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Friday, September 24, 2010

Takeout Increase Signed in California

Today the California governor signed the California thoroughbred tracks takeout increase into law.

For exacta players, you are particularly getting a poor deal. The 22.68% takeout is punishing. In fact, California exacta wagers are now the 60th worse value bet for that choice on the entire continent. They just edge out Los Alamitos, who as everyone knows, hiked take this spring (and suffered tremendously).

It will be interesting to see the effects. Handle will go down over time, that is assured. But by how much?

When speaking to our economic adviser here at HANA on takeout, they pointed us to the duration element in terms of analyzing this hike. As we all are well aware, a price increase does not affect demand overnight - it is a slow grind. So, as Tampa Bay Downs, who has lowered takeout since 2001, has grown their business and handles incrementally over time, the opposite happens with a takeout hike.

For example, from Wikipedia:

"Duration: for most goods, the longer a price change holds, the higher the elasticity is likely to be, as more and more consumers find they have the time and inclination to search for substitutes. When fuel prices increase suddenly, for instance, consumers may still fill up their empty tanks in the short run, but when prices remain high over several years, more consumers will reduce their demand for fuel by switching to carpooling or public transportation, investing in vehicles with greater fuel economy or taking other measures."

This economic principle helps explain the slow burn of handle over the last decade (people going slowly broke, searching for other games to gamble etc), as well as explaining how short term reductions never do a lick of good. People do not just leave day one, they simply find they have less money over time, and leave one by one, hurting our growth. Even in Hong Kong, who lowered takeout effectively by 2% in 2006 to try and stem seven straight years of handle losses, the positive metrics (an increase in handle and a 9% increase in purses), were not felt until late in the year.

One might have the opinion that in two or three years, California and the CHRB will be back, asking for another increase, because this one did not do what they wanted it to do (remember, this same jurisdiction raised take only five years ago to "fix problems").

It's what racing does because we have a dearth of leadership and do not manage based on fact, a business case and sound economics, but on emotion, and band-aids. Appeasement and the path of least resistance is not a policy; it is an albatross in an industry devoid of ideas. It will continue to resurface, until we put people in charge who embrace change, respect and a modern vision with regard to their dwindling base of customers.

2 comments:

Scott Ferguson said...

so can Californians bet at better rates on interstate tracks, or do they have their greedy hands out for that too?

Anonymous said...

Scott: Don't give them any ideas!

As far as I have read they have not yet increased the hold on NYRA racing to 30%.