The Whales & Takeout

Tom LaMarra wrote a terrific piece in the Bloodhorse on high volume bettors. This business is slowly learning about takeout, and its machinations.

• Interesting statistics came out of the forum. Roughly $2 billion a year, or just less than 20% of total pari-mutuel handle, is said to come from high-volume shops. One of them—Elite Turf Club, which has only 11 customers—accounts for 10% of handle nationwide each year.

These shops work as a low margin-high volume business. In effect, they work like online poker does. With razor thin margins they are able to lower the takeout for their customers. With low takeout, betting handle explodes.The 20% number above represents only these shops. When we factor in a dozen or so ADW's with patrons who wager good money at lower rake, I would estimate the total handle to be somewhere around 40% or more.

• The high-volume service operators didn’t reveal rebate numbers, but they sought to dispel a common belief in the industry that their players win “straight up,” or without the discount. Terry of RGS, which has about 90 customers, said that in 2011 they lost about 6% when rebates aren’t factored into the equation.

What we have above is our long-time contention on this blog, and what has been put forth by places like HANA: Lower takeout makes people believe they have a shot to win. When you think you can beat a game, you work at it, you study it, and you patronize it each day. It's not dissimilar to a college kid locked down in his room for three hours a day to play online poker. He does it because he thinks he can make money.

It's been disconcerting to chat at conferences or read the industry trade press where some respond over and over again "takeout doesn't matter". Of course it matters. These players are betting 3.0B to $4.0 billion a year, solely because they can get low takeout.

The key is where we go now with the above, and, in my opinion, we have two choices:

1) We expand the rebate base. We bring more people into the tent like this bettor I have talked about at conferences:

• I was using pinnacle offshore until the debacle. Because of the rebate I found a way to make place bets profitable. I wound up with a 3.2% loss, but a rebate of 7%. It actually was a rebate of 6.2% as they did not give a rebate on 2.20 horses.
  
  Now the kicker is, I went from betting about 30k to 50k to 1.3 million that year.It made the churn factor possible. If takeout is lowered it may have the same affect. I now have changed my play where place betting is profitable, but it is so small that I have stopped. I would definitely go back if takeout is lowered significantly.

or 2) We lower rakes across the board. The whales keep betting, because their needle does not move, but we expand, through cultivation, a new narrative that horse racing is a game that can be beat.

Right now it appears we won't be trying either option. The tracks want to see $1M bet before you get a rebate. They're using chicken or egg economics. The players who are betting $30k a year might be million dollar players (like the quote above) so there needs to be a plan to cultivate them. But the tracks have not been on board this train - it's left to micro ADW's for the most part.

We're clearly not getting the second option either. Places like California have raised takeout "to make more money". That strategy has been tried for sixty or more years and our handle has been decimated. All it tends to do (unless they raise their signal fee too high) is to increase a rebate to a few people, and we simply tread water.

Sooner or later, just as we've preached about with lower takeout through rebate that you are seeing today, it will come. One of those two roads must be taken. It might take five more years, but trust me, it will come.

Saturday note: A Slots track that puts their cash into more than purses can gain an edge, and Western Fair is proving it. It was looked at today in HRU (pdf).

Have a good Saturday everyone.