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Sunday, July 5, 2009

Takeout Discussions on HRI - Fotias

I can think of no better example to illustrate the effect of takeout rates (commissions) than the biggest casino on the planet, the New York Stock Exchange. When I started trading stocks in the 60’s (thanks to a custodial account my parents opened for me) all trades had a fixed commission based on the price of the stock. Average daily volume at the time was around 6 million shares a day.

Everything changed on May Day 1975. Fixed commissions were banned. The old line brokerage firms, fearing competition amongst themselves and from the nascent discount brokers, were quite alarmed. The old boy network was under attack. But look what happened over the next 30 years. Sure, commissions were slashed 90% or more for both retail and institutional investors but, despite their original fears of market-driven pricing, the brokerage houses began to make more money than they ever had before. Although their “takeout rate” had been dramatically reduced, trading volume increased exponentially. Two billion or more shares a day are now traded routinely.


Cary Fotias is a HANA Advisory Board member and a long time horseplayer. He has (like many of us) for years tried to get our industry to understand that the great game of gambling on horse racing has been passed by due to inaction, the status-quo and a lack of leadership. In his most recent piece on HRI, he explores many of these issues and passionately answers questions from readers.

Many of the topics have been discussed here by your friendly neighborhood HANA bloggers, however it is nice to see another solider so eloquently (and at times not to eloquently :)) handle the questions and comments.

One example is to a poster who has commented here that if tracks lowered takeouts they would go "broke":

Todd says:
02 Jul 2009 at 12:46 pm | #

cary,

10%-12% tops huh? Basically you are cutting the takeout in half. Good for you, good for the HANA boys but what about the horsemen? Lets take the leap and say this happened. Can you say that handle will be 30 billion with this cut? Unless the industry sees some proof of this kind of double in handle to offset the cut in takeout you are pushing a rope. Racing Czar huh? The alphabet soups will never appoint a tout in this position. Sorry. Go get a job mucking some stalls for a few years, a resume builder.


Response:

Hi Todd-

Obviously, you got poor grades in Economics 101.

If the takeout levels I propose were adopted (and my other recommendations re techlogical improvements in the wagering infrastructure and seamless distribution), handle would EXPLODE. If it ONLY increased to $30 billion, I, like Captain Renault, would be “shocked, that so liitle gambling was going on”. It probably would go to $70-80 billion within 7-10 years. Think the horsemen (which you sound like) can live with that?

In short, all parties benefit greatly from such an exponential increase in handle.

This industry has NEVER been operated like a real business due to political infighting, bureaucratic
squabbling, misguided moralists, and pure ignorance when it comes to the laws of supply and demand.

I am not a tout, sir. I make a good living betting on horses and, find me one other “tout” who shows over 100% ROI (that’s return on investment, if you were wondering) on his public selections as I have on this site as a favor to executive editor, John Pricci and HRI readers such as yourself.

I am doing my best to improve our great game of thoroughbred racing. I don’t have time to muck stalls, right now. If my plan were to be enacted and failed to deliver, I’d agree to muck a few.

Cary


The full exchange and post is here and is well worth the read. We are happy to have Cary a part of HANA.

If you would like to join us and add your voice to the growing masses who are, like Cary, tired of the direction this game has been taken, please join us here. We need your help and you CAN make a difference.

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