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Monday, February 23, 2009

Question

I was watching TV last night and a program on the history of slot machines came on. I found it interesting that the gambling and casino experts on there were speaking about how the machines have upped payout. In fact, there are several machines that pay out over 100% (negative takeout). This was done to encourage players to play and win, have a good time and come back.

If slot machines do it, for some of the least price sensitive players on the planet because it makes them more money, what in the heck is racing waiting for?

14 comments:

Chris Chase said...

As with many of the discussions around takeout, the solution is not as simple as simply lowering the existing rates. Take a moment and think of how many costs have to be covered for any given race. It isn't just the purses that need to be paid, but takeout ultimately has to cover a whole host of expenses that go into keeping a track open for business and running races safely.

The concern I have with postings like this is that it draws erroneous comparisons between VLTs and horse races. Yes, there are fixed costs in running a casino, but if 20 out of 4000 machines have 101% payout, you aren't exactly handing the keys back to the players. Once you've bought the VLT, you don't have any further significant costs for that machine on its own. If those 20, 50, or even 100 machines generate interest in a price-sensitive group, and get them to play machines with positive takeout, you've paid for your investment.

Don't get me wrong - I'd love to see takeout decline and become more competitive with other forms of gambling. The problem ultimately is less about takeout and more about reducing the costs of 'the show'. If we only had to pay for a dealer and twelve dozen decks of cards, we could have the same rake as poker. It simply isn't that easy, and saying it is misses the truth about the 'sport' component of horse racing.

It has been said before with tongue-in-cheek, but there is more than a kernal of truth in it: the ultimate 'betting solution' for horse racing is to tear down 75% of the country's grandstands and just run races in front of TV cameras. Keep the palaces (Keeneland, Santa Anita, Churchill Downs etc.) open, and bulldoze the rest. The cost savings get passed on to the horseplayer, who seems more than happy to stay at home and wager over the Internet anyways.

As ridiculous as this may sound, it is probably viable from a financial perspective. Which raises the question: if no one watches a race live in person, what does that mean for the 'sport' of horse racing? Isn't the experience of going to the track and seeing the horses run part of what gets horseplayers interested in the first place?

Whether tearing down grandstands is possible or not, unless we get really creative, there may never be a way to lower the expenses down to a level that makes a meaningful impact on takeout. My suggestion is to replace every call for lower takeout with a realistic idea for lowering costs. It isn't like the industry is going to come up with the solutions themselves.

Anonymous said...

Chris,

The point of the post is that slot machines lowered their takeout from 30% in the 1970's to todays present levels of around 6%. They did not do it because a casino is a charity, they did it because they made more money.

We are still waiting for this business to try something that was done in another almost 40 years ago. It has nothing to do with costs, it has everything to do with finding an optimal price point to maximize revenue and customer satisfaction.

ITP said...

As I've said before....a huge number of racetrack executives and racing power people like Chris Scherf have preached that anybody who is a winning horseplayer is stealing money from the tracks. In their perfect world, all they want is everybody who walks out the door after the races to have less than they came with while churning their money as much as they can.

HANA said...

Losing money as fast as possible does seem to be the method of operation for racing. It did work when they were a monopoly.

For a different view on betting racing, takeout, and customer churn and retention, this is from Betfair's annual report:

4. But shouldn ’t we want customers to lose money as quickly as possible ?

Slot machine operators around the world
routinely return a higher percentage to punters than they are required to under regulation. Altruism, or commercial nous?

Racing knows that customers who go racing, and a) feel they had no value for money at the racecourse, and b) don’t win a single bet all day, don’t have much fun. They may not come back. In just the same way, we know that the least valuable customers to Betfair are the ones who lose all their money quickly. They go
away and never come back. So, we are happy to take less off our customers per bet.

Business is all about offering your customer the
product he wants at the price he wants. If you can do that, he’ll spend his money with you. For us, that means offering a whole new range of products (inrunning betting, for example, or the ability to trade a position), to attract a whole new audience.

(end quote)

Is it any wonder they are the most successful gambling enterprise in history? I would submit racing in North America thinks 180 degrees different than they do. And it shows in the numbers.

D. Bantu said...

Cris Chase,
Thank you for being a voice of thoughtful reason and rationale about the issue of the take. At times on this blog, I have felt as if I was part of a small minority with similar thoughts. I am D. Bantu and have written quite a few posts concerning this issue under the poker players thread. A central point that few acknowledge is that the take is the transaction cost for engaging in the activity. I made an analogy that the income tax and business tax are similar transaction costs for individuals and businesses to engage in economic activity in civilized societies. There are individuals who maintain that the take (transaction cost) should be lowered (yes perhaps) or completely eliminated (highly improbable). One of the fundamental truths in market economics is that there is no such thing as a free lunch. Yes, casinos have lowered the takeout on slot machines and even used some slot machines as loss leaders, though to attract an increase in greater aggregate gambling dollars volume. However, this increase in the payout percentage of slot machines was offset by rule changes on wagering limits and payoffs in certain table games: craps and card games. The con man knows that most people want something for nothing. Instead the con man gives nothing (or nearly nothing) for something (in most cases a lot of something). The constant kevitching (b*tching) about the take without offering realistic solutions is b*tchcraft. (I'm not trying to offend any specific individual) As individuals, we have the power to exercise choice in our actions (participation or nonparticipation) and perhaps this will lead to solutions that all parties find beneficial. I have very libertarian leanings as far as businesses operating in a free market economic system. Yes, one could call for consolidation; however, I feel that restricts individual choice to provide to the market place a product that sinks or swims on the ingenuity and effort of the provider. The race track operators who can best solve this riddle will be the ones who survive and thrive. A solution that I've thought about in the past and was a tenet of a feature piece written by a major contributer to this blog is let's get back to understanding and marketing our product for what it is and what it offers. It is gambling (I always use the term pari-mutuel market speculating) and it offers financial rewards. The racetrack operator needs to offer reward possibilities from small to large. We need more creative and innovative wagering propositions offered. The casino industry understands this and offers everything from penny slots up to high roller baccarat. The increase in aggegate wagering dollar volume would allow the decrease in the takeout on certain wagering pools.
I welcome engaging, informative and even humorous feedback on my post.

Anonymous said...

Mr Bantu,

I have read your posts. If your suppositions are correct racing would be thriving and places like Betfair would be going to government cap in hand for slots because they are losing money.

It is not happening. Racings prices are too high for the modern gambler and anyone who does not think so is simply not looking at reality.

Chris Chase said...

Anonymous,

With respect, maximizing revenue and customer satisfaction cannot be done in a vacuum. I understand the point of the post quite well. My post was intended to point out a critical weakness in ANY comparison between slot machines, poker, lotteries etc. and horse racing; the cost structures are entirely different.

If you install a slot machine and your takeout is 30%, you have a lot of margin to give back to the customer before you start losing money. Without question, VLT takeout rates were set to maximize gross revenue a long time ago. The big casino companies have been very profitable until mid-2008, and you see that in the new games they keep buying and putting on the floor. In some places, I am sure takeout could go to 2-3% if they didn't refresh the games, and just let the same machines run until they completely broke down.

My point is that there are tremendous costs to running a race track, and for some operators there is no profit even at 20% takeout. To lower takeout back below 10% would literally require a doubling of wagering volume to cover the cost of the 'product', and that is very unlikely to happen.

There are solutions to the problem, of that I am sure- my opinion is that an informed discussion should look at the constraints to championing the silver bullet of lower takeout, and how to solve those constraints. If lowering takeout were the magic solution, we would see Retama pull in a half-billion in export handle this year.

HANA said...

Chris,

I understand that, and thank you for the thoughtful comment. However can you riddle me this? Why did the Singapore Turf Club cut takes in half and make more money? Why does Australia, after years of tinkering, set a cap on takeouts at 16%. Do they not have a track to pay for too? Are these places charities, or good businesses? I would argue the latter. And I think we better get our asses in gear.

Thanks again for the comments.

D. Bantu said...

Anonymous 24Feb 2:36pm,
I don't believe the racetrack operators are offering enough creative and innovate wagering propositions that reward patrons from the lowest to the highest contrasted to casinos. We are still offering predominately the same wagering propositions of the last 25 years. Today there is a news bulletin on TT announcing the acceptance and growth of the ten cent superfecta wager since it's introduction four years ago. Personally, I speculate in only one specific pool, but I do believe that an increase in total handle could provide an overall benefit for operations. Yes, a lower takeout returns more on WINNING wagers but it is not the cure all for the industry as a whole (all parties). Any industry that desires sustainability needs a receptive market, an enticing product and creative and competent providers.

Cangamble said...

Chris, when I bet with rebate houses at approximately half the take, I wind up betting around 4 to 5 times more than I would have without rebate.
I hope that gives you a clue of what would happen with lower takeouts.

D. Bantu, I can't read your posts anymore. They are void of any common sense.

D. Bantu said...

Cangamble, Please don't read my posts or make comments regarding them. Especially, since you have demonstrated that you are incapable of engaging in an exchange of discourse with a perspective that differs from yours without being an insulting omniscient bore. Oops, sorry you're not omniscient. (all knowing) You are just a one trick pony. (the takeout is the determinant for being a winner or loser and for the success of the industry at large) Show some class, civility and intelligence.
To all others, I forget one caveat to add in regard to my past posts and any future posts. I am capable of being wrong. I've been wrong in the past and it will probably happen again in the future. (Unlike a certain poster who attempts to make up for a lack of thoughtful openminded analysis and commentary with the same trite garbage).
Again, I welcome engaging, intelligent and even humorous feedback from my posts. I apologize for the kevetching exchange with Cangamble, it is not of my desire and I will no longer engage in it.

Retired horse player Active poker player said...

If I understand these posts correctly, anything positive that racing needs to do to survive and keep/grow the wagering base, is impossible.

Under current conditions matched with today's (and tomorrow's) economy, racing revenue will most certainly decline. The tote system used today cannot be trusted. Trainers cannot be trusted. Owners cannot be trusted. Jockeys cannot be trusted. Officials cannot be trusted.

Governing bodies are blind morons and cannot be trusted. And any idea with the potential to positively affect conditions in favour of the wagering base is attacked quickly and decisively by this group.

The only way horse racing survives is as any idividual sporting event that is wagered on. It becomes part of a "package" offered to fans. A welfare baby if you will.

Sports betting is huge world wide. Most of these sports generate their own income without taking a penny from gambling. No one wants to pay the expenses to go to a small time track to watch $2500 claimers race each other. Your product sucks without wagering. Your product starves and dies without wagering.

Your product is dying! Bean counters do not have a clue as to what the psychological triggers are that drive the ego of a wagering fan.

Right now, those wagering the largest amounts , are using offshore accounts to take advantage of your broken tote system to cheat the entire racing system, tracks and smaller wagers.

Gambling syndicates and illegal bookie operations dump and rake pools daily at all tracks through this broken tote system. This money does not find it's way back into the "churn". Someone wagering $12,000,000 a year does not expect to end that year with $8,000,000.

As an example, one needs to look no futher than IRG, owned at the time by Youbet, a publicly owned/traded wagering American ADW. Federally prosecuted bookie dumping, money laundering, odds manipulation, etc. The case prosecution continues today. They are not the minority. The entire racing industry is guilty of enforcing theft and distrust. If not by direct participation, then by complete acceptance through inaction via any excuse.

So, all of your comments leads one to believe that IT CANNOT BE FIXED. Why? Making it honest for the average player is too expensive for the crooks who rape them on a daily basis. To simlify, if you are not an average player, then odds are you fit the other group.

RIP racing industry. Anyone here watch any race at any track lately where odds became final only several minutes after the race resulting in some horse between 3-1 and 10-1 droping to even money or less? No? Then you are not an average player.

Me? An average player for 35 years with 2 degrees (Business Admin and Computer Science). I stopped looking at racing seriously when the tote system was used to rob that huge Pick 6. I have no idea how corrupt today's tote system and racing is. But know this, corrupt it is.

Anonymous said...

I'm sure there is some corruption in racing. There is corruption on Wall Street, but I still trade stocks and options because I have learned how to make a profit through hard work and due diligence. Same with racing. I make a profit through hard work and due diligence.

I learned a long time ago from Howard Sartin that if you think the game is fixed then don't play it. So you are right not to play.

I don't think it is as fixed as you think it is. So I play the game and I make a profit at the end of the year.

For all I know it is fixed. Maybe by believing it isn't, I am able to win?

Dana said...

Although my comment is off subject, it does relate to the slots issue...

FINALLY, Texas lawmakers are ralizing the benefit of installing VLT's at Texas horse and dog tracks. I wanted to share an article that was published on the front page of today's Houston Chronicle:
http://www.chron.com/disp/story.mpl/sports/6292543.html

The time is now for Texas to keep our beloved sport alive in the lone star state!