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rwwupl
10-06-2010, 11:38 AM
The following e-mail was sent to the regulators,racing managers and racing writers in California this morning... as another tool to get the players message out to the people who influence racing in California.




Commentary 10-6-10


(HANA Logo)


Roger Way,HANA-California




What is Optimal Takeout?


With the assistance of a fellow horseplayer, with a handle of “Chickenhead” I thought he gave an explanation recently that was worth passing on about optimal takeout. Here is his version that we support (edited).



He was asked a couple of questions … “Is it true that the optimum price of a wager is the number 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 people who put on the show.



“The optimal price of a wager in a lot of peoples minds might be zero vigorish but that will not support a casino, let alone a horse track, farm and horses, so what is it?”




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 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.



California racing managers should listen up,despite many studies pointing the way, no racing manager or regulator has ever made an effort to find the optimal price point of the bet… is it time to get started?

roger@hanaweb.org



http://www.horseplayersassociation.org/





sign up here:



http://www.jcapper.com/HANA/SignUp/HANASignUpForm.asp?source=0







Roger Way 375 S.Vine,Upland,Ca.91786-7145(Tel/Fax;909-982-2405)


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highnote
10-06-2010, 12:50 PM
Very nice post.

CA just raised rates on exotics. They feel this will bring in something like $30 million more in revenue. If that is true, then raising rates on exotics might be the right thing to do for moving closer to maximizing revenue.

I don't know the exact CA takeout rates, but for example, if 21% exotics provides X revenue and 25% exotics provides X+$30 million then the optimal revenue is not 21%.

Now, it might be the case that 18% exotics might provide X+$60 million. If that is the case then the revenue line from changes in exotic takeout is not linear.

It might be the case that optimal takeout might vary over time. Maybe raising takeout will increase revenue for a year, but then maybe revenue will begin to fall as people wash out. If demand for exotics declines and less revenue is generated then the price for exotics should fall, which in turn should increase revenue toward some optimal point.

There is probably some economic theory to explain this. If not, then maybe there needs to be one.

Horseplayersbet.com
10-06-2010, 01:02 PM
There are optimal takeouts for each type of bet, and realistically they may differ from track to track too.
But optimal takeouts anywhere are nowhere near as high as 15% for any type of wager.

I guess one could argue that there is one blended takeout rate that is optimal.

The California situation is a little different when it comes to the best rates for horsemen and tracks, since the hike is going to the horsemen accounts. Handle can drop 10% in California when the dust clears here and the horsemen will wind up more than before, when looking at the bottom line. So there is nothing cut and dry when it comes to takeout.

I just want to add one more thing. At 0% there is no revenue except probably money paid to admissions will sky rocket. At 100% there is still potential revenue if someone is stupid enough to bet into it. :)

chickenhead
10-06-2010, 01:17 PM
There are optimal takeouts for each type of bet, and realistically they may differ from track to track too.

I agree. It probably also varies by field size and type of race.

Things are too complicated for them to try to over-optimize, they need to get in the ballpark with their blended rates before they worry about fine tuning anything.

I'd argue the short-term goal really should be handle at any cost. Long term goal is actual revenue. It's a lot easier to figure out how to extract the revenue you need from a steadily growing number than it is from a steadily shrinking number.

Of course it's easier to say than to actually do -- but I don't see any other options.

rwwupl
10-06-2010, 04:10 PM
Sometimes the responses need and should be heard too….

From Steve Davidowitz via e-mail in response to HANA,California e-mail on "Optimum Takeout"



My Personal View of what is going on in California racing.

Many caring people, many people in and out of horse racing, have no trouble understanding the issues and problems facing California racing.
Unfortunately, it is difficult to list present members of the CHRB among them in both categories. Most do care, but just as many are all too willing to sign off on dumb, counter productive takeout increases. All too many have great difficulty realizing that there are ways to alienate the fan base and ways to take forward steps that will improve the financial picture for the sport, for the tracks, for the horsemen, for the fans and for the state's citizenry.

I do not agree with Jerry Jamgotchian 's approach either.
I do not agree that a boycott of the wagering windows can be effective. Not when the handle has been sliding downward for years. There is no way to convince everyone not to bet, especially since the majority of the handle occurs out of state. Moreover, there is no way that a further decline will wake up California racing officials any more than the steady declines have to date.

If the handle were up and a boycott was initiated because of some new policy, then a boycott would make a telling point. Lacking that, California racing needs more insightful options.

One of those options would be the lower takeout that Roger has been recommending.
What is the optimal takeout?
My view: No higher than 15 percent on all single bet wagers;
17 percent on Exactas, Quinellas, Trifectas, Daily Doubles;
18 percent on multi race wagers involving three to five races;
20 percent on Superfectas, Pick Sixes and the Place Pick All.
And, I would have at least one day each meet in which the handle on ALL wagers would be reduced to 10-12 percent as special fan appreciation days; days in which the impact of a serious drop in takeout could be measured by financial experts.

Consider: If a meet long drop in the takeout led to a stable or higher handle, or an increase, well that would make a definitive statement. So would a sharp rise on the special lower takeout day.

(Fact is, a vast majority of financial experts who have studied the impact of reduced takeouts on wagering handles- have concluded that properly handled, lower takeouts usually have a positive impact. And there is some practical history here. CHRB members should study what NY did in an experiment in the 1970's. Basically, they lowered the takeout as quietly as possible and that led to higher handles and they raised it also on the QT and that led to lower handles, etc. The only notification for the handle changes were in the result charts where the specific takeout info used to be presented every racing day.)

Other options are needed, including perhaps a consolidation of the northern and southern Cal racing schedules. This model existed in the 1950's when the meets were complimentary and the idea was not to over saturate the race going public with year round racing in each segment of the state. Racing today in California, including SoCal, often is racing for racing's sake, not for the benefit of the breed, the industry, the track's financial welfare and the attention span of its most loyal fans.

Another possible option is to follow to some extent the model provided this summer by Monmouth Park, where purses were concentrated for a three day race week.

Purses of course, were inflated by a special allocation at least $20 million that can be traced to the legislated relationship with Atlantic City Casinos that may or may not continue.
But next year, Monmouth is likely to remain a weekend track with above average purses, with or without the extra cash. Moreover, California's wagering pools are large enough right now, even with the declines, to support a Friday-Sat.Sun race week which would permit an up tick in the overall quality of daily racing as well as make those weekend dates special. At present, California is supporting too much of the same daily fare with an unfortunate accent on small fields and cheap maiden claimers. There not only is a decline in the horse population, but the quality has dropped significantly through much of the year as well.

There also are untried promotions, which would require CHRB approval: Such as a rich handicapping contest, in which only those who have attended the host track during the previous week, or the previous weekend, would get a free ticket to the track and the right to participate in the contest. This, it seems to me, would be far more effective use of a marketing budget than any shirt or hat giveaway.

At the bottom line, it is simply wrong-headed that any CHRB official believes that racing needs to accent its entertainment value for families more than it needs to lower the takeout-cost to the player. Making a day at the track a good experience certainly is a goal for every track. But It is absurd to compare the sport to baseball where legal wagering is NOT a fundamental reason to buy (expensive!) seats at the ballpark.

To do a proper job of revitalizing racing in California, the CHRB needs insightful leaders who will have the guts to allocate shorter race meets and or weekend racing for most of the year. The members of the CHRB who believe they are making positive moves raising takeouts, do not have the inspiration or the leadership qualities to regulate the best gambling game man has ever invented. They lack a feel for the large numbers of people who still love the sport but feel completely alienated by a long list of managerial and administrative errors.

At the bottom line, If the present CHRB members really want to help rebuild racing in California, each member needs to look in the mirror and really see what a mess they and some of their predecessors have made. Resignations would be worthwhile to consider; but those members who actually want to help the sport---those members who are willing to see what actually is going on---they need to justify their roles with bold initiatives. This is no time for wishy washy, politically inspired panaceas that offer nothing of positive value for the long term health of a great sport and a multi billion dollar agri-business under stress. The game can not afford more poorly thought-out policies orchestrated by the CHRB (and/or any self interested racing organization) that can only depress California racing's prospects for recovery.

Steve Davidowitz
CEO-Editor in Chief.
www.GradeOneRacing.com

rwwupl
10-06-2010, 04:46 PM
Another e-mail response to HANA, California"Optimal Takeout" message.


To ROGER WAY
From: Bob Ike (bob@bobikepicks.com)
Sent: Wed 10/06/10 2:32 PM
To: ROGER WAY (wayroger_@hotmail.com)


Roger--

Interesting points. I've asked myself for years what is the "optimal takeout" rate and figured this must have been tested in hundreds of studies. Hard to believe that number is not known (within a point or two) by economists, racing managers, regulators, etc.

The time to find this out was 25 years ago--hopefully it's still not too late.

Bob

Horseplayersbet.com
10-06-2010, 06:54 PM
I think Davidowitz is on the high side regarding optimum takeout. Also, a boycott will not stop everyone....I think that is a gimme.

discodog
10-06-2010, 07:13 PM
Racing is the only privately owned industry who is told how much to take from the consumer, (take out). It has been doing this to the bettors for the last 40 or 50 years very gradually without KY Jelly. Now we have all these groups(Hana, ETC) who want to sit down and talk with all these tracks, like that's going to get something done, other than a few free dinners and booze for the ones who go. Then they have the NERVE to tell us it was a very productive meeting. If the meetings are so productive why did California just raise the takeout.
This game is DEAD and all the BULLCRAP by Hana and all the others who think they are going to get something done is a JOKE. BOYCOTT all the TRACKS and if they can survive with Casinos more power to them. The Game is Dead we are the ones too Stupid to fall over.

rwwupl
10-06-2010, 09:59 PM
Another e-mail response to HANA, California...Posters note: Andy Cylke was a member of the NTRA Players Panel a few years ago that made recomendations from the players point of view... http://www.horse-races.net/library/article-ntrapanel.htm

Steve wrote:

“I do not agree with Jerry Jamgotchian 's approach either.
I do not agree that a boycott of the wagering windows can be effective. Not when the handle has been sliding downward for years. There is no way to convince everyone not to bet, especially since the majority of the handle occurs out of state. Moreover, there is no way that a further decline will wake up California racing officials any more than the steady declines have to date.

If the handle were up and a boycott was initiated because of some new policy, then a boycott would make a telling point.”



Actually Jerry’s approach is the only rational thing for a bettor to do. It’s ludicrous to ask the bettors to put up more money to bailout mismanagement and poor business practices that have become the norm in the racing industry. If a further decline won’t wake up California racing officials, how will being a poor consumer help matters out? Bettors need to speak loud and clear by either boycotting or by only playing tracks where the bettors are given a square deal.

Andy Cylke, former California race bettor

rwwupl
10-07-2010, 12:38 PM
More e-mail response to California HANA...

Forget takeout, just look at the tote issue.

Fantasy sports, poker, and online sports gambling all offer far better interfaces for wagering/spending money than does racing. Has there been one improvement in the tote since the pick six scandal in fall 2002?

We’re still at a point, 11 years later, that we can only bet on 24 horses at a time for a Derby future wager when everyone for years has been BEGGING for Churchill to offer wagering on all nominees (or at least more than 24 options).

Some tracks don’t even have the capability to program $.50 minimums when other tracks offer that option.

It’s a complete joke.


Ed DeRosa
(859)260-9800 x7114
http://www.thoroughbredtimes.com
Twitter
Blog

jelly
10-07-2010, 03:33 PM
Another e-mail response to HANA, California...Posters note: Andy Cylke was a member of the NTRA Players Panel a few years ago that made recomendations from the players point of view... http://www.horse-races.net/library/article-ntrapanel.htm

Steve wrote:




Actually Jerry’s approach is the only rational thing for a bettor to do. It’s ludicrous to ask the bettors to put up more money to bailout mismanagement and poor business practices that have become the norm in the racing industry. If a further decline won’t wake up California racing officials, how will being a poor consumer help matters out? Bettors need to speak loud and clear by either boycotting or by only playing tracks where the bettors are given a square deal.


Andy Cylke, former California race bettor



Agree 100%

rwwupl
10-07-2010, 03:44 PM
More e-mail response to California HANA.. "Optimal Takeout" Selected Responses...

From: Stacy Bearse (sbearse@bloodhorse.com) (Publishing)
Sent: Thu 10/07/10 3:18 PM

This is a very important discussion thread because it points out why the popularity of racing has declined so severely, and provides the key for rescuing racing from its death spiral. Simply put, fan development is simply not taken seriously by racing’s leaders. Fans are viewed as cattle to be moved through the turnstiles and milked at the windows. “Marketing” consists of free tee-shirt and umbrella days. Racing’s best fans are given $50 windows, but they are accorded few of the other accoutrements and incentives provided to the top patrons of other sports.

Racing will never emerge from its current status as a second-rate spectator sport until managers get serious about expanding the popularity of the sport, re-building the fan base, and treating patrons with respect. Without a serious new focus on the fan and bettor, the economic circumstances of horse racing will continue to spiral downwards.

Stacy

OTM Al
10-07-2010, 05:51 PM
One slight correction. Optimal takeout maximizes profits, not revenues. These are only the same if we assume that costs are not affected by takeout in any way. This may be true, but when talking optimization in problems of the firm it is always most proper to speak of profit maximization.

chickenhead
10-07-2010, 06:38 PM
One slight correction. Optimal takeout maximizes profits, not revenues. These are only the same if we assume that costs are not affected by takeout in any way. This may be true, but when talking optimization in problems of the firm it is always most proper to speak of profit maximization.

Damn economists....I'm invoking special rules for "event-based" rather than "item-based" sales. It's the Chickenhead-Bergstrom theorem/shortcut, it just makes the explanation simpler.

OTM Al
10-07-2010, 07:21 PM
Damn economists....I'm invoking special rules for "event-based" rather than "item-based" sales. It's the Chickenhead-Bergstrom theorem/shortcut, it just makes the explanation simpler.

I'm a bit more of a classicist these days but old habits do die hard.

The_Knight_Sky
10-10-2010, 02:33 PM
More e-mail response to California HANA.. "Optimal Takeout" Selected Responses...

From: Stacy Bearse (sbearse@bloodhorse.com) (Publishing)
Sent: Thu 10/07/10 3:18 PM


I think that great that Mr. Bearse understands the nature of the problem.
The leaders of other trade magazines should expound this topic regularly.

The optimal takeout rates vary by pools, individual racetracks,
as well as the effects of field sizes of each race.

But we should all be in agreement that the takeout rates must be
started to be lowered incrementally rather than raise them.
I like what Hialeah is doing on two fronts:

a) lowering all the wagering pools
b) keeping it simple with a flat 12% rate

"Lowest Takeout in the Land" is a terrific selling point but field sizes must also be bolstered. California Racing has failed on both fronts and is simply not worth supporting.

rwwupl
10-10-2010, 04:39 PM
I am very greatful to the many people who responded, with a mix of different views, all well thought out and well meaning.

The responses give me renewed hope that our industry will get it together, and the respect all had for each other indicates the sincerity of all.

Stacy Bearse, a publishing czar, struck close to my own feeling and I guess that is why I chose it for this thread.

With dedicated people involved that want horse racing to come back, I think it will.

rwwupl