensed ADWs, players will continue their subversive ways. They will send their wagers into unlicensed pools where transaction costs are lower, (e.g., betting exchanges, illegal and/or unlicensed bookmakers). Tracks, horsemen and the state will derive no benefit.
Horsemen who race at non-VLT tracks are going to face tougher times as their purses shrink. The non-VLT tracks will probably raise takeouts resulting in more player subversion. Many non-VLT tracks will cease to exist -- a sad story for another blog.
It is likely NY State will see an increase in VLT gambling revenue, but a decrease in pari-mutuel revenue. Horsemen will see an increase in purses via VLT subsidies, but a decrease in the amount of pari-mutual handle that helps fund purses. The increase in purses from VLTs may be so large that the decrease in purse funding from pari-mutuel handle will be inconsequential.
It is hard to blame anyone who comes to the conclusion that NYRA and NY State do not care much for existing horseplayers.
Why should the horseplaying community that has supported the industry for the past 100 or so years not derive any benefit from VLTs? Players only want a game with low wagering transaction costs (on and off-track) and signal availability through their ADW of choice.
At the very least, NY State officials should care about NY State taxpayers. Tax revenue is being lost as untaxed betting revenue goes to untaxed bookmakers. Non-horseplaying taxpayers should be furious that a source of taxable revenue is not being collected due to the negligence of government officials.
Given the competition from gaming, professional sports, lotteries, alternative entertainment and other regional racetracks the only way to boost handle is to cut transaction costs for the player. A lower priced wagering product will sell more than a higher priced product. Fewer and fewer people are willing to pay for a horse race wagering product at it's current cost. And spending marketing dollars on an over-priced product is a waste of money.
Lowering takeout and widely distributing the racing signal are simple concepts for increasing handle. This is not rocket science to horseplayers, however, to government officials and industry leaders, it must be.
This is Part II of a series on subversion by HANA VP John Swetye.