A common used term by any gambler or gambling establishment is “churn”. But what exactly is it and what does it mean?
Churn is simply the times you turn your bankroll over at any gambling game. If you bring $100 to a slot machine at 3% takeout, with a nickel minimum you will churn that hundred dollars many times, and play for a long time. If you bring that same $100 to a $5 machine it will last much less time – you will roll over that bankroll few times and probably leave the casino early.
It is easy to see that at a lower takeout slot machine the player plays much longer and has more fun. Las Vegas casinos try to maximize revenue by balancing the churn with profit. That is how they come up with their “optimal takeout” where they make the most money and keep the most customers happy and coming back.
In horse racing it is not really that different at all, and it is a big part of our enjoyment as players.
Kenny Mayne in an ESPN piece spoke of the walk to the ATM at a racetrack as the “walk of shame”. We’d all love to be able to buy a $100 voucher or have $100 on a players card and play with it all day, like the nickel slot player, but we know that all too often our cash can disappear quickly. For a long time we were the only gambling game in town, and churn was not a huge factor to those in power to any large extent. If horseplayers got mad and left, or lost all their money quickly, where else were they going to gamble?
Now however, with competition for the betting dollar and as handles fall, we want players to churn as much as possible, because churn means more enjoyment for the player and more handle for the industry, just like the casinos have long ago figured out.
So how is churn increased?
1) Decrease the takeout
2) Increase cashable tickets
3) Eliminate hard to hit bets
If we have a takeout rate of 20% and $1 million bet on the first race, we return approximately 800,000 to the players. That means for race two there is $800,000 left in the players bankrolls to rebet. After race two the players bankrolls shrink to $640,000 and so on. It takes about 18 races to bust bettors bankrolls.
If we have a takeout rate of 5%, the $1 million dollars bet in race one return $950,000 to the bettors after the race, $902,500 after race two and so on. While at the 20% takeout level bettors are busted at 18 races, after 18 races at 5%, horseplayers still have almost $500,000 in their bankrolls and they are happily churning away.
For a look at how long it takes us to go bust at differing takeout rates please look at the spreadsheets here and here.
The second way to increase churn is cashable tickets.
If horse racing had a “pick 8” on every eight race card, made the minimum $5 for a bet and paid off in the last race, churn would be very poor. Customers would not have much fun, because they would rarely or never cash and have to spend $240 on an unhittable 48 horse combo. This is why we have seen fractional wagers be added. If you play a 10 cent super in a nine horse field you are going to cash many more supers. If you play a 50 cent double, like Retama has, you are going to cash many more doubles. This adds to churn and it is a major reason this is one factor in the HANA track Ratings.
Lastly, we could eliminate hard to hit bets.
At Betfair, where only win betting is allowed, there is a great deal of churn because with low take and win bets only, players cash frequently. In press releases and their annual reviews they mention this is a huge part of their success as a gambling company – players think they can win. In the 1970’s that menu was similar in the US – there were very few exotics – and a lot of players thought they had a shot to beat the game. In fact, some tracks only had two or three exacta races a card, and sometimes a tri in the last race. Just like it is easy to churn at betfair, it was much easier for tracks to add handle in the 1970’s because of increased churn. Today, with hundreds of races a day to bet, with many hard to hit exotics, (some at a $2 minimum) we can lose the GDP of a small country in a half an hour.
Maximizing these three parts of churn is a like walking a tightrope for horse racing. We know the takeout is too high, and every piece of literature backs that up, so lowering it will help, but the other two are very hard to decipher. Do we cut exotics and hurt short term handle to grow churn? Do we add very low fractions for every exotic wager which makes the payoffs less attractive for people who love the ability to make a big score? Do we stifle choice where choice can hurt handles, but it also up handles as more choice assures that?
There is a formula which maximizes the customer experience along with revenues for purses by maximizing churn. It has to be found and all tracks have to follow it, or the system will break down. It takes some organization, which we seem to lack in our sport at the present time, but if we ever found the right spot, our sport will grow.