article on the effect of takeout.

[jballscalls]

I was talking to some ADW guys yesterday and as i do with most racing execs, I asked about why takeout is so high. They had some interesting and well backed up responses.

I was curious if any of you had any studies or factual based articles to which i could use to retort. I mean i know lowering takeout on jackpot wagers wouldnt spike handle (pick 6, super etc) but i would venture a guess that reduced takeout in your churn wagers (wps, ex) could actually positively effect handle. They say it wont make a bottom line difference for anyone, just hoping someone had some factual evidence so i can produce a good argument.

thanks guys,
Jason

[chickenhead]

aside from common business principals (price effects sales), the existence of rebate shops (they aren't philanthropists)...you could ask about the Cummings report

http://www.nationalhbpa.com/resources/Cummings_report7-17-04.PDF

[Cangamble]

I was talking to some ADW guys yesterday and as i do with most racing execs, I asked about why takeout is so high. They had some interesting and well backed up responses.

I was curious if any of you had any studies or factual based articles to which i could use to retort. I mean i know lowering takeout on jackpot wagers wouldnt spike handle (pick 6, super etc) but i would venture a guess that reduced takeout in your churn wagers (wps, ex) could actually positively effect handle. They say it wont make a bottom line difference for anyone, just hoping someone had some factual evidence so i can produce a good argument.

thanks guys,
Jason
Since lowering takeout across the board hasn't happened in North America, one can only guess.
However, we do know that handle per capita is higher in nations that have lower takeouts.
We also know that lower takeouts seem to attract young people to poker, Betfair, and sports betting etc.

In theory, lowering takeout will get most of the money that would have been lost by the current players regardless (they would just last longer).

But by lasting longer, they might decide to devote more time to it, get their friends and family involved, and therefore create more players.

Winners may also be created, and it is winners that could be the attraction that the young crowd needs to motivate them to try horse racing over poker, etc.

Lowering takeout will also attract those who are betting offshore, adding to profit potential for the tracks.

[jonnielu]

In theory, lowering takeout will get most of the money that would have been lost by the current players regardless (they would just last longer).

But by lasting longer, they might decide to devote more time to it, get their friends and family involved, and therefore create more players.

Winners may also be created, and it is winners that could be the attraction that the young crowd needs to motivate them to try horse racing over poker, etc.



So, if lowering takeout still won't make you a winner, why should management bother? Winners would attract and retain a new market/fan base, but all racing has to feature is losers after cultivating losers for 50 years.

The problem that racing has now, is never having taken a position in the first place. It has always relied on the racing information industry to cultivate and publicize winners, and it has only been able to muster the current crop of losers for the most part.

Now, some faction has to take the risk of doing an about face and actually train people in winning or racing just goes down the toilet.

jdl

[rrbauer]

I was talking to some ADW guys yesterday and as i do with most racing execs, I asked about why takeout is so high. They had some interesting and well backed up responses.

I was curious if any of you had any studies or factual based articles to which i could use to retort. I mean i know lowering takeout on jackpot wagers wouldnt spike handle (pick 6, super etc) but i would venture a guess that reduced takeout in your churn wagers (wps, ex) could actually positively effect handle. They say it wont make a bottom line difference for anyone, just hoping someone had some factual evidence so i can produce a good argument.

thanks guys,
Jason

Take a look at Tampa Bay Downs. They have reduced takeout on a variety of pools over the past five years. And their handle (and purses) has grown over that same period of time. Contact Margo Flynn at the track for specifics on takeout reductions and handle-per-meet stats. Take a look at Keeneland. They reduced takeout (in '04 I believe) partly in response to the NTRA Players' Panel recommendations, and have kept it at that level. And, they have increased handle since then. The other thing that both of these venues have done is to improve their product and make their facilities more fan-friendly.

Out of curiousity, what was the nature of the "interesting and well backed up responses" that your ADW friends presented? I ask this because a person who attended the recent industry Expo in Arizona, PM'd me to tell me that he spoke with a racetrack exec who said that "horseplayers don't know what the takeout levels are".

If these people really think this, then it is the most compelling reason that I can think of to launch a boycott of high-takeout venues and reward low-takeout venues with our business. Maybe it's the people running the show that need to be educated; and, if we succeed in doing that, maybe low-takeout will become a marketing factor (instead of cheap admissions that nobody cares about because nobody is going there).

[DeanT]

Jason,

They stand behind the "high prices are good" thing and always ask for data.

Since racing here has not tried anything it is easy to use that argument. It is chicken and egg.

Fortunately there are other places who have done something with takeout, and as well there is racings own numbers.

1 - Betfair. Simple. They had 20,000 customers in 2002. Now they have 2 million. Their takeout is around 5%. $150,000 will be matched there with UK clients on a 4 claimer race at Penn National.

2- Australia - Mandated takeout maximum at 16%. This was done to make sure handles and revenue are maximized. If those two figures were maximized at our 22% takeout, Australia would be there, not at 16%

3 - Ask those execs what the churn rate is for racing. They will answer 7. It is their own number. By simple mathematical formula a churn rate of 7 tells us that revenue is maximized at 12% takeout.

I am quite annoyed at the "show me some numbers" argument they use. If we were a ball manufacturer and we wanted to offer a purple ball, we would study it and do it. We would not say "I can not offer purple balls as there is no data, because we have never sold any purple balls." We would never offer a product with that criteria.

Then again, even people in racing say things are dysfunctional, so I guess that roundabout argument makes sense.

[jballscalls]

Thanks for the responses guys. I just had an interesting conversation with my boss about these matters. Interesting topic, hopefully its something that everyone in the business can get done for the good of the game.

[jballscalls]

Take a look at Tampa Bay Downs. They have reduced takeout on a variety of pools over the past five years. And their handle (and purses) has grown over that same period of time. Contact Margo Flynn at the track for specifics on takeout reductions and handle-per-meet stats. Take a look at Keeneland. They reduced takeout (in '04 I believe) partly in response to the NTRA Players' Panel recommendations, and have kept it at that level. And, they have increased handle since then. The other thing that both of these venues have done is to improve their product and make their facilities more fan-friendly.

Out of curiousity, what was the nature of the "interesting and well backed up responses" that your ADW friends presented? I ask this because a person who attended the recent industry Expo in Arizona, PM'd me to tell me that he spoke with a racetrack exec who said that "horseplayers don't know what the takeout levels are".

If these people really think this, then it is the most compelling reason that I can think of to launch a boycott of high-takeout venues and reward low-takeout venues with our business. Maybe it's the people running the show that need to be educated; and, if we succeed in doing that, maybe low-takeout will become a marketing factor (instead of cheap admissions that nobody cares about because nobody is going there).


I thought Keeneland's handle has been going way down? maybe thats polytrack though?

And the exec was partly right about players not knowing the takeout. The serious players of course do, but when i privately polled about 100 customers, all regulars that bet here at PM and bet on simulcasts, 2 of them knew what our takeout was. And we post the takeout rate list on our players board for everyone to see. then I asked the guys i know are serious bettors, guys that are 15k to 50k a month guys, 7 out of 13 of them knew who had the best takeouts, our biggest bettor said he had no clue who had what takeouts.

The ADW friend said their has been numerous studies done by the tracks and the industry that have shown lowering takeout in certain churn wagers to a point would drive up handle, but that its actually a negative effect when reduced in jackpot wagers cause you have fewer people making massive scores. Hence why carryover takeout is higher on a pick 6 than on non carryover days cause most of that money isnt going to come back to the track. If one guy wins 100k you think he's gonna put all that money back in to the races?? no he's gonna pay off bills, buy a car, and put a certain fraction back into the game, but probably not much more than he would of anyways. This was his main points, but he did say that lowering takeout in the churn wagers would help.

Anyways, i just find this an interesting topic. I've talked to some execs who are very very smart people, some of them will discuss it with me, some just laugh and say "that there is no way lowering takeout would help the bottom line"

anyways, thanks for your input guys, lets keep fighting the fight and hopefully someday takeout can get to a proper level.

[DeanT]

Jason,

The extra-weird thing to me is the following discussion you may have:

track guy: takeout does not matter.
you: Do you do business with rebate shops?
track guy: yes
you: why?
track guy: because they send in tons of handle
you: why?
track guy: because they rebate and lower takeout for their players
you: ... so?
track guy: takeout does not matter.

[jballscalls]

Jason,

The extra-weird thing to me is the following discussion you may have:

track guy: takeout does not matter.
you: Do you do business with rebate shops?
track guy: yes
you: why?
track guy: because they send in tons of handle
you: why?
track guy: because they rebate and lower takeout for their players
you: ... so?
track guy: takeout does not matter.

What is the effect of lowering takeout for the purse accounts?? if you lower takeout by 25% from 20 to 15 lets say, do the purses go down 25% as well?

[chickenhead]

And the exec was partly right about players not knowing the takeout. The serious players of course do, but when i privately polled about 100 customers, all regulars that bet here at PM and bet on simulcasts, 2 of them knew what our takeout was.

Logically beside the point for 2 reasons:

A.) What might matter is whether people who ARE NOT playing know that the takeout in racing is worse than any other "gambling" endeavor. A more proper test might be to go into a poker room and ask the players which has a higher rake, poker or horse racing.

B.) Players don't need to know the takeout to have it effect their play. I think we'd all agree that lottery players are probably the least price sensitive people in the world. They are after all betting on getting hit by lightning, basically, against a huge rake. But even lottery players show a very strong response to lower takeout (without having any clue what it actually is):

http://cpr.ca.gov/CPR_Report/Issues_and_Recommendations/Chapter_1_General_Government/Increasing_State_Revenues/GG06.html

A proven strategy for lotteries across the country to generate additional funding for their beneficiaries has been to increase prize payouts. Higher payouts generate more winning experiences for players. This makes the games more entertaining and increases sales dramatically. Every lottery in the U.S. that has increased prize payouts has increased sales. [3] The most successful lotteries in the country have one major thing in common, a prize payout of at least 60 percent. There are 39 state lotteries, 36 of which allocate 60 percent or more of ticket sales to prizes. Two of the poorest performing lotteries, California and Louisiana, have a limited prize payout of only 50 percent of ticket sales. [4]

The Massachusetts State Lottery is the most successful lottery in the nation. It also has the highest prize payouts in the nation ranging from 60 percent to 79 percent of ticket sales. With a population of only 6.4 million, compared to California's population of over 35 million, Massachusetts out-produced California in 2002 total revenues by approximately $1.3 billion. [5]

In New York, the payout for their instant games was increased to 65 percent in 1999. After the fourth year of the program, contributions to education increased by more than $500 million a year with higher payouts a major contributing factor. In 2002, Florida increased instant game payouts from 56 percent to 67 percent. Revenues from these products increased 62 percent in the first year, thereby increasing annual contributions to education by $49 million the first year. In Texas, sales sharply declined from $3.7 billion to $2.5 billion after prize payouts were capped in 1998 at 52 percent. Four years after the cap was restored to its prior level, revenues have steadily increased to $3.1 billion. [6]

Top lottery officials from Massachusetts, New York, Florida, Texas and Georgia have recently stated that higher payouts were instrumental in increasing revenues and generating additional funds for their beneficiaries. [7]

Now that's not theory, that's practice. It's pretty pathetic that the friggin lottery has this figured out, yet people in this industry haven't.

[stu]

What is the effect of lowering takeout for the purse accounts?? if you lower takeout by 25% from 20 to 15 lets say, do the purses go down 25% as well?


Only if the takeout reduction doesn't result in increased business.

The whole goal in lowering the rate is to make your product more attractive and boost its handle.

[Cangamble]

What is the effect of lowering takeout for the purse accounts?? if you lower takeout by 25% from 20 to 15 lets say, do the purses go down 25% as well?
Again, no. People will last longer and bet more. By lowering takeout you are hoping to drum up all the business from existing customers, and new business from those who see the game could be beatable.

[Charlie D]

The whole goal in lowering the rate is to make your product more attractive and boost its handle.


The key word is bold


Make it attractive and they will come

See UK racing for example, free info, Betting choice, no tax

[Cangamble]

So, if lowering takeout still won't make you a winner, why should management bother? Winners would attract and retain a new market/fan base, but all racing has to feature is losers after cultivating losers for 50 years.

The problem that racing has now, is never having taken a position in the first place. It has always relied on the racing information industry to cultivate and publicize winners, and it has only been able to muster the current crop of losers for the most part.

Now, some faction has to take the risk of doing an about face and actually train people in winning or racing just goes down the toilet.

jdl
Lowering takeout could make you a winner. And it definitely could give one the delusion of being a winner or someone who is breaking even.
Why do you think that slots doesn't up their takeout from 10% to 15%?
They found 10% max is the best to give the player the delusion that he or she isn't losing that much and may be one pull away from winning big or at least breaking even. And they also know that if the player loses too quickly, you may lose the player for good.

As for winner. Unconfirmed, but I heard that at HPI over the last year or so the odds that an account holder wins is 1 in a 1000, and the winners are the ones who hit a big super or pick 4. They are also unlikely to repeat.

Why do you think that HPI doesn't show the players results for more than a day? They even cut off your credit card deposits in their records so you can't track how much you lost over any lengthy period of time.

Of course, if you phone them, I think they do give out that info.

[Charlie D]

CG

Majority of people who bet don't really have a clue about a thing like price, if they did the UK bookies would have been put out of business by Andrew Black's Betfair


Take alone ain't really the problem, however, lowering it would help US racing


Joe bettor UK has free info in bookies and online, Joe bettor UK can bet Tote, Exchange or bookie, Joe Bettor UK has no meds and so on


Can you see the attraction UK racing has to Joe bettor UK

[jballscalls]

What were the effects when Laurel did the across the board 12 percent takeout a couple years ago??

I know Ellis had the low pick 4, but i think that was boycotted by alot of tracks as well as vegas right?

[Cangamble]

CG

Majority of people who bet don't really have a clue about a thing like price, if they did the UK bookies would have been put out of business by Andrew Black's Betfair


Take alone ain't really the problem, however, lowering it would help US racing


Joe bettor UK has free info in bookies and online, Joe bettor UK can bet Tote, Exchange or bookie, Joe Bettor UK has no meds and so on


Can you see the attraction UK racing has to Joe bettor UK
In Canada we can bet Betfair as well.
I just want to add that people don't know takeout whether it is slots, horse racing, poker, etc. They do know how fast they lose on average. And that is a product of the takeout.

[Cangamble]

What were the effects when Laurel did the across the board 12 percent takeout a couple years ago??

I know Ellis had the low pick 4, but i think that was boycotted by alot of tracks as well as vegas right?
Laurel was a 10 day meet. The extra money won by those who bet Laurel most likely went to other tracks, and allowed players to last a bit longer before the refill.
The same is true with Ellis Park W4, but more money was actually bet on it than before.
The other thing, you are correct on is that a few ADW's didn't take them.

[Gallop58]

Can we do some classification of wagering products to see what's what?

Quote: "A proven strategy for lotteries across the country to generate additional funding for their beneficiaries has been to increase prize payouts. ..... Every lottery in the U.S. that has increased prize payouts has increased sales. ...

I guess this has been understood by bookies and money wranglers since the dawn of time, but not being born into the industry the quote above raises a few questions (for me anyway). I would infer that increased sales in a lottery, which is a "life changing score" game, does well to advertise the highest possible jackpots. I would be interested to look at how much money is made by the "owner" at every game as a % of total. ie. do they make all their money at the games with big jackpot carryovers.
So balancing takeout vs jackpot optics, etc. makes sense. But do you then always play with the takeout as "market conditions" change? (Creep it up again if need be?) Say, all the lottos that took the good advice drop takeout to todays optimal level? Now what?
And lets say you started to introduce a very very small element of skill into the game. If it's small enough for no one to really take advantage of, things act lottery-like, but if the skill element becomes large enough for the sharps to think they can take it down, at some point they will. And this kills jackpot development every time doesn't it, which kills "dumb" money? So aren't tracks (for life or year changing score bets) faced with an equation that, if you lower takeout too much it attracts the guys who know something about the game. If the winners of pick 4's were smiling grannies, "dumb" money might be duped into pouring it in, but when a whale, a regular, a professional handicapper takes it down, what are they supposed to do, take out an add that says, smarty pants wins the big one, you have no hope of outsmarting this full time wunderkind, please pour more money into the pools!
And WPS is a completely different kettle of fish. Why the hell is the discussion on the subject so simplistic? I can't help but keep thinking that it ain't so easy as lowering takeout.

I don't think there's an illusion that win betting is a life changing score game. So why do people do it? It's like slots without the chance of a jackpot. OK maybe it has a small potential to make a living if your good enough. Pure entertainment? Then lots of other intangibles come into play and you start to compete with TV/internet/video games/slots, etc...

Don't get me wrong, I think there's alot that can be done. But part of me says this is all just people wanting to hitch onto a winner not a loser. And racings currently a loser. A self justifying movement of fixer uppers that need to spout the need to change so they can look in the mirror without seeing someone entertained by something that most people find boring, a waste of time, quaint and animal abusive.... Maybe this is all a race for self respect not self made millions.... Me included.

As in a race you need 9 losers for every winner. The name of the game is keeping the losers happy, not the winners. Maybe keeping the winners happy is one strategy to keep the losers happy, but maybe not the best one. Vegas has this down to a science I suppose...Make you feel like a winner even if you're a loser....

Now that's a tag line "We keep the losers happy!" That ought to fill the joint :)

Sorry for the random thoughts, but I find the subject very interesting as it seems a very good proxy for the same issues in different industries. What we know for sure is that the big winners are the guys who consistently innovate and give people something new that they'll pay a premium for.

Racing= Stale

Even fancy computers it seems are unable to shine up this dull apple...

[DeanT]

*****NEWSFLASH*****


For Immediate Release

Google Blogger Inc.


(Mountain View CA): Google has been a part of 1.7 billion blogs, with bloggers making 12.4 trillion posts. For the first time ever in the history of blogs, press releases, new notes, emails, love notes, post it notes and any other note: Someone has given a hat tip to someone, or something called a "Chickenhead".

Indigenous to parts of California, the Chickenhead makes very good points regarding takeout that the Horseplayers Association must bogard.

"We bogard to make a point", says HANA president Platt. "I don't care if your name is Potatohead, we will take your point and blog about it, if it is a good one. Also, many HANA members enjoy chicken."

The post in question is here (http://blog.horseplayersassociation.org/2008/12/questions-questions.html). Be a part of history, read the words of the Chickenhead.

-30-

[rrbauer]

I thought Keeneland's handle has been going way down? maybe thats polytrack though?



You don't even know what the bright spots are in your industry and you chastise players for not knowing takeout rates? The people who show up every day, for the most part, are following a compulsion and will be there until they either go broke; or, die. If takeout was important to them, they would know it; and, they probably wouldn't be there!

Hence why carryover takeout is higher on a pick 6 than on non carryover days cause most of that money isnt going to come back to the track. If one guy wins 100k you think he's gonna put all that money back in to the races?? no he's gonna pay off bills, buy a car, and put a certain fraction back into the game, but probably not much more than he would of anyways. This was his main points, but he did say that lowering takeout in the churn wagers would help.


Poor example. A carryover is developed from bets that are subect to takeout. The money bet into the pool with the carryover is subject to takeout. All the money bet in either case has been subjected to takeout. Everybody gets their piece of the pie before the horseplayers. THE REASON THAT THEY RAISE (ANYONE OTHER THAN NYRA DO THIS?) TAKEOUT WHEN CARRYOVERS' ARE PRESENT IS THAT THEY KNOW THAT THEY CAN! Some bettors chase carryovers because they recognize that there is intrinsic value in the pools (there's gobs of $2 bills in the pot with no tickets attached to them). Others just chase carryovers because (for lack of a better term) they have carryover fever. In either case, over time, the money will be back from the winners. I mean, the player has been donating his car payment for the last 4 months; so, if you want him to keep coming out don't you think that he should make a payment before it gets repo'd?

[jballscalls]

I never chastised anyone RRbauer, i simply did some independent polling. And how can you say i dont know the bright spots in my industry?? all i said was that Keeneland's handle has been down recently. Did i say anything bad about Kee?? NOOOOO I love the place, i've gone to the last 3 opening day spring meets. I just said the handle went down cause it did.

I didnt chastise anybody or anyplace. I'm just trying to have a dialogue and try and learn more about the players, the industry, and what the players want.

[highnote]

A horseplaying friend of mine brought up a good point. So many people are in favor of tax cuts to stimulate the ecomony -- trickle down economics.

Wouldn't reductions in track takeouts have the same effect on the micro level?

[DeanT]

A better effect John - the last round of tax cuts went to pay some debt. A horseplayer keeps it in his account and bets it, and rebets it.

[Cangamble]

A horseplaying friend of mine brought up a good point. So many people are in favor of tax cuts to stimulate the ecomony -- trickle down economics.

Wouldn't reductions in track takeouts have the same effect on the micro level?
When retailers want to get more volume, they lower prices, they also get much of the competitions business as well.
When suppliers want to more their inventory, they move more by reducing prices. Again, lower prices attract more buyers as well.

The racing world doesn't even abide by Economics 101. Not even in the least.

[highnote]

When retailers want to get more volume, they lower prices, they also get much of the competitions business as well.
When suppliers want to more their inventory, they move more by reducing prices. Again, lower prices attract more buyers as well.

The racing world doesn't even abide by Economics 101. Not even in the least.


When Ronald Reagan wanted to stimulate the economy he reduced taxes. How about the Bush capital gains tax cuts -- wasn't that supposed to increase investment and help stimulate the economy?

I'm sure a few race track owners appreciated the tax cuts and how tax cuts helped stimulate the economy.

What's good for the goose is good for the gander, right?

Let's get this industry moving forward with higher revenues.

Racetracks executives -- do your part. Lower takeouts NOW!

[njcurveball]

When retailers want to get more volume, they lower prices, they also get much of the competitions business as well.
When suppliers want to more their inventory, they move more by reducing prices. Again, lower prices attract more buyers as well.

The racing world doesn't even abide by Economics 101. Not even in the least.


You cannot compare gambling to retail economics, maybe you need to take an Economics 101 class as they are different models.

If Casinos took your advise, they would have all penny slots and nickel blackjack.

[Cangamble]

You cannot compare gambling to retail economics, maybe you need to take an Economics 101 class as they are different models.

If Casinos took your advise, they would have all penny slots and nickel blackjack.
That is racing's attitude and it is wrong. No, a 20 cent superfecta is not a sales price. The 20 cent super has the same takeout to the player as a $1 super has.
The takeout times amount bet is the cost to the consumer. The total cost of the bet is irrelevant.

[njcurveball]

The takeout times amount bet is the cost to the consumer. .

Really? So I bet $100 and the takeout is 20% so my cost is $20? Then why don't I get $80 back when my horse loses?

I like your economics and I think I need you to write a letter to the track to get my money back. :jump:

[BillW]

Really? So I bet $100 and the takeout is 20% so my cost is $20? Then why don't I get $80 back when my horse loses?



You got lucky - you only lost an $80 bet! High takeout helps the loser :D

[Cangamble]

Really? So I bet $100 and the takeout is 20% so my cost is $20? Then why don't I get $80 back when my horse loses?

I like your economics and I think I need you to write a letter to the track to get my money back. :jump:
You bet $100 and the track gets $20, though your $80 of value goes into a pot that is split amongst winners.
The $20 is the markup. It is used to cover purses and other track expenses including salaries, heating, property taxes, etc.
The track can choose to make the markup $10 or $30 if they want (depending on the jurisdiction).

I'm thinking of buying a computer. Lets say the true value of the computer is 500 once it gets to the store. The store prices it at $800. The $300 represents the computers gross profit if someone buys the computer that is. But the same computer can be on sale for boxing day at $600. They will sell more computers at that price, but will they sell 3 times as much?

Anyway, betting at the track is like people buying computers from that store for the price that they retail at, and then pooling the computers and then having a draw where the winners wind up splitting how many computers are in the pool.

This is not a difficult concept.

[highnote]

Really? So I bet $100 and the takeout is 20% so my cost is $20? Then why don't I get $80 back when my horse loses?

I like your economics and I think I need you to write a letter to the track to get my money back. :jump:


If you have a negative 20% expected value, then on average over the long term, you will get $80 back on average. However, you might want to find a better method of picking the horses or find a track with lower takeout. :D