Betting Decisions Are Made to Fit a Box, Not to Increase Revenues

There has been a lot of discussion of late via #simocon about racing, betting and signals and all the rest. The main theme is that racing can not do much, and things like lower take are not important because it won't do anything.

Those comments come from people that are starting with a simple premise. The premise being, racing is in its own box, and since we have to live within that framework, all decisions are tied to it.

Racing's takeout when the pari-mutuel industry began was 5%. This is back in 1907. Since then, tracks, horsemen, and states have added a percentage here and a percentage there to get where we are today - a blended takeout rate of about 22%. This was not done scientifically, it was done because it could be done. Racing was the only place to gamble, and a percent increase brought more revenue in.

Most monopolies are regulated in price. Your hydro company cannot charge a 5% fee in 1900, and have it raised to 22% in 2013. It would probably kill GDP as fast as a three-legged gazelle running from a lion on Animal Planet. Racing was never subjected to the same pricing mechanism. It created a system whereby slices are given out (as a monopoly) and when the monopoly came crashing down with casinos and lotteries, the system did not reboot, it stayed with the same system.

This system is alive and well, and as you can read from #simocon, it dictates every decision racing wants to make, primarily by fostering the words we are all too familiar with "we can't do that".

The problem with that - and it is a huge problem - is that "we can't do that" is code for "we can't grow". Even when a good idea comes along, it can't work.

The Ellis Park pick 4, which we were speaking about on twitter, involved a 4% experimental takeout at that little track in 2007. Chris Scherf and others at the conference will have you believe this did not work. It was a failure.

In 2006, pick 4 handles were about $17,000 a pool. In 2007, with 4% takeout, the pools grew to $42,000. In the second weekend of the meet, $65,000 was bet on a Saturday, with a bunch of 5 claimers racing, which was third to So Cal and NYRA, who were carding stakes cards. The Claiming Crown card near the end of the meet had a $90,000 pick 4 pool. This all at a little midwest track that I had no idea what town it was even located in.

Remarkably, this was achieved with little distribution. Many ADW's would not take the bet, a lot of tracks and OTB's would not, and in Canada, they left the takeout at 22%, not 4%. Virtually half the betting world would not even let you bet it. But there it was, up about 260%. Bettors seemed to be finding a way to bet it, and the bet was ripping.

The following year the bet was disbanded. Ron Geary told everyone that bettors liked it but the industry did not - he could not get distribution. Handle at Ellis was actually down year over year. No distribution to big outlets = no handle.

What did that little pick 4 do for racing? It increased handle by 260% on the bet, it got more eyeballs on a track that few people out of Kentucky even played. Ron Geary got free impressions on blogs, news stories, the DRF and chat boards. Poker playing websites were talking about racing "finally getting it". And now, in 2013, you can't go anywhere without finding a low takeout pick 4 or pick 5.

If Ebay, or any other company had a loss leader promo that decreased a price by 80% and got that kind of mileage from it with more viewers, more eyeballs, 260% more gross sales, new members and a CPM that's microscopic, they'd love it. Racing, ah, not so much. 

Personally, it did much more than that. It made me a thoroughbred player again. I found out about it and wanted to get back into betting. After weeks and weeks of searching, I finally found someone who would take my bet. I purchased software for $700, gave Bris a check for $2500 for back data and away I went. I don't want to tell you how much money I have played in the thoroughbred pools since 2007, but it's more than $50 and a falafel on food truck day.

At #simocon you will hear people say this "doesn't work".  It 'didnt work' because the box they are working in, and decisions are based from, was built a hundred years ago. It strangles racing and has for many years.

That is why decisions are made in racing as they are. There is no one looking outside the system. When someone does, they are crushed. "Get back in the box innovator, we don't need your kind here"

Working to change the system, by looking at blended rake signal fee tweaking, retooling government deals where gross profits are taxed instead of handle, writing into simulcast contracts that to take a signal, all tracks must accept all bets - things that should be worked towards as a huge goal, and done to increase revenues and innovation, are not spoken about at simo conferences.

Instead the famous racing words we hear so often are repeated, like a flock of Trumpeter swans:

"We can't do that"

Well if you can't do the things that are needed to expand - and even worse, when they are staring you in the face you shoot them down -  you should not be surprised that you've accomplished the mission to shrink.

Yesterday at the simulcast conference the panelists told us we can't grow. Like we already didn't know that; our handle is down about 50% in inflation adjusted dollars the last decade or so. Next year the conference needs a topic called "Ways to tweak the system to give customers what they are asking for. "

That topic, unlike the ones this year, will be worth paying attention to.


Unknown said...

Remember this when Keeneland tried to REDUCE takeout?

Sal Carcia said...

In the 4% P4 example with increase in handle to $47k, the revenue is $1.88k. If the takeout on the original $17k average handle was 15%, the revenue is $2.55k. So how is it that losing revenue is a success?

Pull the Pocket said...


You're killing me buddy. :)

Today when you go out and pass a furniture store there may be a kiosk outside offering free hot dogs. The store doesnt do that because they give away 212 hot dogs that cost them $212 and have an ROI of zero and never do it again. They do it to draw customers and maybe next week, or next year or whenever, someone comes back to buy a couch.

I will give you a real world example.

The Balmoral park pick 4 take was cut from 25% to 15 in 2010. During the first four months, the pool went from $8,400 to $11,000. According to you they should've stopped. And don't be shocked, it almost was stopped because 15% of $11k was less than 25% of $8400.

There was a gentleman there who asked the execs to give it time (he is a bettor) and they reluctantly agreed.

30 months later the pick 4 handle averaged $32,249 and overall handle on the pick 4 races themselves was up close to 30%. Overall nightly handle rose from $845k to 1.029 million.

You have to give betting promotions time. They can work if done correctly.


Cliff said...

PTP - Ellis is not some "track no one knows." It's the summer Kentucky circuit track. After 4 weeks you increased the revenue to the track FOR ONE BET by just $200 but you admit it forced simulcast tracks to drop the track because they had no margin anymore. Ellis actually lost handle because they lost distribution.

Pull the Pocket said...

Hi Cliff,

"PTP - Ellis is not some "track no one knows.""

I agree, I didnt know much about it, so I should've phrased that better.

"Ellis actually lost handle because they lost distribution."

That is exactly my posts point.


Lenny said...

Deep in the archives of my website you'll find examples that support your point of view. Laurel lowered takeout during their late summer meet (which no longer exists) and handle increased. When the raised it back to normal levels handle went down. They gave it no chance to succeed. Similarly Tampa had year over year increases in handle and revenue after lowering the takeout on their Pick 4 several years ago.

The bottom line is takeout rates need to be lowered for more than a week or month to determine if the experiment is a success. Maybe one day a person or group with economic common sense will buy a track and maximize revenue by doing the common sense thing and lower takeout rates.

@racetrackandy said...

The last time I checked the industry wasn’t doing all that well. I don’t know of any successful business that holds and industry meeting, invites reporters, and then takes subtle shots at their Customers. Can Racing Executives really afford to alienate anyone?

In 2010 and 2011 a lot of people thought the low takeout P5 in California was a loser even though Santa Anita was experiencing its worst meet in its history (handle). If I remember right that for the first time ever Hollywood Park handled more than Santa Anita in 2011 because they had the guts to put in the low takeout wager against the advice of just about every industry leader in California. It exceeded expectations of the most optimistic among us. It sounds silly now but why did it take a boycott to get something that just about everyone agrees is the best bet in Racing?

Takeout adjustments work differently at different places. When you make adjustments to takeout rates (like our suggestions for California Racing) they must be accompanied by an intense marketing campaign. To kick off the low take P5 Hollywood Park took our advice and placed banner ads on Horse Racing message boards and offered free PP’s for a limited period of time. Like I indicated yesterday 2.5 million in new money P5 handle at Del Mar on one day was a record for first race of the day exotics. Despite being in for three years now on Sunday at Santa Anita handle on the P5 was up 45% over the same day last year.

Indulto said...

With apologies to John Lennon and Paul McCartney:

I’ve got something to say that might cause you pain
If I catch you reading racing blogs again
We won’t bring takeout down
And make handle fat
Because I told you before, oh
We can’t do that

It’s the second-guessing that’s doing us in
Do I have to tell you one more time I think it’s a sin
To make handle grow
And customers satisfied
Because I told you before, oh
Those bloggers lied

Well everybody’s green
Cause we’re the ones who run the show
But if it’s seen
We’re doing it wrong, we’ll all lose our jobs

So please listen to me and let me sleep at night
We can’t experiment with takeout, it might prove they’re right
And then we’ll all be replaced
And racing will prosper
And like I told you before, oh
We can’t have that

Sal Carcia said...

In this context, I agree. Whenever, I talk about this I usually use the words 'short- & long-term'. If they raise the take, it usually increases revenues short-term because it stretches the bettor. But, long-term the some players get frustrated and leave. The player and track are not necessarily cognizant of the reason. This is even worse because it is a silent killer.

So, once again, I agree. It is difficult to get businesses to think long-term. Businesses are always pushing revenues up in the cycle. Maybe, racing executives think this way. It is hard to give up revenues without having a lot of confidence about future gains.

Sal Carcia said...

Racing executives have developed an unhealthy disdain for their customers over the years. Someone called it "utter contempt" on Twitter. If I was a racing marketing person, I would try to work the influencers in the game. If I could satisfy them, then I could positively influence a much larger group. And ultimately, I would hope my core fans would help influence more people to be part of this great game. Horseracing marketing people need to understand the greatest pain comes from the customers who care the most.

ron said...

The problem for the host track with lower takeout, is a lot of players will cash a bet at a lower take out and then make a bet at a high take out track, thus reducing some of the benefits of the lower take out. If we could get all tracks to lower take out, then get rid of this computer robotic batch wagering that makes a shamble of the board from the loading of the gate til the final flash. Being able to make dozens of bets in a blink of an eye after analyzing all the wagers at the last second, gives a bad perception and is bad for the game. In my opinion of course.

ron said...

Also, since practically all the big bettors and many smaller bottors are getting rebates , which is basically giving them lower takeout,it takes away the incentive of the tracks to lower takeout, knowing the net gain won't go up much because the rebates will just be lower for said players.

Jerod said...

Ron - I agree with many of your points, but disagree that many small bettors get rebates - at least in any sort of worthwhile proportion to the takeout.

Sal Carcia said...

The bot players are not horseplayers per se. They are parimutuwl pool skmmers, self admitted at that. Why they are allowed to exist is beyond me.

And I do believe the rebate play needs to be looked at more closely. The pari-mutuel system is complex and rebates to a few in essence raises the effectiive takeout of the majority of players. This has the same negative effect that high takeouts have on the game. It drives away players.

ron said...

Jerod, you're probably closer to being correct then I am.

JLB said...

Jerod, as a small (make that VERY SMALL) bettor, I find that an ADW like Red Mile Bets gives me 5 % on virtually every WPS wager, which, to me, is significant.


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