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Monday, July 27, 2009

So Players Don't Care About Takeout, huh?

There has been a lot of chatter lately about takeout. Recently, Dick Powell wrote at Bris about takeout and player behavior. "Read the racing blogs and takeout is a hot issue; probably the hottest. But players' behavior is often different from what they say. How many players go to a simulcast site and bet racetracks without having a clue what the takeout is? Management sees this time and time again and draws the conclusion that takeout is not that important and it can be raised without serious consequences. And often times they are right. We say one thing and do the other."

He is generally right on the surface, and unfortunately the racetrack execs cling to that shallow thinking, but as we all know as horseplayers, it is woefully misguided.

First, when a player gets a takeout reduction, the behavior of that player changes by quite a bit. When he gets back $100 instead of $92, he does not say to himself "I got back $8 extra, I am going to stuff that in a section of my wallet and then bring it home and put it in my piggybank". He simply has a $100 bankroll, instead of a $92 one, and churns that $8 back into the pools. Over time this makes him realize that he is closer and closer to becoming a winner, he bets more, and he gets serious about racing. He might not know it, but he is very price sensitive.

Second, it is specious to say that if a track offers a 5% takeout on a bet and if that bet does not explode, players are not price sensitive. The outward price sensitive players are either long gone - they are betting poker, or sports betting, or playing the stock market at $5 a trade - or they are already betting racing through lower takeout. If a player has signed up with Premier Turf Club, or Bet America, they are receiving lower takeout right now through rebates. They were price sensitive, tired of losing at 21.8% blended rakes and did something about it. Because they don't bet into some sort of a promotional gimmick bet says more about the game of racing than it does about them. Not to mention, these players already are getting whatever the promo offers anyway, so it will not change the way they bet.

The examples one can use to show how lower takeout will help players and the sport is long. For example, players work on spot plays and have for years. Most of their spot plays show a 0.95 ROI and are not bet. It is a bottomless pit of losing. What if tracks charged what slot machines charged for their take? Well suddenly that spot play becomes a winning spot play. The player is making a bit of scratch, he is seeking new spot plays and he is betting. Where that 0.95 ROI spot play generated zero handle at present rakes, it generates piles of handle at lower take. How about the Mark Cramer "fair value" bettor? Well he makes an odds line, and if in a 5 horse field he sees nothing that is over his line, he does not bet. If takeout is lowered? Well then he will have more green light bets, because the odds of the horses are higher, and can meet his odds threshold.

Hmmm, a bettor betting more money with more green light bets. Doesn't that sound like something we'd want to look into?

Unfortunately, other gambling games (the ones who are kicking our butts) have looked into this, and have implemented it. The sad part? Some of them have decades ago.

Las Vegas way back in the 1970's learned that their 20% slot takeouts needed to be reduced because if they did not send home more winners, they would not have future customers, and they would make less money. They did of course, and slots players responded by betting more. Slot machines can have as low as a 1% takeout in Vegas in '09. The Massachusetts lottery did not say "lottery players are degenerates and only play because they are hooked, so we will not change takeouts" when they lowered lottery takeouts from 60% to 31%. They did it because they knew lottery play would explode, because returning more to the players will get them to rebet, and rebet and rebet. Massachusetts is the most successful state in terms of lottery revenues, and they charge the lowest takeout. Coincidence? I doubt it.

When a lottery's takeout is lower than some superfecta takeouts in racing, I think we can all agree that we have a serious problem.

What makes this doubly perplexing, is you would never hear anyone say that lotto players or slots players are price sensitive like horseplayers should be - but they are. Just like horseplayers, whether they know it or not is the only question.

I guess for racing, the most salient example anyone can use that players seek out and use lower takeouts to bet more which increases profits, is Betfair. The UK has always been well ahead of North America in terms of betting logic and economics (in fact, Tony Blair in 2000 abolished the 6.75% tax on wagers there, and those 'non price sensitive' bettors responded by increasing their wagering by 70%). In 2000 when the government allowed Andrew Black and Ed Wray to offer racings bettors lower prices with their new company, one can honestly say that old-time racing did not take them seriously. Many bookmakers and TOTE companies looked at them as nothing more than a novelty. That novelty, by offering lower takeout, has grown from 2000 customers in year one, to 2 million customers in year eight. They take more wagers a day than all the European stock exchanges do in trades. They are the third largest internet company in the world, trailing only a couple you might have heard of, Facebook and Wikipedia. They have energized bettors and they have grown. By rallying around the needs of all those players who don't all win, but who think they have a shot to win, they have created a massive business.

Racing itself could have been Betfair and grown the sport themselves, but I fear that they would have tried to charge 20% takeouts for the bets, causing it to fail; then concluding that it would not work. Just look what some are trying to do with ADW betting, by asking for the same price over the internet as they do at a racetrack for evidence of that. Thank goodness that did not happen, or even more horse race bettors would be at home playing chess, or watching football instead of enjoying racing. That's the last thing we need.

In North America, all we seem to hear from the braintrust is "well, Laurel went to 10% takeouts for a week and it didn't work". Instead of trotting out the results of a short term gimmick that was doomed to fail, they should do themselves a favor - take off the blinkers and use some common sense. If they do, they will see for themselves that lower takeout is not just for others, it is for us too. And if that happens, we can set the table for this great sport to grow again.

Please join us and help us change racing. Your membership in HANA is private, free, and appreciated.

3 comments:

Anonymous said...

You are 100% correct. Players don't have to know what the takeout rate is. But they do know, perhaps instinctively, if they are winning or losing more over time. I love racing, but I rarely bet because of the rake. I wouldn't bet Secretariat against Black Ruby with a 20%+ rake.

Dennis said...

You cannot even get racing entities in the same jurisdictions to agree; forget across the country. It can take 6 months to a year to get even a small improvement past CEO's and board members to the engineers and programmers. Believe me, I am going through this right now with Youbet. EXCEPT, in Youbet's case, the vice president scheduled an hour with a tech for me to prove my case. After I did, the tech wrote up a proposal. The VP took it to the board who sent it to their engineers for a design proposal to fix the software problems. That proposal has been funded and will soon enter the testing phase of which I will be one key member. This has taken about 9 months and should be completed and online in 2 to 3 months.

The racing industry has been aware of their "problems" for decades and still procrastinate. Doping, cheating, past-posting, tote problems, excessive take/breakage, over charging in areas that should be free, outdated tote/pari-mutual system, etc...

IMHO, Stronach and MEC are showing us racing's future. Most tracks will close as the economy and their own actions drive away fans. When only 3 or 4 tracks are left, they will then be able to escape from the local government mentality and taxation to develop a single body that can then direct all who want to survive to adopt the changes needed.

Complete strict enforcement of no drugs or cheating allowed. Lifetime country-wide bans enforced. NO second chances. Fixed odds or wager exchanges with 5% max takeout on winnings only. No takeout on losses or wagers by winners, just the winnings. Churn will be huge and so will the profits. Tracks should be allowed to acquire full casino licenses as well with the same profit/taxation agreements as other casinos. Not the BS theft by local governments using the tracks future as hostages to steal any and all profit.

Services and handicapping tools will be free or very low cost. Food and drink reasonable.

8 out of 10 tracks must close before the government and management of those left will see that they must stop raping the race fan. There are not too many of us baby boomers left and those who are not dying are quitting. I did. I play poker now and play in 3 or 4 contests a year. 34 years of handicapping and then gave it up cold in 2002 after the pic-6 scandal. See nothing today that tells me I made a wrong choice. Keep my hand in and help where I can, like with this and Youbet. Nothing that costs me money or creates regrets.

Nature will fill the vacuum...

sports picks said...

it is not that players are not aware of the stakes in all cases ,i have been aware of a few races where the jockeys slowed due to the knowledge and some underhand dealings,however normally this is not the case, i usually try to look at the picture without this thought in mind, however large investors might have to give this a thought,
cheers,randy,

sports picks