Sunday, March 24, 2013

Takeout Rates & Bets for $20B Handles? I Think So

We discuss takeout rates here quite a bit, and we have for some time. There certainly is a sweet spot for takeout rates - just like there are for any other gambling game - which maximizes revenues for racing, and as a result increases bettor participation in the sport.

As we know, there is more to it: Any change has to pass horsemen groups and others who only know high takeout, and think any reduction will mean "less money". It's, like a lot of things, political rather than math or science based.

As well, we probably have not maximized different types of bets, like exchange wagering or lottery bets, which could help sell horse racing to other gamblers.  That seems pie in the sky too.

Regardless, here are some levels for each bet, and type of bet, which I think can make horse racing a more popular gambling game again. Of note, these rates are meant to be workable. This might be a politically appealing enough mix where it has, say, a 0.1% chance of getting passed, rather than a 0% chance.

Win, Place, Show : 6%

When we eat at a restaurant we look at the prices and they can help us decide what to order. The tote board is racings restaurant menu. When you see a board with lower takeout, you are advertising value to the masses. This is very important to any sport or game. A football game with a -1+1, -150 line is not appealing, and when racing, for example, has a match race with two horses at 3-5 each it is not very appealing either. You don't have to be a mathematical genius to realize you are getting a coin flip bet, at terrible odds. A low rake tote board let's everyone know you are open for business, it allows bettors to churn more money. It also allows (along with low take two horse exotics) for racing to say "our game is beatable" to sports bettors and poker players (see comments of sports bettors here, for what I mean). Because the WPS pools are a smaller and smaller component of total betting, 6% is about right. I have never, in all my dealings with racing, understood why they have high WPS takeout. It used to be 5%. It should've stayed there.

Ex and Daily Double: 8%

Two horse bets should have churnable takeout as well. People will bet more and get a bit more back. A player who bets WPS at 6 points and DD's and ex's at 8 points can become a serious player and churn millions into the pools. Casual fans can give it a go too.

Trifectas : 13% (50 cent or less minimums, can be slightly higher with $1 minimums)

With short fields and low bet increments, a 13% takeout for tris should suffice to maximize handles. Rebated players can currently get lower take than this at most tracks, but I think one can make a go of it at this level.

Supers and Pick 4's: 15%

With ten cent bets this might not be optimal for supers, as low denominations make this a tougher bet to beat, but I bet it's close. As for pick 4's there is plenty of value to be had with $1 mins at 15 points.

Pick 6: 20%

There's nothing wrong with a higher rake on a $2 minimum pick 6 pool. Tracks and ADW's can use a little of the juice to offer rebates, and for the love of gosh, small players shouldn't be wasting their money anyway, unless it's in a partnership for pure fun.

Rainbow 6, Super High Five: 25%

With big pools and a low hit rate, 25% is not a terrible rake, even though my low takeout friends will hate me for this. Racing needs to make some money off the rake if lower takeout is offered in high churn areas, and it makes much more sense to make it off of these type bets. Casual players will not become, or stay race fans and bettors if these bets are 10% takeout or 25% takeout. The "Scoop Six" in Britain is 25-30% takeout and it works. Field size has to be large to make a pick 6 at this takeout bettable.

Lottery Bet, Like a V75: 30% 

A lottery bet, like the V75 should've been created something like ten years ago. The bet, which is alive and well in Sweden, yields upwards of $10 million per week of handle, and it's become a staple for horse racing. The Swedish GDP is no larger than the GDP of Ontario or Pennsylvania, so any lottery bet in North America could dwarf those handles. This takeout can be high (a power ball takeout can be high, whereas scratch and win tickets need to be lower), and some of it can be reinvested to marketing the bet.

The power of a pick "n" bet with a distribution channel can recreate the sport of horse racing. Can you imagine, even if a couple of jurisdictions allowed it, and they added regular ADW and at the track players, what handle might be per week? In addition, what about a pick "n" lotto bet for Derby Day? 15 million viewers and millions of bettors worldwide could provide such a bet with one hundred million or more in handle if it was a staple like the V75 in Sweden is, in my opinion. Instead of showing just the red carpet, racing would show some of the pick "n" races and promote the bet. It could rebrand racing to the masses as a gambling game.


With the above we have an enticing betting mix, that provides horse racing with a much needed boost, attacking many of the issues that the $1 trillion or so gambling market hold dear.

With low takeout two horse exotics and win pools, we "That 70's Show" racing, where the tracks of the 1970's did not have supers, or pick 6's and churn was possible. If you are a player who cares about making money, this allows you to have a chance.

If you're a poker player, who like in the linked article above said "when you see a 4-1 and a 7-2 double pay $26.50 do you think horses are worth playing" you have a better payoff.

If you are the player who above said "Horse racing just seems impossible to beat. I'll throw a few bucks down on the big races sometimes, but, it's just for fun and I don't really expect to win. I'd love to see someone have a great day at the track. Like "Trotter" in the movie Let it Ride. But, that seems like great fiction." - it might not be fiction.

As well, we dynamically price exotics and super exotics, to try and bring in more money for purses and profits. The rebate system can still function of course, and the reselling system is not affected. Hitting or not hitting a $47,000 pick six rather than a $51,000 one because of lower takeout will not change the culture or grow, or hurt the game. That takeout is probably fine where it is.

The kicker of course, is the creation of the lottery bet to attack yet another demographic - the lottery player. This is not pie in the sky. Within two years it will likely be functioning in Ontario with the new Ontario Lottery Corporation/Horse Racing partnership.

This system attacks three important segments who are not playing racing, or playing it as much as they should. Handle would likely improve.

In places like Australia and Kentucky the commission or state sets a max takeout so tracks do not cheat. This of course would have to happen here. One track could not set their rates like the above on an island because this would never work if only one track did it. It would have to be industry wide. Remember, if it is not mandated, we have what happened over the last 100 years. In 1907 when takeouts were 5% there was no one to say no when someone wanted to raise it. A century later takeout has increased by over 400%.

In the end I guess it's not really applicable. I doubt we'd ever see anything like this implemented. The business is too far gone to make any collective decision. Regardless, from being a gambling geek and attending and presenting at conferences over the years, I find the above a pretty decent mix that could grow the sport. At Pull the Pocket Raceway, we'd make it so.

Have a nice day everyone.


Cangamble said...

I think the probability of this flying is closer to getting a black eye as the result of a stampede of wild elephants in your own home between 3:55 PM and 4 PM on the fourth of July during a hail storm.

Anonymous said...

The win pool takeout was exploited by betfair. They have about 5% takeouts because it is problematic to go any higher. They owe much of their success via horse racing handle to horse racing's high win takeout.

Anonymous said...

Why is it that the people responsible for lack-of-change(vision) are never interviewed or exposed?

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