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Tuesday, August 19, 2014

Double Gate (Part II)

Yesterday we exposed the flawed logic used by track management, horsemen, and state regulators to justify takeout increases at Los Al, Santa Anita, Golden Gate, Hollywood, Del Mar, and Churchill Downs.

In case you missed it, the logic goes something like this:

"We make more money with higher takeout because last year's handle numbers multiplied by this year's higher takeout rates is bigger than last year's handle numbers multiplied by last year's lower takeout rates."

But in the real world it never works out that way.

Why not?

The logic is flawed because it fails to account for the fall off in handle caused by higher takeout rates.

In California, this same flawed logic has been used by track management, horsemen, and the CHRB to lobby the Legislature and Governor’s Office for changes in state law. (SB1072 is one example of this.)

Yesterday we also pointed out that takeout increases based on this flawed logic have not helped racing as their proponents had suggested – but have had the opposite effect.

Instead of bigger field sizes, more betting handle, and more purse money being paid out as promised: The real result has been the worsening of an already falling handle trend, fewer dates, fewer races, less purse money paid out, cutbacks in hours worked, and lost jobs for workers.

We also pointed out that California’s handle woes in 2011 were not caused by the economy. During the same fiscal time period that California racing handle was falling off a cliff because of SB1072 – the California Lottery was generating record dollars going to Education because of AB142 and its higher prize payout (lower takeout) provision.

For those of you who might not know, racing is facing a crisis in the form of a downward handle trend. According to The Jockey Club website North American handle peaked in 2003 and has fallen sharply since. 

We at HANA can’t emphasize strongly enough how critically important it is that decisions about changes in takeout rates not be based on logic that is flawed. 

To that end, we prepared a spreadsheet that can be downloaded: here.

The spreadsheet contains a look at Santa Anita Double Pools. There are six tabs going across the bottom.  The left-most tab is labeled DD SUMMARY









The above image shows the first section of the DD Summary tab. Here we are presenting a year over year comparison of handle numbers for double pools in isolation for the first Santa Anita meet that was run this year vs. the Santa Anita meet that was run at this same time last year. As indicated on row 4, this year's meet began on Dec 26, 2013 and ran through Apr 20, 2014.

For this meet, Tom Ludt of Santa Anita fought for, and obtained permission to implement 18% Takeout Doubles on an experimental basis from higher ups at The Stronach Group, the TOC Board, and the CHRB. For that Ludt is to be applauded.

However, Santa Anita was not allowed to offer Rolling Doubles at 18% takeout. I am unclear as to the exact reasons why but instead of rolling doubles they were allowed to offer three doubles only each race day.

Thus, the wide differential in doubles offered: 545 last year vs. just 207 this year.

This accounts for the wide differential in double handle: $20.55 Million last year vs. $13.98 Million this year.

Despite being handcuffed, Ludt's reduced takeout double experiment did show some promise. Average double handle per race rose 79.16 percent.

----------------------------------------------------

Before diving into the numbers on the second section of the DD Summary Tab, for benefit of those interested in examining the numbers closely, I should disclose that last year's Hollywood Park meet began on Thurs Apr 25, 2013. However, there was no live racing at Santa Anita on the same calendar Thursday this year. Also, Hollywood Park conducted live racing last year on Thurs May 16, 2013 and Thurs May 30, 2013. There was no live racing at Santa Anita on either of the same calendar Thursdays this year.

In an attempt to achieve as close to a like date (apples to apples) comparison as possible, handle numbers for Thurs Apr 25 2013, Thurs May 16 2013, and Thurs May 30 2013 are purposely not included in the analysis presented in our spreadsheet.

Also, before diving into the numbers, it is important that I point out we are comparing handle numbers from Santa Anita against handle numbers from Hollywood Park and that Santa Anita traditionally out-handles Hollywood Park. For that reason, it is important that we establish a benchmark.








The above image is a screenshot taken of the lower right hand corner of the Side by Side tab on our spreadsheet. It shows that Santa Anita out-handled the Hollywood meet we are comparing to by about 17%. (17% is our benchmark.)

With that out of the way, let's dive into the numbers on the second section of the DD Summary Tab:







The above image shows the second section of the DD Summary tab. Here we are presenting a year over year comparison of handle numbers for double pools in isolation for the second Santa Anita meet that was run this year vs. the Hollywood Park meet that was run at this same time last year. As indicated on row 10, this year's (second) Santa Anita meet began on Apr 25, 2014 and concluded on Jun 29, 2014. As indicated on row 9, Hollywood Park ran at this same time last year.

Unlike the first Santa Anita meet that was run this year, Ludt was able to win permission to offer rolling doubles at 18% takeout for this Santa Anita meet - albeit on an experimental basis.

The result?

Double handle rose about 24 percent.

Keep in mind that this was after a lot of players had become disenfranchised because top decision makers had refused to allow Rolling Doubles to be offered at 18% takeout the previous meet.

Also keep in mind that at 24 percent, the growth rate in Double handle was more than 1.4 times the growth rate in overall handle for the meet. (1.41 = 24 / 17 our benchmark number.)

Clearly the 18% Takeout Double Experiment was showing some promise.

Clearly the decision to not allow Rolling Doubles for the first Santa Anita meet was a mistake.

Clearly the net cost to purses because of the 18% takeout rate was nowhere close to $500k as claimed on page 83 of the July, 2014 CHRB Meeting Transcript and quoted in our write up from yesterday.

Frankly, if Santa Anita were my racetrack - and my management team had shown me that they had raised double handle by 24% (or more than 1.4 X my growth rate for handle in general) once they began offering Rolling Doubles at a reduced takeout rate:

My decision would have been to continue the Experiment!

Jeff Platt
President, HANA

2 comments:

Craig M said...

Posted this at Pace Advantage, also adding here:

The simple question tracks need to answer in these situations, but never seem to bother, is if the increased handle is enough to offset the drop in takeout.

Let's use Jeff's 24% increase at 18% vs 22%. Assume the following:

Handle at 22%: 1,000,000
Handle at 18%: 1,240,000

Revenue via takeout at 22%: 220,000
Revenue via takeout at 18%: 223,200

So not only did handle rise, which we all knew it would, it rose enough to INCREASE REVENUE. Only fools would fight against that. Further drops would probably raise revenue more. There would be a tipping point. But instead of trying to find it, the industry (most, not all) seems hellbent on going in the wrong direction.

Tinky said...

Excellent work, Jeff. One small nit to pick: I'd say that "a lot of players had become" disenchanted, rather than "disenfranchised".

Cheers,

Tinky