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Horse Racing's Bill Murray Wagering Model

There are plenty of internet rumors that low-takeout, value stalwart Keeneland is looking at raising their takeout rates on selected bets. This, for your average horseplayer who has more and more trouble finding churn, is certainly disconcerting. However, in my view it's part of an overarching trend in horse racing, and it's been going on for some time.

Twenty years ago horse racing was in a pretty decent spot -- slots were churning, supply was up, and purses were fairly solid. The wagering numbers, however, were pretty much flat.

About the same time a new way to play horses was emerging, though, through rebating. Price sensitive punters could find - if you looked, at times pretty hard - deals on wagering that lowered their takeout and increased their churn.

The reaction from racing was, well, to put it mildly, not very welcoming. You heard a lot about how it would be the death of racing (because, the thinking said, charging 22% was the only way to stay afloat), and that the "show" would suffer. These shops were shunned for the most part, and places like Woodbine not only would not sell to them, they lobbied hard to have them shut down.

Over the next several years, despite barriers to entry, handle blossomed. Racing could not keep the genie in a bottle, and with their best customers demanding better deals, had to let the market talk. By 2003, forward thinking shops like Premier Turf Club were bringing lower takeout mainstream, to even smaller players.

This is about the time handle peaked.

Fifteen or so years on, racing, who shunned this rebated action, and who tried mightily to stop players from receiving lower juice, have now embraced it -- as long as they are the one's giving the lower juice. Instead of Premier Turf Club, and others, it's now the large entities themselves owning this space. Xpressbet, for example, has a shop, as does CDI.

An issue with this, is that lower juice is no longer mainstream. Yes, racing has embraced the concept of lower takeout, but they will dictate who gets it, and that person or persons are the ones already betting a lot of money.

Why this can be dangerous, in my view, is that it allows racing's braintrust to cling to old models. Since about 2015, they believe that top line takeouts can go up for new players and existing players who don't bet much, and signal fees can go up in the same fashion (to crowd out lower level rebating ADW's). These players then subsidize the larger ones, who will continue to get lower juice. 

I believe this is why you're seeing so many tracks look to top line takeout hikes. They've subset the customer base, and are employing the same harvesting strategy they always have. Smaller players pay more, larger players are continuing to pay the same.

What's odd, and this seems to happen often in racing: The entities which never saw the market changing with rebating and lower takeout - in fact, the industry that called it "pirating" - are now trying to run the system based on a model they hated and never believed twenty years ago. But they've made it even worse.

I believe this mindset will be the preferred racetrack narrative for about 10 to 15 more years. At that point, when it doesn't work to grow top line and handle is again degraded, they will begin to pivot to the place they probably should've pivoted to in the year 2000. We will probably see lower takeout for the masses through expanding rebates, 8% (or lower) fixed odds wagering, and a more modern big-tent system.

Smaller players, or those looking for deals to remain every day players, have been, and will continue to be in a very precarious position. They will continue to leave, or bet a few dollars on the weekends. The top of the funnel is not healthy, and with this strategy, will not get any healthier.

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