Why are takeout rates often different for different types of bets?

[keithw84]

Why not just have one flat takeout rate?

[thaskalos]

The horse racing industry has a long history of underestimating the intelligence of the player.

They figure that the bigger the payoff, the less likely it is that we will miss the few extra dollars taken off the top.

[Rutgers]

Why not just have one flat takeout rate?


Because the more possible outcomes a wager has the more inherit value in the wager (assuming the pool size is large enough), therefore the more exotic wagers can have higher takeouts because they offer more value. Similar to a soda company charging more for a 2 liter bottle then a 12 oz can. The bottle costs a lot more then the can, but the cost per fluid ounce is much lower with the 2 liter bottle.

For example, a 16% win takeout is spread out over 8 possible outcomes (in an 8 horse field), but a 18.5% exacta takeout is spread out of over 56 possible outcomes. A 26% trifecta takeout is spread out over 336 combinations. With more possible combinations, it is more likely that the crowd will underbet some combinations. It is also more likely that they will be off by a larger percentage. Therefore it is easier to overcome the takeout, even if the takeout rate is higher.

[rwwupl]

Why not just have one flat takeout rate?


That would be FAIR to all players,or customers...Racing is a unique participatory sport for the customers, not a spectator sport.

It would be a level playing field as to the cost of a bet(not considering rebates).

The original premise of pari-mutuel racing was to have the customers compete with each other, and skill and handicapping ability would determine who would be successful over the long term. When this approach was honored,customers found the game very attractive,and growth for the fan base was assured.

Racing then started having tiered takeouts(one bet costs more than another) and rebates to reward certain favored customers with a lower cost of bet than others. How can you or why would you want to compete with others who have been granted a "head start" by the house?

How can you grow the fan base if you do not offer a level playing field? This is a factor (one of many) when the fan base started to drift to other gaming.

For long term success, racing must grow the fan base,as that is where the majority of revenue comes from to support the industry. Instead, fans have been treated poorly by the rest of the industry as if the industry consider themselves the priviliged class, by taxing the fans more to support their excess and the decline in fan support is obvious.

We can get new people interested as fans because the people love horse racing, but they must be assured of the integrity of the game and a level playing field, and a chance to win.

That will not happen the way things are going now.

rwwupl

[Horseplayersbet.com]

Every type of bet has a different optimum takeout. Triactors and supers don't get the churn WPS gets for example. In theory the takeout rates should be higher.

Even sports betting has tiered vig. Betting on just one team or point spread and the house vig is 4.6%. Bet a two team parlay and the vig is 10%. For a three team parlay the vig is 12.5%.

I'm not saying that these numbers for sports betting represent the optimum takeout. In the computer age, with the ability to bet many different games a day, I'm sure the optimum takeout is much lower. Probably closer to what Betfair offers. Actually, Betfair's vig on two team parlays is the same as a one team bet.

Horse racing has never tried to find the optimum takeout. Never.

[rwwupl]

HBP...

Quote from above:

Horse racing has never tried to find the optimum takeout. Never



We can certainly agree on that.

[rwwupl]

In another current thread on Pace"Steven Crist,California Board Skews Takeout Tale",post #26 explains how and why New york viewed tiered takeouts, It is to get more and point to something else as to prove they are "competitive"...A con game?

Quote:(post26)


Originally Posted by Ernie Dahlman
In Steven Crist's book "Betting on Myself", there is a paragraph on page 185 that says


Mr. Dahlman, all due respect, but maybe you should actually post the full quote from the book, not just the very ending after the meeting was over. Since Inside the Pylons is allowed that same garbage in each post, I hope I'm allowed to post what Crist actually wrote, rather than a carefully chosen excerpt that is disingenuous at best.

From page 184 of "Betting on Myself"

"Kenny [Noe] had been surprisingly flexible about allowing me to pursue simulcasting and in-home betting, issues on which I had expected to get little support. On one trip we were scheduled to meet with state budget officials, and I was hopeful we could make some progress on another of my missions, takeout reduction.

The meeting began badly. The budget chief said that NYRA's contributions to the state had been declining steadily and that while simulcasting and in-home betting were interesting long-term projects, the state wanted more money now. He thought there was an easy solution: New York's 17 percent takeout on straight and two-horse bets was a little low compared to other states. Why not just bump it up to 20 percent?

I saw Dragone's eyes roll back in frustration, and I opened my mouth to begin my stump speech about how takeout was too high already and a reduction was the only path to long-term growth. Kenny jumped in a second before I could begin.

"I couldn't agree with you more," he told the budget chief. "We'd be willing to do that if some of the money came back to us for purses and the facilities."

There was no arguing the point with him or with the state. The bottom line was that if NYRA wanted more purse money and a franchise renewal, the state wanted more money out of the betting pools. Kenny told me to save my breath about how the press and public would react. A few years down the road we could go back and argue for a reduction, but we had to go along with this now or there wouldn't be a NYRA in a few years. The only question was whether the takeout was going up to 19 or 20 percent."

THEN, after all that, it goes into the oft-quoted part about the "scheme" where you make it sound like it was Crist's idea and not the state of New York, or that he could have done anything about it other than quit his job, in which case takeout would have gone up anyway.

"At least I was able to sell them on a scheme that made it look like a restructuring rather than a plain increase. Instead of raising everything from 17 percent to 19 or 20 percent, what if we went from 17 to 20 on two-horse bets such as exactas and daily doubles, but went down from 17 to 15 percent on win, place, and show? Since twice as much was bet on the two-horse wagers, the net effect would be the 2 percent increase they were seeking, but at least this way New York could say it had the lowest win-place-show takeout in the country."

[therussmeister]

Why not just have one flat takeout rate?
Because if they had one flat rate it would be 25%

[comet52]

Well an optimum takeout for racing wouldn't be anywhere near the low optimums for sports. Racing has to support a big physical plant - a racetrack, purses that keep the breeding industry alive, etc. Sportsbooks don't have to support anything except a few tellers and accountants.


Every type of bet has a different optimum takeout. Triactors and supers don't get the churn WPS gets for example. In theory the takeout rates should be higher.

Even sports betting has tiered vig. Betting on just one team or point spread and the house vig is 4.6%. Bet a two team parlay and the vig is 10%. For a three team parlay the vig is 12.5%.

I'm not saying that these numbers for sports betting represent the optimum takeout. In the computer age, with the ability to bet many different games a day, I'm sure the optimum takeout is much lower. Probably closer to what Betfair offers. Actually, Betfair's vig on two team parlays is the same as a one team bet.

Horse racing has never tried to find the optimum takeout. Never.

[Horseplayersbet.com]

Well an optimum takeout for racing wouldn't be anywhere near the low optimums for sports. Racing has to support a big physical plant - a racetrack, purses that keep the breeding industry alive, etc. Sportsbooks don't have to support anything except a few tellers and accountants.
Optimum takeout has nothing to do with the cost of the show. It is the takeout level that tracks and horsemen make the most money bottom line.

It doesn't matter if a casino costs 25 million a year to keep open or 10 million to keep open. The optimum price of slots is going to be somewhere between 5-8% no matter what.

The same is true for horse racing, but we don't really know what the optimum takeout level is.

[rwwupl]

Optimum takeout has nothing to do with the cost of the show. It is the takeout level that tracks and horsemen make the most money bottom line.

It doesn't matter if a casino costs 25 million a year to keep open or 10 million to keep open. The optimum price of slots is going to be somewhere between 5-8% no matter what.

The same is true for horse racing, but we don't really know what the optimum takeout level is.


HPB...Very true...With all the studies,many paid for by the horse racing industry itself pointing the way, the racing managers have never made a stat valid or practical effort to seek the optimum price point.

That fact is amazing. If we found and utilized the optimum price point I doubt there would be so many disputes between our racing factions today.

[lamboguy]

That would be FAIR to all players,or customers...Racing is a unique participatory sport for the customers, not a spectator sport.

It would be a level playing field as to the cost of a bet(not considering rebates).

The original premise of pari-mutuel racing was to have the customers compete with each other, and skill and handicapping ability would determine who would be successful over the long term. When this approach was honored,customers found the game very attractive,and growth for the fan base was assured.

Racing then started having tiered takeouts(one bet costs more than another) and rebates to reward certain favored customers with a lower cost of bet than others. How can you or why would you want to compete with others who have been granted a "head start" by the house?

How can you grow the fan base if you do not offer a level playing field? This is a factor (one of many) when the fan base started to drift to other gaming.

For long term success, racing must grow the fan base,as that is where the majority of revenue comes from to support the industry. Instead, fans have been treated poorly by the rest of the industry as if the industry consider themselves the priviliged class, by taxing the fans more to support their excess and the decline in fan support is obvious.

We can get new people interested as fans because the people love horse racing, but they must be assured of the integrity of the game and a level playing field, and a chance to win.

That will not happen the way things are going now.

rwwupli agree in every aspect of your post, i must throw in that the worst thing that has happened to the racing game is that the small owner is gone. these people cannot compete vs. the bigger ones. i have no idea how racing secretary's allow guys to have 80 stalls in monmouth track and run their horse once in 6 weeks. the other day kiran came out and said he only likes to run his horses every 6 weeks. how can that be good for the game. if he wants to run horses once every 6 weeks he should leave the track and train on a farm where he would have to own it or pay rent to train horses there. if trainers were penalized for not having enough starts the game will change again. the tracks are caterring to these guys and scaring the small ones away. the drug tests are very lax and probably a waste of time the way it is being handled. there are many more reasons the game is failing other than takeout, takeout and level playing fields for bettors are just a small part of the problem. the money that racetracks derive are from bettors and owners and those are the people they could care less about.

[rwwupl]

i agree in every aspect of your post, i must throw in that the worst thing that has happened to the racing game is that the small owner is gone. these people cannot compete vs. the bigger ones. i have no idea how racing secretary's allow guys to have 80 stalls in monmouth track and run their horse once in 6 weeks. the other day kiran came out and said he only likes to run his horses every 6 weeks. how can that be good for the game. if he wants to run horses once every 6 weeks he should leave the track and train on a farm where he would have to own it or pay rent to train horses there. if trainers were penalized for not having enough starts the game will change again. the tracks are caterring to these guys and scaring the small ones away. the drug tests are very lax and probably a waste of time the way it is being handled. there are many more reasons the game is failing other than takeout, takeout and level playing fields for bettors are just a small part of the problem. the money that racetracks derive are from bettors and owners and those are the people they could care less about.


Your comments are a big issue of mine in California We call it the "Van and Stabling" program. The program is subsidized from the takeout.

At the last Hollywood Park meeting, with two weeks to go, the racing secretary said there were 2,800 horses on hand and 1,300 of them had not raced(approx.40%), even though all were said to be race ready, and we had a diet of 5 horse fields. The program worked best when racetrack policy limited stall space to 36-38 horses per trainer...allowing trainers with smaller stables to have access. That policy went the way of the Edsel by Ford. Large stables took priority.
Ron Charles(S/A CEO) informed me before he left Santa Anita that they have been trying to get this program to work well for a long time and would listen to all reasonable suggestions... because of the shortage of horses and horsemen in California, if they try to remove a trainers horse from a subsidized stall for not racing or start charging him for the use, he may threaten to take the whole string and leave.

Large stables have the upper hand demanding stall space, but the program was designed for all horsemen...if there was an easy answer, I would love to help get things changed here. If it would work here,it would work anywhere. Any new ideas?

rwwupl

[lamboguy]

Your comments are a big issue of mine in California We call it the "Van and Stabling" program. The program is subsidized from the takeout.

At the last Hollywood Park meeting, with two weeks to go, the racing secretary said there were 2,800 horses on hand and 1,300 of them had not raced(approx.40%), even though all were said to be race ready, and we had a diet of 5 horse fields. The program worked best when racetrack policy limited stall space to 36-38 horses per trainer...allowing trainers with smaller stables to have access. That policy went the way of the Edsel by Ford. Large stables took priority.
Ron Charles(S/A CEO) informed me before he left Santa Anita that they have been trying to get this program to work well for a long time and would listen to all reasonable suggestions... because of the shortage of horses and horsemen in California, if they try to remove a trainers horse from a subsidized stall for not racing or start charging him for the use, he may threaten to take the whole string and leave.

Large stables have the upper hand demanding stall space, but the program was designed for all horsemen...if there was an easy answer, I would love to help get things changed here. If it would work here,it would work anywhere. Any new ideas?

rwwupli think i haven't explained myself well. big owners like a maggi moss, or a bob bone, or a robert cole, or the midwest thoroughbred corporation, or elkstone, and a bunch more have an easy time of it extracting more than their share of purse money because of the way the game is structured. those people have the horses and the races have to be written around the horses they have. i ran a 2 yo horse on june 28th. the horse was waiting 6 weeks for that race to happen in philadelphia park my next race was last night at penn national. this is a 2 yo, they couldn't get a race to go before that. these people that i have listed above don't develop babies, they claim horses from people that did, and they monopolise the game with all the horses they have, if they don't enter the races don't go. these are the people that pay the $85 a day and up to help their trainers make their cadilac payments. also when you have alot of horses you can also own your own shockwave machines and do it yourself. a smaller guy would have to pay $200 or more for the shockwave and have to abide by the rules of racing and not do it after 72 hours prior to the race. when you own your own and don't need a vet to administer the treatment you can take the horse off track and do the treatment the day of the race and no one knows anything. i am just scratching the surface here on this stuff and i only sit in my house and haven't been backside for years.

[comet52]

I don't really follow you. The cost of doing business must be offset by income (takeout) so how does it end up having nothing to do with it?

When you mention casinos at 25 and 10 mil, are you saying they are the same in size/scope? Or is one 2.5 times bigger than the other? I still don't get what you are saying.

It's true that the optimum price of a wager might be the one that gets the most people playing while supporting the physical plant and employees, but I don't see how that leads to a statement that it has nothing to do with it. The optimal price of a wager in a lot of player's minds might be zero vig but that will not support a casino, let alone a horse track and farms and horses.

Optimum takeout has nothing to do with the cost of the show. It is the takeout level that tracks and horsemen make the most money bottom line.

It doesn't matter if a casino costs 25 million a year to keep open or 10 million to keep open. The optimum price of slots is going to be somewhere between 5-8% no matter what.

The same is true for horse racing, but we don't really know what the optimum takeout level is.

[lamboguy]

take out is just like taxes. if lowering takeout by say 3% doubles the handle it might be worth lowering them, it it only raises it by 10% then it might not be worth it.

[rwwupl]

Your comments are a big issue of mine in California We call it the "Van and Stabling" program. The program is subsidized from the takeout.

At the last Hollywood Park meeting, with two weeks to go, the racing secretary said there were 2,800 horses on hand and 1,300 of them had not raced(approx.40%), even though all were said to be race ready, and we had a diet of 5 horse fields. The program worked best when racetrack policy limited stall space to 36-38 horses per trainer...allowing trainers with smaller stables to have access. That policy went the way of the Edsel by Ford. Large stables took priority.
Ron Charles(S/A CEO) informed me before he left Santa Anita that they have been trying to get this program to work well for a long time and would listen to all reasonable suggestions... because of the shortage of horses and horsemen in California, if they try to remove a trainers horse from a subsidized stall for not racing or start charging him for the use, he may threaten to take the whole string and leave.

Large stables have the upper hand demanding stall space, but the program was designed for all horsemen...if there was an easy answer, I would love to help get things changed here. If it would work here,it would work anywhere. Any new ideas?

rwwupl

Had an extended telecom with Brian Boudreau, on Board of Directors of the TOC in California. I explained the complaints and problems as we know it with the Van and Stabling program... the subsidy, the favoritism, the abuse and what could be done about horses being cared for at our expense(customers) and not running...some from out of state that have not run and then return home..free.

He said that he will be in charge to find a solution and will keep us updated. He has done some work already, and that should help the horse shortage and bring some fairness to the small stable horsemen, and it will cost horsemen who abuse the program..I hope so.
---------------------------------------------------------------------
Also, thought you might be interested...

Brian Boudreau has many other ideas and wants to cooperate with the horseplayers...he said he thought the Vice Chairman of the CHRB (David Israel)did not mean what he said about Ca. horse racing being entertainment,under priced and competing with the Dodgers...He said he knew David Israel and he blew it.

I said we do not think much of raising the takeout and it will do more harm than good. He introduced the takeout raise and said there is more to the story than has been reported and it might be temporary..maybe. he did not go further.

He is very aware that horseplayers drive revenue and we need more of them... We are talking and that is good... I gave him several more things to consider to benefit both horsemen and horseplayers..such as getting rid of the retention cap for ADW dollars for California players and he promised to bring the matter up at the next meeting. He and Arnold Zetcher(TOC Chairman) were at the fairplex meeting together.He explained from his view some financial things that theTOC has been criticized for and those things were off the record. Some of these things will have impact beyond California if they can be resolved .

If I get updated, will report what I can.

We shall see...you make the call.

rwwupl

roger@hanaweb.org

[chickenhead]

It's true that the optimum price of a wager might be the one that gets the most people playing

No, optimum takeout has nothing to do with the number of people playing. It has to do with maximizing revenues for the show-putter-on.

The optimal price of a wager in a lot of player's minds might be zero vig but that will not support a casino, let alone a horse track and farms and horses.

Optimal takeout means maximizing revenue. There is only one takeout rate that will maximize revenue for a given "demand for X" over the long term. Zero will never be an optimal rate, it returns zero revenue...it is officially the least optimal takeout rate (it shares that honor with 100% takeout rate.)

Optimal takeout doesn't exist in anyone's mind, it's not an opinion. It exists, as an actual number. Nobody knows what it is, exactly...but the truth is out there. It's the takeout rate where you get maximum revenue.

The reason he says the cost of the show doesn't matter is because it doesn't...optimal pricing is going to be optimal pricing for any given show, no matter how much you pay the star. You can't do better than maximum revenue. Optimal takeout rate = maximum revenue for the tracks and horsemen.

Whether maximum revenue pays for the show or not is a separate issue -- because you can't get any more money from your customers. If you raise prices your revenue will go down because they will reduce their purchases at a higher rate than the increase in price makes you.

If you lower prices your revenue will go down because they won't buy more of it a rate high enough to make up for the decrease in per unit cost. You end up a net loser again. You can't bring in any more money, ever, than you'd get with the optimum rate. There is no more money for your show.

If there isn't enough to pay for the show at that point, then your show is too expensive to put on, and you should either consider putting on a different show, or just stop putting on shows -- because you are going to go out of business. Not all shows are blockbusters, many result in bankruptcy.

It is believed by many that racing is currently charging more than the optimal rate, and is therefore leaving money on the table that could otherwise go to pay for the show.

[DeanT]

For a guy named Chickenhead, he's smart. :)

That was well done!

Jeff wrote a simple optimal takeout model based on elasticities published in an economic study. It is crude, but explains it quite well I thought.

http://www.horseplayersassociation.org/articletakeoutmodel.html

I think New Z did the best work on finding a decent takeout rate so they would make the most money. It was something like 13% blended; close to Jeff's actually.