Tuesday, July 4, 2017

The Changing Horse Racing Rebate World

DeRosa did a little bit of 4th of July tweeting today on the twitter:
He's generally right when it comes to casual players, of course. Four team parlays at terrible juice are still popular in sports lotteries around the world, because people are playing to be playing. No player alive can bet into Parx juice (other than maybe spot playing) and end the year up money, but it still attracts some handle.

What's not quite correct about the Parx numbers - and this has been true forever - is that Parx still does decent handle because of low takeout. At the present time, a large player doesn't pay 30% for supers, he or she pays about 9% - rebates for Parx are in the 21% range for serials.

Without that low takeout, Parx's handle is in the toilet. I doubt they'd do more than $700,000 a day.

This has been a phenomenon we've seen for some time - lower takeout in horse racing has been delivered through rebate. But that too has changed.

Ten years ago, lower takeout was achieved through rebate for anyone who looked for it. If you were betting $50,000 a year and wanted to get better, you could through a price reduction; for example, you too would pay about 9% for a Parx trifecta. Now, with increased signal fees to smaller ADW's, that margin has been eaten away. Those playing $1M or more a year (many of whom are funneled into CDI and Magna's rebate system) can get the largest price breaks.

As well, the largest signals - the ones most want to play - have had fees go up for casual players seeking lower juice. A rebate to a medium sized player at Santa Anita, for example, will be in the 3% or 4% range on their 22.68% exactas - paying about 19% takeout. For a large player in these track run systems, he or she will get a rebate in the 12% area, paying about 11% takeout.

The result of this, in my view, is threefold:

i) Smaller tracks have subsidized a larger track's handle from receiving more margin from players  in the $50,000-$500,000 per year range

ii) An important funnel which cultivates medium sized horseplayers, and helps turn them into larger ones through better pricing, has been hampered

iii) Medium sized players are getting ground down by higher takeout more

Twenty-five years ago rebating was a bad word for horse racing, because those in power had lived with a monopoly for so long they did not respect the effects of pricing.

Ten years after that, with handle increasing rapidly from this very subset of customers, they realized how important it was, and the system was much more laissez faire.

Ten years after that, the system has been regulated by the large signals to their benefit, and the medium to smaller horseplayer has been hurt.

What ten years hence brings is anyone's guess. However, the way the current system has evolved, I'd suggest it will be sub-optimal, and will likely continue to be controlled by the large tracks in some form. That's bad news for the horse racing customer funnel (more food trucks, less good pricing for them to learn the game), but good in the short to medium term for the big tracks (more market share).

There are two possible solutions: Lower takeout at the source, or expand rebates through an industry-wide customer cultivation effort. Neither are likely, however. The big track entities like it just the way it is. 

Enjoy your 4th of July everyone.

1 comment:

CecilJonesSchmitt said...

Thanks for this VERY insightful post. I always learn something helpful in your writings.

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