Inspector General's report on NYRA takeout fiasco released

[foregoforever]

Sorry, I don't have the time to find that old, bloated thread on this issue. But the report came out today:

http://ig.ny.gov/pdfs/NYRAPublicReport2014.pdf

It's 125 pages. I haven't mucked through it all yet, but my first conclusion is that no one at NYRA ever recalls either sending or receiving an email.

The second is that Kehoe, the general counsel, was the main culprit, much more so than Hayward.

I need some more coffee before getting back to it.

[DJofSD]

A quick scan of the report, including the recommendation section, shows the IG discovered multiple failures at multiple levels within the NYRA and within government. The recommendations attempt to put into place requirements to have the NYRA operate more like an organization with fiduciary responsibilities -- or at least to start acting more like one.

The other shoe will be if the AG's office acts on the report in order find if there were any breaches of applicable laws. And then there will be the question of intent.

My bet? No one will be prosecuted, and, perhaps some shuffling of personnel. No mas.

Thanks for posting the link to the report.

[Tom]

So government was part of it all.
And this report is how frigging AFTER the fact?
The only crime I see here is the Inspector General is a lazy SOB.

[badcompany]

Sorry, I don't have the time to find that old, bloated thread on this issue. But the report came out today:

http://ig.ny.gov/pdfs/NYRAPublicReport2014.pdf

It's 125 pages.

Definitely a job for the retired PA Members.

[EMD4ME]

Definitely a job for the retired PA Members.

:lol: :lol: :lol: :lol: :lol:

Seriously, that's true!!! Help!

[Ocala Mike]

Thanks for the link; I bookmarked it for future reading. I qualify as a "retired" PA member, and I have a special interest in this report as I used to audit NYRA for the NY State Tax Department prior to 1991, when our services were deemed "surplus." :D ;) :rolleyes:

[OTM Al]

It is an interesting read and gives those who regularly said "Why don't they just...." real insight to the politics involved and the layers and layers of boards and committees put in place by the State. Major points I get out of this are:

Basically everyone from NYRA who was named in the report is no longer at NYRA. Note the lack of names when it came to State regulatory boards who also shared in the blame.

The statement at the end by Skorton is almost laughable.

I especially love the email where Mr Hayward discusses the fear of trying to lower takeout and the expected response from powerful members of the NY gov't who had their fingers in the regional OTBs and how those OTBs wanted high takeout to pad their bottom lines.

[Zydeco]

On page 2 it listed 22 people on staff for this investigation.....wow!

[Stillriledup]

On page 2 it listed 22 people on staff for this investigation.....wow!

Incredible. :D

[Ocala Mike]

After a quick read, I conclude that it's a "nothing to see here, move along" deal.

Lots of repetitive crap leading to the undeniable conclusion that the functionaries at NYRA, the Racing & Wagering Board, and the "independent" auditing firms just called in their jobs every day. Everyone thought that it was "not my job."

My old boss at the track is mentioned in footnote 60 at the bottom of p.81, although not by name, as is the Albany newspaper article of two years ago for which I was interviewed and gave a statement.

[Robert Goren]

Like a lot of government investigations, the report didn't come out until long after what they are investigating has become very old news.

[foregoforever]

A very interesting read. I now have a reasonably clear picture of how the mistake was made and who was primarily to blame.

How does Hayward come out of all this? It's clear that his misunderstanding - that the sunset gave NYRA the OPTION to reduce rates rather than REQUIRED the reduction on exotics - came straight from Kehoe. The whole mess was a result of the mistakes by Kehoe's law department.

The captain is ultimately in charge of the ship, of course, and Hayward needed to go down with his. But after reading the IG report, I think that most of the vitriol that has been directed against Hayward is misplaced. He might have dug into the law more deeply ... but in the context of all the other crap NYRA was dealing with at the time, he should have been able to rely on Kehoe's department to correctly interpret the law. They let him down.

[OTM Al]

A very interesting read. I now have a reasonably clear picture of how the mistake was made and who was primarily to blame.

How does Hayward come out of all this? It's clear that his misunderstanding - that the sunset gave NYRA the OPTION to reduce rates rather than REQUIRED the reduction on exotics - came straight from Kehoe. The whole mess was a result of the mistakes by Kehoe's law department.

The captain is ultimately in charge of the ship, of course, and Hayward needed to go down with his. But after reading the IG report, I think that most of the vitriol that has been directed against Hayward is misplaced. He might have dug into the law more deeply ... but in the context of all the other crap NYRA was dealing with at the time, he should have been able to rely on Kehoe's department to correctly interpret the law. They let him down.

I agree with what you say here, though I still get the feeling on reading this thing that certain political appointees were not looked at too closely regarding their roles. Though it is not an excuse, I do get why they believed NY State would simply keep extending the provision. Anyone that has paid tolls on the NY Thruway since 1996 knows how well sunset provisions work in this state. Should have confirmed though.

[Robert Goren]

I agree with what you say here, though I still get the feeling on reading this thing that certain political appointees were not looked at too closely regarding their roles. Though it is not an excuse, I do get why they believed NY State would simply keep extending the provision. Anyone that has paid tolls on the NY Thruway since 1996 knows how well sunset provisions work in this state. Should have confirmed though.I be being a bit too cynical, but I believe that political appointees are increasingly looked on as seat warmers in these types of investigations. They are increasing holding the people who are there because they should know what going on responsible. I am not saying that the way it should be, but just the way it is becoming.

[Stillriledup]

So what happened to the money? If you're NYRA, its not a fiasco if you have extra money in your coffers, its a rousing success. Its only a fiasco to the bettors who should have gotten paid more.

[Ocala Mike]

I think we had this discussion two years ago.

All of the NYRA Rewards customers and many of the customers betting through reputable ADW's were "made whole" through recalculated payoffs using the correct rates, provided there was an accurate record of their wagers in the system. Obviously, other customers who bet on or off--track with no record of their wagers were never compensated except indirectly through NYRA's lowering of the take on exotics for a time after the fiasco.

[cj]

I think we had this discussion two years ago.

All of the NYRA Rewards customers and many of the customers betting through reputable ADW's were "made whole" through recalculated payoffs using the correct rates, provided there was an accurate record of their wagers in the system. Obviously, other customers who bet on or off--track with no record of their wagers were never compensated except indirectly through NYRA's lowering of the take on exotics for a time after the fiasco.

Also, it isn't like NYRA kept most of what couldn't be identified. It went out to ADWs, ITW, etc.

[OTM Al]

So what happened to the money? If you're NYRA, its not a fiasco if you have extra money in your coffers, its a rousing success. Its only a fiasco to the bettors who should have gotten paid more.

I explained this two years ago, but some don't seem to have ever got it and some seem not to want to. The gist of it is that if you believe that NYRA made money on this, then by definition you must believe that takeout on these bets was, when at 25%, suboptimal! ie. too low. This is simple economic fact. If a price is too low, then a profit maximizing business, which is what a business should do, should raise the price to the optimal level as they will increase profits.

Further raising of prices beyond optimal level would then begin to decrease profit. Therefore, again by definition if takeout were already truly too high, a further raising of this price of wagering would cause profit to decrease, so in fact NYRA actually lost money on this if you believe takeout was already above optimal level, so this "extra profit" never existed. You cannot logically argue that both takeout was too high and NYRA made a higher profit from the increase in takeout because such is a contradiction.

This so called extra profit was really an inaccurate calculation generated by the base assumption that bettors are completely price inelastic, ie they would have bet the same amount no matter if the take was 25% or 26%. Further, the number the media kept reporting was wrong as a result of a double counting of, if I remember right, approximately 1.3 million. The press office at the time tried to correct the figure but no one cared to listen about that either.

So there you go. What happened to the money is that either 1) it never existed or 2) if it did exist, NYRA was acting like a business should by raising takeout and by all arguments made by groups like HANA they were right to do so and entitled to that money. There's no third choice possible, so you pick which one you think is right.

[thaskalos]

I explained this two years ago, but some don't seem to have ever got it and some seem not to want to. The gist of it is that if you believe that NYRA made money on this, then by definition you must believe that takeout on these bets was, when at 25%, suboptimal! ie. too low. This is simple economic fact. If a price is too low, then a profit maximizing business, which is what a business should do, should raise the price to the optimal level as they will increase profits.

Further raising of prices beyond optimal level would then begin to decrease profit. Therefore, again by definition if takeout were already truly too high, a further raising of this price of wagering would cause profit to decrease, so in fact NYRA actually lost money on this if you believe takeout was already above optimal level, so this "extra profit" never existed. You cannot logically argue that both takeout was too high and NYRA made a higher profit from the increase in takeout because such is a contradiction.

This so called extra profit was really an inaccurate calculation generated by the base assumption that bettors are completely price inelastic, ie they would have bet the same amount no matter if the take was 25% or 26%. Further, the number the media kept reporting was wrong as a result of a double counting of, if I remember right, approximately 1.3 million. The press office at the time tried to correct the figure but no one cared to listen about that either.

So there you go. What happened to the money is that either 1) it never existed or 2) if it did exist, NYRA was acting like a business should by raising takeout and by all arguments made by groups like HANA they were right to do so and entitled to that money. There's no third choice possible, so you pick which one you think is right.

If the NYRA was "acting like a business should", and "they were entitled to that money"...then why didn't they say so when this "mistake" was first discovered?

[OTM Al]

If the NYRA was "acting like a business should", and "they were entitled to that money"...then why didn't they say so when this "mistake" was first discovered?

Read the report if you want an answer to that and how politics was running the whole issue. Besides, I can't believe you are choosing this as the correct option as I don't believe it is correct, nor can anyone who thinks the takeout levels were too high. Charlie Hayward was and is part of that group by the way. You want to say this is the truth, then you have to say takeout was too low and I know you aren't.

[thaskalos]

Read the report if you want an answer to that and how politics was running the whole issue. Besides, I can't believe you are choosing this as the correct option as I don't believe it is correct, nor can anyone who thinks the takeout levels were too high. Charlie Hayward was and is part of that group by the way. You want to say this is the truth, then you have to say takeout was too low and I know you aren't.

We talked about this at length when it first broke out...and we all know where we stand on the issue. Rehashing things would not serve a useful purpose...IMO. What continues to irritate me was the NYRA's promise that the "real story" surrounding this issue would be promptly revealed. :rolleyes:

Another matter which surprised me was the ease with which Hayward was able to negotiate the permanent 2-point takeout reduction...once the "mistake" was discovered. We had been told that takeout reductions were a complicated issue in New York, because of the "politics" involved...but Hayward was able to get it done in a very swift manner.

[Stillriledup]

Read the report if you want an answer to that and how politics was running the whole issue. Besides, I can't believe you are choosing this as the correct option as I don't believe it is correct, nor can anyone who thinks the takeout levels were too high. Charlie Hayward was and is part of that group by the way. You want to say this is the truth, then you have to say takeout was too low and I know you aren't.

But isn't a factor that the bettors thought there were betting into the lower takeout?

[EMD4ME]

Innocent questions: please don't blast me....

Doesn't anyone here believe that this was just all a political coup to get Charles out and to give full control to Cuomo & his gang of cohorts?

Is it too hard to believe that Charles thought he couldn't get the sunshine provision implemented (because Albany didn't want it reduced) & because of that, didn't take the actions needed out of fear?

I admit, I don't know all facts but since day 1, as a simpleton, that's been my perception.

[Rutgers]

If NYRA did anything wrong, the blame for having it go on for 15 months rests solely with the NYSRWB. For it was the NYSRWB’s sole responsibility to regulate horse racing in NY. To place any blame or fault on any other organization or individual is ridiculous.

The lessons I hope people, or more importantly legislatures and regulatory bodies, take from this is, don’t make laws temporary changing takeout levels. (especially to salvage poorly run political patronage organizations). They should also write clearly written laws. . When the law was written they knew NYRA had to make a change to the takeout rates in order to be within the perimeters of the law after September 15, 2010. They should have included a provision on whether or not NYRA was required to make a change and when or if the rates would be “grandfathered”. A little effort and thought would of saved a lot of time and money. Cut and paste jobs are good for plagiarizing a term paper, but should be avoided in writing legislation.

On a second issue, once again, the statute applies only to on-track wagers, not off track. The language of the statute clearly states on-track. Statutes are to be taken as they are written.

I know the IG report and the NYSRWB report include off-track handle in their report, but they are wrong and those figures should not be included if discussing whether or not NYRA was or wasn‘t in compliance with Article 2 Section 138 of the PML. It just goes to show how ridiculous and political is whole thing has gotten.

It should also be noted that the takeout decrease, approved by the NYSRWB, in December 2011 was not in compliance with Article 2 Section 138 either. But apparently nobody has a problem with that.

[foregoforever]

Doesn't anyone here believe that this was just all a political coup to get Charles out and to give full control to Cuomo & his gang of cohorts?

They certainly took advantage of the opportunity. The Interim Report, released by the RWB in April 2012, was highly prejudicial toward Hayward, using his email with Crist to "prove" that he knew the exotics rate was outside the regulated range.

The IG's final report includes Hayward's explanations as well as his email correspondence with Kehoe, and it makes it pretty clear that Hayward did not know this. He referred the issue to Kehoe, and it was Kehoe and his law department that screwed up.

The interim report was clearly a cya effort by the RWB to deflect questions about their own shortcomings in this affair. It also provided the basis for suspending, and later firing, both Hayward and Kehoe. I'm certainly curious about the motivations behind that report.

[OTM Al]

But isn't a factor that the bettors thought there were betting into the lower takeout?

No. Every program and posted rate showed the takeout that was being charged. There was no deception to the player. This was stated in the report as well. Again, this means the excess profit never existed.

[OTM Al]

We talked about this at length when it first broke out...and we all know where we stand on the issue. Rehashing things would not serve a useful purpose...IMO. What continues to irritate me was the NYRA's promise that the "real story" surrounding this issue would be promptly revealed. :rolleyes:

Another matter which surprised me was the ease with which Hayward was able to negotiate the permanent 2-point takeout reduction...once the "mistake" was discovered. We had been told that takeout reductions were a complicated issue in New York, because of the "politics" involved...but Hayward was able to get it done in a very swift manner.

Do you think maybe this happened because the racing and wagering board realized they had screwed up as they were the ones that controlled such things? I sure do.

[classhandicapper]

otm al,

I'm not commenting on this story. I don't know enough. But I'm not sure I buy your argument even though you could easily be right.

1. No one really knows what the optimal take out rate is on various pools.

2. Even if it "is" already too high, it's not likely a raise in the takeout rate would immediately cause the negative impact you are describing. That's more of a long term phenomenon. For example, if a track raised the takeout on WPS from 16% to 20% tomorrow, IMO it would immediately make more money in the short term unless of course they were dumb enough to advertise it. The negative impact would come over time as some players were ground down quicker and money shifted to other circuits as players figured it out. Very few players knew about this issue and it didn't last all that long.

[OTM Al]

otm al,

I'm not commenting on this story. I don't know enough. But I'm not sure I buy your argument even though you could easily be right.

1. No one really knows what the optimal take out rate is on various pools.

2. Even if it "is" already too high, it's not likely a raise in the takeout rate would immediately cause the negative impact you are describing. That's more of a long term phenomenon. For example, if a track raised the takeout on WPS from 16% to 20% tomorrow, IMO it would immediately make more money in the short term unless of course they were dumb enough to advertise it. The negative impact would come over time as some players were ground down quicker and money shifted to other circuits as players figured it out. Very few players knew about this issue and it didn't last all that long.

1. Agreed. No one does. The only point being made is according to basic economic theory, if NYRA made money on this, then takeout was suboptimal. It cannot be argued that NYRA made money AND takeout is too high as such would be contradictory.

2. What you are referring to is something that is the reverse of a phenomenon called sticky prices. But here instead of the price not adjusting quickly to the beliefs and behavior of the market, the reverse is happening. In this case the take had been at 26% for 2 full years by law followed by another 15 months after the sunset. Would behavior not have adjusted in that time to the new price? If behaviors do truly adjust that slowly, then why should the tracks ever lower takeout? They would take a bath for years if you are saying people take this long to adjust and could potentially do permanent damage to themselves.

[Ocala Mike]

Do you think maybe this happened because the racing and wagering board realized they had screwed up as they were the ones that controlled such things? I sure do.

An unequivocal YES! The SRWB was tasked with a responsibility they were ill-equipped to handle from the get-go. When we were in place at the tracks (by "we" I mean the pari-mutuel auditors in the NY Tax Dept.), SRWB ALWAYS relied on us whenever a question arose about commission rates, payoffs, or suspicious betting activity. After we were let go in 1991, a vacuum was created, and the only surprise to me is that something like this fiasco took nearly 20 years to raise its ugly head.

[classhandicapper]

Would behavior not have adjusted in that time to the new price? If behaviors do truly adjust that slowly, then why should the tracks ever lower takeout? They would take a bath for years if you are saying people take this long to adjust and could potentially do permanent damage to themselves.

I think a well advertised rise/cut in take could easily shift market share and profits from one circuit to another circuit very quickly.

I think a well advertised rise/cut in take could shift market share between gambling games (sports and poker to horses or vice versa etc..) over years.

I think a subtle non advertised change in the take that remains competitive with other circuits could take years to have an impact on the bottom line and could start out in one direction before shifting to the other.

All intuitive other than the first. We already have evidence of HANA boycotts having immediate impacts.

[OTM Al]

I think a well advertised rise/cut in take could easily shift market share and profits from one circuit to another circuit very quickly.

I think a well advertised rise/cut in take could shift market share between gambling games (sports and poker to horses or vice versa etc..) over years.

I think a subtle non advertised change in the take that remains competitive with other circuits could take years to have an impact on the bottom line and could start out in one direction before shifting to the other.

All intuitive other than the first. We already have evidence of HANA boycotts having immediate impacts.

It wasn't a subtle and non advertised change though. It was a well advertised change that NYRA actively fought against and informed their players of. Thus by what you are saying, players should have reacted quickly.

[thaskalos]

If NYRA did anything wrong, the blame for having it go on for 15 months rests solely with the NYSRWB. For it was the NYSRWB’s sole responsibility to regulate horse racing in NY. To place any blame or fault on any other organization or individual is ridiculous.

If the NYRA did something wrong...then the blame for having it go on for 15 months does NOT rest "solely" with the NYSRWB; the blame is SHARED between the two entities. Shouldn't the group that "did something wrong" be held equally to blame as the group which was supposed to oversee their activities?

If the NYRA did something wrong, then they knew that it went on for 15 months without it being rectified...

[thaskalos]

An unequivocal YES! The SRWB was tasked with a responsibility they were ill-equipped to handle from the get-go. When we were in place at the tracks (by "we" I mean the pari-mutuel auditors in the NY Tax Dept.), SRWB ALWAYS relied on us whenever a question arose about commission rates, payoffs, or suspicious betting activity. After we were let go in 1991, a vacuum was created, and the only surprise to me is that something like this fiasco took nearly 20 years to raise its ugly head.

How often would the issue of "suspicious betting activity" be raised within the auditing department, Mike? Because it appears to me that this topic is NEVER addressed by the industry.

[Ocala Mike]

How often would the issue of "suspicious betting activity" be raised within the auditing department, Mike? Because it appears to me that this topic is NEVER addressed by the industry.

Not often enough, thas; another "vacuum" that existed even when we were there. On the rare occasions when I brought suspicious-looking betting activity to the attention of my boss, he forwarded the printouts to the SRWB, where they died a quiet death. The whole industry requires much closer oversight by competent people who care about the integrity of the game and their jobs.

[thaskalos]

1. Agreed. No one does. The only point being made is according to basic economic theory, if NYRA made money on this, then takeout was suboptimal. It cannot be argued that NYRA made money AND takeout is too high as such would be contradictory.

2. What you are referring to is something that is the reverse of a phenomenon called sticky prices. But here instead of the price not adjusting quickly to the beliefs and behavior of the market, the reverse is happening. In this case the take had been at 26% for 2 full years by law followed by another 15 months after the sunset. Would behavior not have adjusted in that time to the new price? If behaviors do truly adjust that slowly, then why should the tracks ever lower takeout? They would take a bath for years if you are saying people take this long to adjust and could potentially do permanent damage to themselves.

I don't mean for us to get into an argument, Al, nor do I claim to be the most enlightened person on this topic...but I have a hard time understanding you here.

Are you entirely convinced by the argument which states that the mutuel handle is sure to suffer if the corresponding takeout is raised a point or two? Because I am not. I have a hard time believing that the bettors would suddenly stop betting on NY racing, simply because the takeout on the exotics was raised by one point.

So...if the option that the increased takeout resulted in no increased revenue is eliminated, then this leads us to the second option that you presented to us previously (post #18)...that the NYRA acted as any business should...and that they are entitled to that additional revenue. But I can't agree with this either...because, IMO, a "business" is only entitled to the revenue that they have garnered by LEGAL means.

Gambling is a VICE...and the players do not give up a vice simply because its price-tag went up by one point. The racetracks and the state know this...that's why the takeouts have gone up continuously through the years. They make these takeout increases in small increments...so they are barely noticeable to the player.

Have you ever heard how they cook the frog? They boil him alive...but they don't just throw him into boiling water right from the start. The frog would jump out of the pot if they did that. So what they do is...they put the frog in a pot with COLD water...and let him sit there as the water starts boiling gradually. The frog is unable to detect the slowly-increasing water temperature...and he ultimately gets boiled alive. The same thing has happened to the player, with these slowly-increasing takeouts.

Quite ingenious at first thought...until we realize that horseplayers cannot be replaced as easily as frogs can...

[EMD4ME]

I don't mean for us to get into an argument, Al, nor do I claim to be the most enlightened person on this topic...but I have a hard time understanding you here.

Are you entirely convinced by the argument which states that the mutuel handle is sure to suffer if the corresponding takeout is raised a point or two? Because I am not. I have a hard time believing that the bettors would suddenly stop betting on NY racing, simply because the takeout on the exotics was raised by one point.

So...if the option that the increased takeout resulted in no increased revenue is eliminated, then this leads us to the second option that you presented to us previously (post #18)...that the NYRA acted as any business should...and that they are entitled to that additional revenue. But I can't agree with this either...because, IMO, a "business" is only entitled to the revenue that they have garnered by LEGAL means.

Gambling is a VICE...and the players do not give up a vice simply because its price-tag went up by one point. The racetracks and the state know this...that's why the takeouts have gone up continuously through the years. They make these takeout increases in small increments...so they are barely noticeable by the player.

Have you ever heard how they cook the frog? They boil him alive...but they don't just throw him into boiling water right from the start. The frog would jump out of the pot if they did that. So what they do is...they put the frog in a pot with COLD water...and let him sit there as the water starts boiling gradually. The frog is unable to detect the slowly-increasing water temperature...and he gets boiled alive. The same thing has happened to the player, with these slowly-increasing takeouts.

Quite ingenious at first thought...until we realize that horseplayers cannot be replaced as easily as frogs can...

Excellent analogy!!! Love it. Some frogs, do feel the rising temps (price sensitive players) and do leave. Hence (partially) why I never play any Pennsylvania tracks (30% vig), anything Churchill Downs owned and many other high vig bets. I put up with takeout percentages at NYRA (still believe 25 or 24% is too high, even for a pick 4) and Emerald (because the owner of Emerald built the track with his money, to replace Longacres, hates slots, refuses to put slots on his track and they care about horse racing).

[OTM Al]

I don't mean for us to get into an argument, Al, nor do I claim to be the most enlightened person on this topic...but I have a hard time understanding you here.

Are you entirely convinced by the argument which states that the mutuel handle is sure to suffer if the corresponding takeout is raised a point or two? Because I am not. I have a hard time believing that the bettors would suddenly stop betting on NY racing, simply because the takeout on the exotics was raised by one point.

So...if the option that the increased takeout resulted in no increased revenue is eliminated, then this leads us to the second option that you presented to us previously (post #18)...that the NYRA acted as any business should...and that they are entitled to that additional revenue. But I can't agree with this either...because, IMO, a "business" is only entitled to the revenue that they have garnered by LEGAL means.

Gambling is a VICE...and the players do not give up a vice simply because its price-tag went up by one point. The racetracks and the state know this...that's why the takeouts have gone up continuously through the years. They make these takeout increases in small increments...so they are barely noticeable by the player.

Have you ever heard how they cook the frog? They boil him alive...but they don't just throw him into boiling water right from the start. The frog would jump out of the pot if they did that. So what they do is...they put the frog in a pot with COLD water...and let him sit there as the water starts boiling gradually. The frog is unable to detect the slowly-increasing water temperature...and he gets boiled alive. The same thing has happened to the player, with these slowly-increasing takeouts.

Quite ingenious at first thought...until we realize that horseplayers cannot be replaced as easily as frogs can...

You have just made the argument that takeout does not matter and players are a bunch of degenerate gamblers who cannot quit. If that is your stance, then in economic terms you are saying that demand for gambling is completely inelastic, ie completely insensitive to price. You can certainly hold that opinion. Just want you to realize what you are really saying when you make a comment like this.

[classhandicapper]

It wasn't a subtle and non advertised change though. It was a well advertised change that NYRA actively fought against and informed their players of. Thus by what you are saying, players should have reacted quickly.

I could easily be wrong on this. I don't think that size take increase was significant enough to cause enough players to bail that it would more than offset the increased revenue to NYRA from the higher take on everyone else (at least over a year or so). Besides, take increases are never actually advertised. They are reported. I knew nothing about any of this even though I play NYRA all the time.

Intuitively, given that NYRA was very cash strapped at the time, if they thought it was hurting their bottom line, I suspect that somehow they would not have overlooked the details of the sunset provision or misread the e-mail from a player that told them about it. ;)

[DJofSD]

Besides, take increases are never actually advertised. They are reported.

That's exactly right, and, that is why I have in the past said I believe there should be a summary of the withholding advertized. It should be printed on every paper transaction -- bet, cash voucher, scratch sheet, etc. And for the internet transactions, some screen real estate devoted to what are the vigs for the different bets -- before, during and after you've clicked, clicked, clicked your way around the web site.

This would not be any different than the sale tax appearing on your sales receipts -- unless you live in FL or AL, etc.

[thaskalos]

You have just made the argument that takeout does not matter and players are a bunch of degenerate gamblers who cannot quit. If that is your stance, then in economic terms you are saying that demand for gambling is completely inelastic, ie completely insensitive to price. You can certainly hold that opinion. Just want you to realize what you are really saying when you make a comment like this.

You are putting words in my mouth, Al; I never said that the player is "completely insensitive" to price. I said that he will not give up betting on a major circuit just because they raised the price on him by one point. And the takeouts are closely aligned throughout the country...so it's not like the player can find any "bargains" out there.

Is the player a degenerate who cannot quit the game outright? Well...that's a question that every player has to answer for himself. Speaking for myself...I have never in my entire life seen a horseplayer quit the game while still having money in his pocket.

[OTM Al]

I could easily be wrong on this. I don't think that size take increase was significant enough to cause enough players to bail that it would more than offset the increased revenue to NYRA from the higher take on everyone else (at least over a year or so). Besides, take increases are never actually advertised. They are reported. I knew nothing about any of this even though I play NYRA all the time.

Intuitively, given that NYRA was very cash strapped at the time, if they thought it was hurting their bottom line, I suspect that somehow they would not have overlooked the details of the sunset provision or misread the e-mail from a player that told them about it. ;)

If the size is not significant enough, then optimal strategy is to slowly increase rates at a pace no one notices, so no one changes behavior, ie takeout does not matter is what this statement means again. I don't believe a single person on this board would say that but now there are two people in this thread who are rationalizing exactly that. If you are going to use economic theory to rationalize a need for reduced takeout then you must accept it here as well. Picking and chosing just doesn't work.

Read Hayward's explanation why they didn't push for the reductions. Given the politics involved, it make a whole lot of sense to me

[OTM Al]

You are putting words in my mouth, Al; I never said that the player is "completely insensitive" to price. I said that he will not give up betting on a major circuit just because they raised the price on him by one point. And the takeouts are closely aligned throughout the country...so it's not like the player can find any "bargains" out there.

Is the player a degenerate who cannot quit the game outright? Well...that's a question that every player has to answer for himself. Speaking for myself...I have never in my entire life seen a horseplayer quit the game while still having money in his pocket.

See my argument just above this as the same answer applies to what you are trying to say here. You might not think you are saying players are insensitive, but you are.

[classhandicapper]

That's exactly right, and, that is why I have in the past said I believe there should be a summary of the withholding advertized. It should be printed on every paper transaction -- bet, cash voucher, scratch sheet, etc. And for the internet transactions, some screen real estate devoted to what are the vigs for the different bets -- before, during and after you've clicked, clicked, clicked your way around the web site.

This would not be any different than the sale tax appearing on your sales receipts -- unless you live in FL or AL, etc.

I think we've seen what a well organized boycott can do. If HANA grows it will have way more power than it has now. Maybe we can even tip it in our direction and get some serious changes to the take.

[cj]

Is the player a degenerate who cannot quit the game outright? Well...that's a question that every player has to answer for himself. Speaking for myself...I have never in my entire life seen a horseplayer quit the game while still having money in his pocket.

You checked handle this year? People are quitting. Maybe they are all out of money, but I doubt it. They just recognize a stinky product.

[thaskalos]

See my argument just above this as the same answer applies to what you are trying to say here. You might not think you are saying players are insensitive, but you are.
And what exactly are YOU saying, Al...could you also offer us your OWN opinion, as you are analyzing ours? How "price-sensitive" do YOU consider the horseplayer to be?

Look at NY's exotics takeouts...and tell me if a price-sensitive player would make this circuit the biggest betting attraction in the land.

[thaskalos]

You checked handle this year? People are quitting. Maybe they are all out of money, but I doubt it. They just recognize a stinky product.

The horseplayer is quitting because he is out of money...there is no doubt in my mind about that. Yes, some quit because they have become disgusted either with the game, or with themselves...but 32 years of experience tells me that those players are only taking a temporary break.

Yes, the product is "stinky"...but there are no other suitable options out there. Live poker is inconvenient for most...and the casino games are 100% unbeatable. At least in horse racing...the player still has the hope of reaching that elusive 1-2% that supposedly win. Hope can take you far in this game...

[OTM Al]

And what exactly are YOU saying, Al...could you also offer us your OWN opinion, as you are analyzing ours? How "price-sensitive" do YOU consider the horseplayer to be?

Look at NY's exotics takeouts...and tell me if a price-sensitive player would make this circuit the biggest betting attraction in the land.

I already did. I gave you the straight up economic theory on how this works. I can't tell you how sensitive a particular person is, that is up to personal preference, but i can tell you how the market should work. Price goes up, demand goes down. Period. You are not saying this. You are saying small price raises do not result in demand changes. therefore I counter with the fact that logically that means the firm can continue to raise the price in small increments and no one will react, which means the consumer is completely insensitive to price. That's the argument you set up.

Your second papagraph also shows that you are not understanding concepts here. Sensitivity deals with reaction to price CHANGES not the price itself.

[classhandicapper]

If the size is not significant enough, then optimal strategy is to slowly increase rates at a pace no one notices, so no one changes behavior, ie takeout does not matter is what this statement means again. I don't believe a single person on this board would say that but now there are two people in this thread who are rationalizing exactly that. If you are going to use economic theory to rationalize a need for reduced takeout then you must accept it here as well. Picking and chosing just doesn't work.

Read Hayward's explanation why they didn't push for the reductions. Given the politics involved, it make a whole lot of sense to me

I don't think I am picking or choosing in an illogical manner.

My view is that this debate is a lot like the debate on supply side economics.

Lower taxes will almost certainly get you higher economic activity (handle) long term, but not necessarily get the government (tracks) higher tax receipts (profits) either short term or long term.

No one knows the sweet spot for sure because it's tough to isolate it from everything else that's going on and because it probably changes over time.

What I am adding is that there are also probably breaking points that provoke changes in behavior. Make capital gains taxes 10% lower and I'm going to do a lot of things differently. Change it 1% or 2% and virtually no changes are justified.

Change the take 1% OR 2% and I'm not going to change my handle.

Change the track take to 10%, run full page ads at DRF, and advertise on TV during the big races and all hell breaks loose.

[thaskalos]

I already did. I gave you the straight up economic theory on how this works. I can't tell you how sensitive a particular person is, that is up to personal preference, but i can tell you how the market should work. Price goes up, demand goes down. Period. You are not saying this. You are saying small price raises do not result in demand changes. therefore I counter with the fact that logically that means the firm can continue to raise the price in small increments and no one will react, which means the consumer is completely insensitive to price. That's the argument you set up.

Your second papagraph also shows that you are not understanding concepts here. Sensitivity deals with reaction to price CHANGES not the price itself.

Is this YOUR definition of sensitivity? That it does not deal with the price itself? Who told you that? In other words...the players who continue to play trifectas at Penn or Parx (30-31% takeout) cannot be called "insensitive to price"...because those prices have ALWAYS been that high -- and haven't "changed" for years and years.

Oh...OK; I think I got it now. Thank God someone like you, who "understands the concepts here"...was able to explain this to me.

[OTM Al]

I don't think I am picking or choosing in an illogical manner.

My view is that this debate is a lot like the debate on supply side economics.

Lower taxes will almost certainly get you higher economic activity (handle) long term, but not necessarily get the government (tracks) higher tax receipts (profits) either short term or long term.

No one knows the sweet spot for sure because it's tough to isolate it from everything else that's going on and because it probably changes over time.

What I am adding is that there are also probably breaking points that provoke changes in behavior. Make capital gains taxes 10% lower and I'm going to do a lot of things differently. Change it 1% or 2% and virtually no changes are justified.

Change the take 1% OR 2% and I'm not going to change my handle.

Change the track take to 10%, run full page ads at DRF, and advertise on TV during the big races and all hell breaks loose.

The mistake you are making is thinking what you would do and how your own personal price sensitivity works and projecting that on the market as a whole. That would be fine if everyone was exactly the same as you, but you must admit that they are not. Some will react to a given change quite a bit and others very little at all, but over all the market demand will move even with small price changes.

You also shouldn't think of takeout as a tax. It is purely the price of placing a bet. Price can work a little different than tax, though in some ways they are very similar, but trust me when I say it is an important distinction.

[PaceAdvantage]

Is this YOUR definition of sensitivity? That it does not deal with the price itself? Who told you that? In other words...the players who continue to play trifectas at Penn or Parx (30-31% takeout) cannot be called "insensitive to price"...because those prices have ALWAYS been that high -- and haven't "changed" for years and years.

Oh...OK; I think I got it now. Thank God someone like you, who "understands the concepts here"...was able to explain this to me.I'm probably at great risk of being accused by you of being biased again, but I have to question why you reacted as you just did...it seems you are taking personal offense here to Al again and again having to explain himself to you...Al has kept quite civil and appears to be trying valiantly to get you to understand what he is stating...

Just wondering why it seems that a fruitful conversation can't continue between you two...

[OTM Al]

Is this YOUR definition of sensitivity? That it does not deal with the price itself? Who told you that? In other words...the players who continue to play trifectas at Penn or Parx (30-31% takeout) cannot be called "insensitive to price"...because those prices have ALWAYS been that high -- and haven't "changed" for years.

Oh...OK; I think I got it now. Thank God someone like you, who "understands the concepts here"...was able to explain this to me.

Sorry, but it is not my definition. Price elasticities, ie sensitivities, are calculared based on price changes. Their level of sensitivity can change depending on the price. A person playing Parx can be very sensitive to changes or completely insensitive. Mathematically the equation is

dq/dp x p/q(p) where p is price and q is quantity, which is a function of price

That first part there is what is called a derivative, which is a rate of change. And yeah, I do know this stuff. I taught it once upon a time and this is an extremely basic concept.

[thaskalos]

I already did. I gave you the straight up economic theory on how this works. I can't tell you how sensitive a particular person is, that is up to personal preference, but i can tell you how the market should work. Price goes up, demand goes down. Period. You are not saying this. You are saying small price raises do not result in demand changes. therefore I counter with the fact that logically that means the firm can continue to raise the price in small increments and no one will react, which means the consumer is completely insensitive to price. That's the argument you set up.


Yes...that's what I am saying; small price changes do not result in demand changes. And I see the proof all around me. And guess what: the racetracks agree with me. Or do you suppose they really think that the demand for their product will go down if the price goes up. Would they operate like they do if they subscribed to this "economic theory"?

I never blame the racetrack for raising the takeouts...I always blame the player for tolerating it. Addiction does not comply with conventional economic theory.

[OTM Al]

Yes...that's what I am saying; small price changes do not result in demand changes. And I see the proof all around me. And guess what: the racetracks agree with me. Or do you suppose they really think that the demand for their product will go down if the price goes up. Would they operate like they do if they subscribed to this "economic theory"?

I never blame the racetrack for raising the takeouts...I always blame the player for tolerating it. Addiction does not comply with conventional economic theory.

It actually does and can be explained along with many other things that likely would surprise you. However I see no point in continuing this with you as you have proved my earlier point that many simply do not want to understand these concepts. You are quite content with your own misery and i leave you to it.

[thaskalos]

It actually does and can be explained along with many other things that likely would surprise you. However I see no point in continuing this with you as you have proved my earlier point that many simply do not want to understand these concepts. You are quite content with your own misery and i leave you to it.
Funny...I am only miserable when I interact with you...

[Stillriledup]

Yes...that's what I am saying; small price changes do not result in demand changes. And I see the proof all around me. And guess what: the racetracks agree with me. Or do you suppose they really think that the demand for their product will go down if the price goes up. Would they operate like they do if they subscribed to this "economic theory"?

I never blame the racetrack for raising the takeouts...I always blame the player for tolerating it. Addiction does not comply with conventional economic theory.

I like your argument and i know what you're saying, but i think Al is saying that when takeout rises, even a very small amount, the market adjusts accordingly. People just bet less because they have less to bet and maybe the odd person here or there will get fed up and not bet anything. Its not a conscious decision by players to either play or not, i know you're saying that some individual players might make a conscious decision to play less or not play at all, and there are plenty of players who are also making conscious decisions to "not change a thing" but even the players who don't change a thing will have less money to rebet and thus, even if they aren't betting less on purpose, that's the way it ends up working out.

[thaskalos]

I like your argument and i know what you're saying, but i think Al is saying that when takeout rises, even a very small amount, the market adjusts accordingly. People just bet less because they have less to bet and maybe the odd person here or there will get fed up and not bet anything. Its not a conscious decision by players to either play or not, i know you're saying that some individual players might make a conscious decision to play less or not play at all, and there are plenty of players who are also making conscious decisions to "not change a thing" but even the players who don't change a thing will have less money to rebet and thus, even if they aren't betting less on purpose, that's the way it ends up working out.

If NY suddenly raised their exotics takeouts by 1 point, SRU...how many players would let this affect their wagering on NY races? They would complain about it, sure...but nothing about their play would change. We are creatures of habit...and we do the same thing over and over -- until we are unable to do it any longer. "Changing" is hard.

When I started in this game 32 years ago, NY was the top circuit...and it is still the top circuit today...even though their exotics takeouts are not exactly "player-friendly". We are creatures of habit...

Sure...when we go broke, we flee the game. But we don't "quit the game"; the game quits us.

[OTM Al]

I like your argument and i know what you're saying, but i think Al is saying that when takeout rises, even a very small amount, the market adjusts accordingly. People just bet less because they have less to bet and maybe the odd person here or there will get fed up and not bet anything. Its not a conscious decision by players to either play or not, i know you're saying that some individual players might make a conscious decision to play less or not play at all, and there are plenty of players who are also making conscious decisions to "not change a thing" but even the players who don't change a thing will have less money to rebet and thus, even if they aren't betting less on purpose, that's the way it ends up working out.

I think you might get it here but what you are saying is a little unclear so I'm going to pull it apart a bit.

It looks like you are recognizing that everyone is different and thus reacts differently to takeout changes as far as the magnitude of change in play. This is correct. Some individuals may not change their demand and others will, but the market as a whole will move.

The second part of this also has some merit to it but is just a little confusing. What you are driving at here is essentially a concept we can refer to as total handle in a steady state. Consider a situation where take levels are fixed as well as outside factors that affect this market. You will then have a steady state with regard to handle. As long as nothing changes, players are putting in, in the aggregate, the same amount of income into wagering. Multiply that amount by the level of churn and you have your handle. This can be considered as a fixed amount in a steady state at any given point in time

Now there is a price change, a takeout increase. It has now become more expensive to wager. As we know from above, some reduce their wagering in varying degrees from very little to completely quitting. This means the amount of income being spent on wagering has fallen. Churn can be considered a fixed coeeficient here, so that means handle will start to fall. As you say, the amount bet is falling as the churn at the higher price level takes its toll so the level of handle will then fall until it reaches the new lower steady state.

Looks to me that this is the story you are trying to tell here, which is correct.

[Stillriledup]

If NY suddenly raised their exotics takeouts by 1 point, SRU...how many players would let this affect their wagering on NY races? They would complain about it, sure...but nothing about their play would change. We are creatures of habit...and we do the same thing over and over -- until we are unable to do it any longer. "Changing" is hard.

When I started in this game 32 years ago, NY was the top circuit...and it is still the top circuit today...even though their exotics takeouts are not exactly "player-friendly". We are creatures of habit...

Sure...when we go broke, we flee the game. But we don't "quit the game"; the game quits us.

Many players wouldnt let it affect them, but by definition, the increase would affect their bank account whether they wanted it to or not, so they would essentially be betting less even though consciously, they aren't changing anything.

[Stillriledup]

I think you might get it here but what you are saying is a little unclear so I'm going to pull it apart a bit.

It looks like you are recognizing that everyone is different and thus reacts differently to takeout changes as far as the magnitude of change in play. This is correct. Some individuals may not change their demand and others will, but the market as a whole will move.

The second part of this also has some merit to it but is just a little confusing. What you are driving at here is essentially a concept we can refer to as total handle in a steady state. Consider a situation where take levels are fixed as well as outside factors that affect this market. You will then have a steady state with regard to handle. As long as nothing changes, players are putting in, in the aggregate, the same amount of income into wagering. Multiply that amount by the level of churn and you have your handle. This can be considered as a fixed amount in a steady state at any given point in time

Now there is a price change, a takeout increase. It has now become more expensive to wager. As we know from above, some reduce their wagering in varying degrees from very little to completely quitting. This means the amount of income being spent on wagering has fallen. Churn can be considered a fixed coeeficient here, so that means handle will start to fall. As you say, the amount bet is falling as the churn at the higher price level takes its toll so the level of handle will then fall until it reaches the new lower steady state.

Looks to me that this is the story you are trying to tell here, which is correct.

I think you said it better than i did. What i mean in a nutshell is that even if many players aren't "protesting" by betting less or not betting at all, the raise essentially forces them to bet less, whether they like it or not.

[OTM Al]

I think you said it better than i did. What i mean in a nutshell is that even if many players aren't "protesting" by betting less or not betting at all, the raise essentially forces them to bet less, whether they like it or not.

Simple economic theory. You got it.

[Stillriledup]

Simple economic theory. You got it.

Thanks. Since i can't leave well enough alone, i think Gus is saying that people aren't consciously deciding to bet less or not bet at all. If a player has invested a lot of time and money securing notes and data for a track for years and has a great grasp of the product, they're probably not going to consciously change their habits. Many would be like this. You would have a few people who make a conscious decision to bet less, but for the most part, Gus is saying that a large percentage of bettors won't change a thing in their habits.

What's changing is the amount they are betting because they're getting less money back, but many are not purposely betting less because of the raise...i think that's what he was trying to get at.

[EMD4ME]

You checked handle this year? People are quitting. Maybe they are all out of money, but I doubt it. They just recognize a stinky product.

Agreed.... at least in my case.

[OTM Al]

Thanks. Since i can't leave well enough alone, i think Gus is saying that people aren't consciously deciding to bet less or not bet at all. If a player has invested a lot of time and money securing notes and data for a track for years and has a great grasp of the product, they're probably not going to consciously change their habits. Many would be like this. You would have a few people who make a conscious decision to bet less, but for the most part, Gus is saying that a large percentage of bettors won't change a thing in their habits.

What's changing is the amount they are betting because they're getting less money back, but many are not purposely betting less because of the raise...i think that's what he was trying to get at.

Well, I'm not going to attempt to "put words in his mouth". We could add to what we said before that income is dependent on wagering outcomes so higher take will cause that income to drop and thus less will be spent on wagering. We could model it that way, but I think the basic level of abstraction we started with does the job well enough of explaining what is going on. One thing I should say though is that we should consider all changes in behavior as conscious decisions. The real definition of what economics is is the study of decision making under constraint. Individuals decide how they wish to allot the income they have and these decisions are based on prices.

[thaskalos]

Thanks. Since i can't leave well enough alone, i think Gus is saying that people aren't consciously deciding to bet less or not bet at all. If a player has invested a lot of time and money securing notes and data for a track for years and has a great grasp of the product, they're probably not going to consciously change their habits. Many would be like this. You would have a few people who make a conscious decision to bet less, but for the most part, Gus is saying that a large percentage of bettors won't change a thing in their habits.

What's changing is the amount they are betting because they're getting less money back, but many are not purposely betting less because of the raise...i think that's what he was trying to get at.
Gus is saying that the takeout is not the main consideration when people place their bets...so it is not the sole determining factor in a track's financial picture. If the takeouts were the player's prime consideration...then NY would not be the #1 betting attraction in the land today. This game is not like a "normal" business. The horseplayers have different reasons for doing what they do...and their decisions do not always comply with the "business theories" which may prevail in other "straight" businesses. Nor do the horseplayer's actions always comply with "logic"...as we normally define it.

This is GAMBLING; it's not selling bread.

[classhandicapper]

The mistake you are making is thinking what you would do and how your own personal price sensitivity works and projecting that on the market as a whole. That would be fine if everyone was exactly the same as you, but you must admit that they are not. Some will react to a given change quite a bit and others very little at all, but over all the market demand will move even with small price changes.


I agree with you. I also don't think everyone will do the same thing as me, but it takes a lot of new top line money to compensate for the bottom line loss of 1%-2% in take on all the rest of the money and vice versa.

100m at 17% = 17M

100m at 15% = 15m (drop the take to 15%)

113.33m at 15% = 17m

You need 13.33m of new handle at 15% just to get back the 2 million and break even.

89.47m at 19% = 17m (raise the take to 19%)

The handle can fall by 10.53m and you will still break even.

I don't see huge changes to handle like that happening "short term" (as in a year or two) unless it's heavily advertised (like a boycott or promotion) or more dramatic than a 1% or 2% change.

I am granting you that this is all intuitive and I could be wrong.

But I think that's why tracks tend to raise takes easier than lower them. They already know that their product is somewhat sticky. They know they can get away with subtle increases to the take and add to their bottom line short term as long as they don't overdo it and it doesn't cause a boycott. IMHO, to get the reaction WE want, we need dramatic moves in the take and/or a more powerful HANA. We need to bring loads of fresh money into the sport that is not even playing the game now.

[foregoforever]

Excellent piece, as usual, by Tom Noonan.

http://tenoonan.com/2014/08/28/hayward-vindicated-by-inspector-generals-report/