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Ken Ramsey & Purse Red Herrings

Yesterday, big time horse owner and breeder Ken Ramsey made some major waves with his comments on Keenelend (35 minute mark and on). Quips like "they make Benedict Arnold look like a patriot", and a call for players (and the industry) to boycott the track through withholding their wagering got the most play, and deservedly so.

But he also touched on the so called reason for the takeout hike - to increase purses. Ramsey believes that it's a red herring because Keeneland gets so much of its revenue from alternate means - gaming, sales and the like. He's probably correct.

But the reason itself is suspect. Sure it's arguable that raising takeout even increases purses; in the long run it likely doesn't. However, I suspect Ramsey knows what everyone else does. Even if purses are raised, they are not optimally distributing revenue to the business, and the proposed net benefit - more horses purchased, more horse owners getting into the game - is simply not there.

The economics of $90,000 MSW's instead of $70,000 MSW's, to me, is a little like health care economics. In the US, for example, the lack of economic rationing of services causes costs to be higher, physicians allow for more tests, and the private market creates more and more products that are costly. What it does not do is allocate scarce resources in what economists call a Pareto efficient manner; which loosely means things are doing what they should, where everyone is better off.

For example, injecting capital into purses that are already at high levels does not attract more betting dollars, does not attract more owners, and causes some inflation to be injected into the system where everyone's costs go up.

For you and me, that means this MSW for us as a local owner means nothing if Chad Brown and Todd Pletcher send more horses. This means - for you and me with a small string - we're priced out of the race anyway, and worse, we check our supplement, shoeing and vet bills for our claimers at the end of the month and see the prices went up, hurting us even further.  We might as well go race at Indiana Downs or Penn National, and many of us do.

The next time we see a 5 horse MSW for $90,000 and scratch our heads, there are reasons for it. Believe me, the short field is not there because horse owners don't like money.

So, like Ramsey, many of us are often left dumbfounded by rudimentary decision making like this. It's a multi-billion dollar business, but at times it feels like new policies are enacted on the back of a napkin over a round of martinis. If that continues - and it likely will, it has not changed in generations - I don't think Pareto efficient outcomes when it comes to purse money or takeout rates are anywhere near being a realization.

Pass me another martini, and enjoy your weekend everyone. And thanks Ken. It's nice to see bettors and leading owners at the Keeneland meet on the same page. Hey, it's magical place, so magical things happen.

Comments

Ron said…
I'm not 100% positive, but I think they get the benefit of a lower tax rate when they increase the takeout. I'm pretty sure that's what happened when Churchill increased their takeout. That's a strange combination.
Anonymous said…
Michael A.

Bravo Dean.... One of your finest articles. Short... To the point... And thought provoking.
Thanks go to Mr. Ramsey for showing a lot of guts and going on the record. Speed favoring tracks, raising takeout and slot infused purses only help a tiny segment of the industry. It is truly amazing to watch Keeneland go from their wagering and ethical apex in 2013 to their current direction in 2017. Hopefully HANA, Mr. Ramsey and other concientious people in the industry can help Keeneland choose a business model that works for everyone instead of the entitled few.