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.


Eric P said...

It has been my contention that Rebates are ruining the GAME of pari-mutuel wagering by creating an unlevel playing field amongst its competitors. Pari-mutuel wagering on horse racing is a GAME. Rules were originally created to give all those playing the GAME the same statistical chance of winning. Rebates have allowed certain competitors to hold a statistical advantage over other competitors playing the GAME. Allowing one competitor a statistical advantage over another competitor perverts the pari-mutuel model and tilts the playing field. Then when you factor in some Associations adding a ‘premium takeout’ applied on a geographic basis the playing field becomes tilted even more. Finally when some horseplayers are able to place $0.10 minimum wagers, while competing horseplayers must wager $1.00 minimum on the same wager, the playing field becomes so tilted, that the game is not worth playing.
Do professional golfers who play in 20 tournaments a year get a 50 yard advantage on each hole played verse golfers who play in 10 tournaments a year? Would a game of scrabble be fair if one competitor uses 8 tiles verse another who uses 7 tiles?
Simply stated the ‘bakers dozen’ theory of volume purchasing should not apply to pari-mutuel wagering. Give Whales free trips, free food, chauffeur driven limo’s, a penthouse at the track, but if the integrity of the GAME is to be preserved the GAME must have a level playing field.

Cangamble said...

Eric, rebates are actually saving the game right now as they are proving to the industry that the game is overpriced, and they are creating some downward pressure when it comes to overall takeout rates.
Since they are available in over 30 States, they are giving players more hope that the game can be beaten.

If the game was priced correctly rebates would not be needed, that goes without saying. But until that day happens, they represent the only hope for a player to beat the game, and the possibility exists that newbies will be attracted by the perception that the game can be beat in the long term.

If you removed rebates tomorrow, handle would nose dive, more players would stay away from more pools, and the fact that the average takeout might go down a bit for the non rebate player, perhaps from 20.5% to 20% collectively, not an extra winner will be created.

As for the golfer analogy, professional golfers can afford to play each day which enables them to stay better than the general public, they can also afford to pay for the best clubs, etc. They do have an advantage (which someone with determination and a bankroll can also attain...the same advantage that can be attained by the Horseplayer who goes whale). I look at it as a carrot stick, and every gambling game needs a carrot stick to grow.

Jen Morrison said...

Hi Mr. Pocket
off topic - I am looking for someone who can write a thoroughbred handicapping story of 1,000 words or so on Handicapping in the Spring for canadian Thoroughbred magazine
desperate - any ideas?
tight time line too

PTP said...

Adam and @gregreinhart are possibles that I can see, Jen.

Not that you asked, but I'm swamped ...... and as most know, I need a really good editor :)

JK said...

My question is how do these guys go about calculating their win %. For example, they put through $1,000,000 a year in bets and make 6.2% Does that mean they end up with $62,000 more than they started with? Or is it less because of the $1,000,000 they bet, most of the money probably gets bet numerous times. So maybe they start out with $100,000 and with winnings etc... they end up betting $1,000,000. Are they up 6.2% on the $1,000,000 or on the $100,000 they started with?

Great article.

Pull the Pocket said...

Hi jk,

That's on volume bet. If you bet $1M and make 2%, you made $20k for the year.

Most big players work on really thin margins. 2% return after rebate is a nice year for a huge bettor. (e.g. bet $10M and make 2%, which is a $200k year).

Thanks for the comment!



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