Losing the Handle

[highnote]

The link below is an opinion by Ray Paulick, the editor-in-chief of Bloodhorse.

http://opinions.bloodhorse.com/viewstory.asp?id=29325

[BillW]

The link below is an opinion by Ray Paulick, the editor-in-chief of Bloodhorse.

http://opinions.bloodhorse.com/viewstory.asp?id=29325

Couple of flaws in the article- the gov't gets their piece, the full take doesn't go to the track and off shore rebate shops don't contribute anything unless they are feeding money back into US pools.

The tracks have a tough business model - the least attractive model, to their customer is needed for their survival and the most attractive will sink them. :rolleyes:

Bill

[highnote]

Couple of flaws in the article- the gov't gets their piece, the full take doesn't go to the track and off shore rebate shops don't contribute anything unless they are feeding money back into US pools.

The tracks have a tough business model - the least attractive model, to their customer is needed for their survival and the most attractive will sink them. :rolleyes:

Bill

I've read this article about 5 times trying to understand exactly what he is saying.

He says in the second sentence that "the percentage of revenue to purses from every dollar wagered is also heading in the wrong direction." This makes sense because more money is wagered off-track than on. There is a lot of competition for the gambling dollar - slots, table games, online casinos, online poker and lotteries. There is no sign that this trend will reverse any time soon.

He also says in the first line of the third paragraph, "An even bigger problem that the decline in handle is the loss of revenue from each dollar wagered." Again, this can be explained by people betting off-track. Perhaps people are dissatisfied with the racetrack experience. It might also be that racing is losing the casual customer to other simpler forms of gambling like lottories and slots. If there was no off-track wagering available, can you imagine how low handle would be? I wonder if any track could survive without simulcast revenue.

He also fails to mention, that even though handle is moving off-track, volume is increasing. So while revenue from each dollar wagered is decreasing because each dollar bet off-track contributes less to purses than each dollar wagered on-track, the volume of dollars being bet has increased. He needs to compare dollars wagered on-track pre-simulcast era to all dollars wagered in the simulcast era. I guarantee you volume is up and handle is up.

Mr. Paulick offers no solution.

My solution: Tracks need to lobby to have takeout reduced. Imagine if you had to pay 18% takeout on average for the privilege of playing a hand of blackjack.

If I'm not mistaken, these takeout rates were set when tracks had monopolies on gambling. With competition, prices are supposed to drop. Takeout has not. As a result the industry is in a tough spot.

If the racetracks don't find a way to compete they will go out of business.

The full service brokerage firms faced a similar challenge when discount brokerage firms emerged. Did the full service brokerages go out of business? No. They found a way to compete by providing products and services the discounters couldn't. These new and better products and services allowed them to charge premium prices.

A simulcast wagering provider or a rebate shop is a no-frills provider -- just like a discount broker. They charge a lower price to their customers, but their customers get less.

Racetracks charge a premium for the privilege of using their services. If racetracks are going to charge a premium, then they need to offer incredible service.

Unfortunately, at some racetracks, "incredible service" is an oxymoron.

[kenwoodallpromos]

Minimum W/P/S bet $3.00.

[cj]

Minimum W/P/S bet $3.00.

This will increase handle? Are you serious?

Its all in the takeout. Either racing becomes competitive with the off shore books offering rebates, or they will eventually die. The worst thing for racing is that the off shore books don't need racing, they still have sports.

[highnote]

This will increase handle? Are you serious?

When Connecticut used to have Jai Alai, I used to hate the $3 minimum bets. I was just getting into betting and as a beginner, it had a negative effect on my handle. I would've liked $1 w/p/s bets.

[Tom]

Actually, making the minimum bet $1.00 makes sense to me. A lot of retired folks might bet a few more races than they do now. Make it $3 and you probably just lose them more often than not.

[highnote]

Actually, making the minimum bet $1.00 makes sense to me. A lot of retired folks might bet a few more races than they do now. Make it $3 and you probably just lose them more often than not.

When I first started betting t-breds (after Jai Alai and then after harness) I was hanging out at OTB in Norwalk, Conn. Basically, it was an adult day care center. Some of the retired people were dropped off for the day by friends or family. They mostly just socialized, but would be a few races for recreation. The $1 w/p/s bet would make a lot of sense for them.
Often they split bets with a friend, so they accomplished the same thing. But why not have a $1 minimum. Never understood that.

I should add, I learned a lot of good handicapping from some of those old-timers.

[kenwoodallpromos]

Since exotics are $1 all the oldsters and casual fairgoers as well as families going on family day or beer day must be betting exotics, right?
Unless lowering or raising is tried it is all speculation, so I say take $3 instead of $2 from the less serious bettors and increase the pools and payoffs for non-longshots. I say try it at the Ca fairs first. Heck, might as well- they hardly ever use the fact that the price of a basic bet has not been raised in decades (if ever!) to their PR advantage!

[highnote]

Since exotics are $1 all the oldsters and casual fairgoers as well as families going on family day or beer day must be betting exotics, right?



You must be right.

If I spend time handicapping a race and want to bet the exotics, I'm not going to waste it all by just betting a dollar.

I'd rather donate the dollar to the Salvation Army bellringer on the way out of the track than to waste time betting $1 on a race I've spent precious time handicapping. :D

[andicap]

There are few people in this country who know more about the racing industry than Ray Paulick so I doubt there are any factual errors in his column although everyone is human. And I found his column straight-forward and illuminating. He set out the issue in an extremely easy-to-understand fashion.

Mr. Paulick does indeed have his facts straight:

First,
As for the money that goes to the state, it's not a big piece. According to the NY State Racing & Wagering Board's latest report, of the $460 million bet at NYRA tracks, only $9 million went to the state for takeout, breakage and fees, less than 2% of the handle.
Total takeout was about $87 million, so the state's share of the total takeout is just a shade over 10%, hardly a huge piece compared to the $74 million returned to the tracks and $3 million to the breeders fund.

Secondly
Overall pari-mutuel handle is indeed declining,at least in NY State, according to the board's report. Total handle declined by $30 million from $2.748 billion to $2.718 billion. Only 1% but still in the wrong direction. And its way down from 2002's figure of $2.827 billion. In fact it was lower than in 2001 and 2000.

Handle on NY tracks declined by $58 million while betting on out-of-state tracks rose by $28 million.

Even at Saratoga TOTAL HANDLE -- including bettig on out-of-state tracks has been flat the last few years.
OTB handle was up a bit but OTB handle on in-state tracks was down. That means more went to out-of-state tracks in which case local purses get a smaller share.

What about nationally? According to the Jockey Club, total handle in the U.S. DROPPED by 0.5%, from $15.180 billion to $15.099 billion, although it was up slightly, 0.2%, from 2002's $15.062 billion

Thirdly,
On the rebate shops, it is my understanding most off-shore shops do contribute 3% for the "signal" to U.S. tracks. Most stories on off-shore betting refer to the 3% figure -- they do not say the off-shore sites are stiffing American racetracks completely.

Finally,
Paulick's point is not a complicated one. He is warning that when Nevada racebooks open up their simulcasting accounts, purses will suffer because the tracks will receive a measly 3% of the take -- the same as they get from the off-shore shops. Even if you bet your home track via TVG from home, the track gets 6.75%. And even if you bet an out-of-state track from home via TVG or You Bet, your home track still gets 5.25%. But bet through Nevada and the track gets just 3%.

He notes that racetracks have much more overhead than casinos and are less able to deliver rebates to bettors. Or they lack the marketing expertise and experience in combating the rebate shops and now the Nevada casinos.

As for not offering solutions, Paulick has done so in plenty of other columns you just happened not to have read.

Take it from me. I have worked for him and talked with him about the industry's problems. Ray Paulick is one of the most articulate voices defending the horsemen and the bettors in the media today and is not worthy of the typical sniping and petty criticism that goes on around here.

[highnote]

There are few people in this country who know more about the racing industry than Ray Paulick so I doubt there are any factual errors in his column although everyone is human. And I found his column straight-forward and illuminating. He set out the issue in an extremely easy-to-understand fashion.

Mr. Paulick does indeed have his facts straight:


Andycap,

I agree with you, I think Mr. Paulick wrote a good article. He presented the takeout stats/facts which are very informative.

He is warning about the coming competition to racetracks if Nevada books start offering account wagering. The purpose of his article was not to provide a solution, it was to raise awareness.

I do disagree with one thing he says.

He says that rebate shops and simulcast wagering service providers like Youbet and TVG have contributed to the loss in revenue.

If rebate shops, which in effect lower the handle for bettors, and simulcast outlets, which make it easier for people to bet multiple tracks, don't contribute to an increase in handle, then how will eliminating these outlets increase handle? In my opinion, it won't.

Here is my key point: Even if on-track handle would rise by the elimination of simulcast and rebate betting, the net income from increased on-track revenue would still fall because there would not be enough new on-track handle to make up for the loss of off-track handle.

Indulge me while I illustrate my thinking on this...

Let's say I lose the ability to bet with BRISBET, PHONEBET and/or CONNECTICUT OTB and I have to drive from Connecticut to Aqueduct or Belmont (or worse yet -- 4 hours to Saratoga!) to bet on the live races. I would bet a lot less. Why? First of all, it's going to take me nearly 1 hour each way to get to the track. Then there is the cost of gas, tolls, wear and tear on my car and food. I'm out at least 50 bucks before I even walk in the door.

This is 50 dollars I can't bet. This 50 dollars that I might have bet through a simulcast outlet represents about $1.50 in purses according to the statistics in the Mr. Paulick's column. However, it might be 2 or 3 times more than this due to "churn". If I bet that $50 on BRISBET I might turn it over 2 or 3 times in the course of a day.

The other part of the equation is that I would bet significantly more than this on a given day through one of the simulcast outlets. Let's say I normally bet $1000 per day on BRISBET, PHONEBET or CTOTB. If those outlets were eliminated and I had to bet at the track, the track would get nothing from me because I simply wouldn't go to the track anymore.

I'd switch to the stock market or online poker. Companies that provide me with the ability to bet from home have a business model that suits my needs more than those who expect me to come to the track to bet.

The solution is clear to me... the tracks have to learn how to compete. It's the same thing the full-service brokerage firms had to face when the discount brokerage firms started to compete. If the full-service firms didn't learn how to compete they would have been out of business. They found ways to compete and the stock market boomed.

This is capitalism. The companies charging the least money and offering the best products and services get the business. The companies that can't compete close their doors.

I'm self-employed and every single day I face these kinds of pressures. There is always somebody willing to undercut me. My solution has been to offer a better product at a premium price. My good customers understand this and are willing to pay for this. I could charge less and work more, but since there are only so many days in the year I would make less or else I'd make the same and work more.

In summary, I am not so sure TVG and Youbet contribute to a loss in revenue. Simulcasting was seen as found money for racetracks. This is the way the industry is moving. Also there is a lot more competition for the gambling dollar. This is a major cause of decline in handle.

For some reason racetracks find it very difficult to change their 1940's business model. They are no longer the only game in town and will not be in the foreseeable future.

I'm not an industry insider, so I only know what I read in DRF, Bloodhorse, Albany Law school, etc. So I'm interested in hearing what you have to say because it sounds like you know a lot.

Thanks.

John

[PaceAdvantage]

...and is not worthy of the typical sniping and petty criticism that goes on around here.

HEY! And you want to be my latex salesman?!?!

[andicap]

John,
Ray is definitely not calling for the end of TVG and Youbet.com. He has been one of the biggest supporters of companies like TVG for years.

So let's just keep it to the rebate shops -- This is a very tricky point and you have a valid argument here. Take away the rebate shops and do much of the big bettors who play the rebate spin game disappear? Perhaps. Perhaps not.

But where would these dollars go instead? Probably Las Vegas where the casinos have been helping out the Ernie Dahlmanns of the world for years. I think that was Ray's point -- that the onset of allowing casinos to take out-of-state wagers could have a negative effect on purses because of the paltry 3% they pay out.

He is afraid people will switch from places like TVG where the tracks get a decent share of the handle, to Vegas where they get the same 3% they do off-shore.

[andicap]

HEY! And you want to be my latex salesman?!?!

Are you kidding? and grow old waiting to get answers to my questions? :D

[The Judge]

I wonder who is betting on-line? I would think it would have to be a pretty serious horseplayers someone with a computer even thou there are phone bets. In other words phone bets are the same people that use to be at the track. Where is the new money going to come from? If the track take is re-duced maybe I will bet more but that doesn't mean that new people will show up. My point is that we who have been at this awhile have plenty of gripes with the track, but we still feel it's the greatest challenge going something we love. I think we are blinded we can't understand why everyone doesn't agree with us and play the horses. If they just knew what we know, if the track just did XYZ. It may be that the track has not responed in time and their is just too must competition for the entertainment dollar to compete, this may be as good as it's gonig to get and could go down hill from here. Slots will save the day seems to be the only call that I've heard from the tracks. The with trying to improve their product they want another form of gaming altogether.

[highnote]

It seems to me that the rebate bettors are going to churn a lot more than the casual player at the track. Just because someone is getting a rebate doesn't mean they are making a profit. It also doesn't mean they are taking the rebate and not betting it back into the pool.

I've noticed some great errors on the tote. I assume some rebate player made a big bet on a horse I hate. As a small non-rebate bettor I can exploit that big mistake. Rebate bettors are not any better at prediciting winners than me... they just bet more... which means I can win more.

As I said in an earlier post, being able to bet from home and not having to spend $50 to get to the track is like getting a $50 rebate. I bet that $50 and then I churn that $50. Each bet I make helps to fund the purses, etc.

I also don't buy the argument that TVG and Youbet are OK and LEGAL rebate shops or Vegas accounts are not. If TVG and Youbet don't contribute as much to purses as on-track bettors then how can they be OK, but legal rebate shops are not OK?

So if some new form of off-track wagering comes along and only contributes say 1.5% less to the purses would the rebate shops and Vegas accounts suddenly be OK by virtue of the fact that they contribute more money?

I think the legal rebate shop bettors are churning a lot more dollars, which in the end probably adds more to the purses than on-track bettors. Off-track bettors may only add 3% to the purses on each bet, but if they bet 100 times as much as on-track bettors then I don't see the problem.

I think the problem lies in the fact that there are too many forms of gambling chasing too few dollars.

You know the old saying... "The customer is always right." The customer wants lower takeout. The companies that can meet the customers needs are the companies that will survive.

Magna understands this. They own tracks and betting outlets. For a short time they were even offering rebates to some customers. Youbet just bought a rebate shop.

If rebates are so bad, why are racetracks doing business with rebate shops? Simple -- rebate shops are considered good for their businesses.

In my opinion, Vegas accounts will also be good for their business. Vegas has survived Atlantic City, Lotto, Indian Gaming, etc. Vegas knows how to compete. Vegas will find a way to attract new customers to the game of racing. On occasion those new fans will certainly visit a racetrack and place a bet. This will also increase on-track handle.

It's too early to tell, but I think the Vegas accounts will benefit racing by generating even more money for racetracks -- even if that revenue is generated off-track.

The racetrack industry seems somewhat schizophrenic. On the one hand they want to increase revenue, but on the other hand they don't want to do business with the places that generate the most revenue. And yet, they continue to do business with the places that generate the most revenue and claim that it's hurting their business. :confused: :bang: :faint:

[andicap]

All interesting questions -- I'll be at the industry Roundtable on Sunday and see what racing people have to say about that.

[highnote]

Is the Roundtable at Saratoga? Is it this Sunday or next? I'd like to attend. Is it by invitation?


Will be interesting to hear if the subject is discussed and how much.

[skate]

seems to me that the 2% the state receives is good. bottom line of 2% without participating would be nice. not sure about the states overhead, but maybe they could lower the overhead.

and the 10% of the profit is high.

and if the track needs more than the 3% from casinos, they can limit the signal to the casinos, as was done by calif. tracks.

[highnote]

Here's a link to a Gordon Pine article that supports the lower takeout argument:

http://www.netcapper.com/TrackTractsArchive/TT010525.htm

And here's link to a Bill Finley article also supporting the lower takeout argument:

http://espn.go.com/horse/columns/finley_bill/1311341.html