Best method to determine optimal takeout??

[Robert Fischer]

Obviously, optimal takeout should be something that the tracks are extremely focused on achieving.

but what is the best method to determine optimal takeout??

I'd like to hear some who understand what makes "a good takeout" state some of the basics. We should be able to come up with some crude variables, if not a "ballpark" formula or at least some conditions that must be fulfilled.

although there is nothing wrong with Trial and Error.

[rwwupl]

Obviously, optimal takeout should be something that the tracks are extremely focused on achieving.

but what is the best method to determine optimal takeout??

I'd like to hear some who understand what makes "a good takeout" state some of the basics. We should be able to come up with some crude variables, if not a "ballpark" formula or at least some conditions that must be fulfilled.

although there is nothing wrong with Trial and Error.


RF..

The best reference is(IMO):

Analysis of the Data and Fundamental Economics Behind Recent Trends in the Thoroughbred Racing Industry - by Cummings Associates
This report was funded by the National HBPA and published in July, 2004. Its recommendations have been widely ignored by the industry. Ironically, many of its predictions have proven to be true in one form or another.
http://www.nationalhbpa.com/resources/Cummings_report7-17-04.PDF

Optimal price is what produces the most profit for those who put on the show.

Most studies are concluding that it would be between 8-12%, but would vary on a number of other factors... and I think the only best method would be actual experimentation over time.

This has never been done by U.S. horse racing. I think it is time.

[rwwupl]

Here are some other definitions and methods for optimum price.

http://en.wikipedia.org/wiki/Profit_maximization

http://kutenk2000.blogspot.com/2009/05/four-pricing-strategies-for-setting.html

http://www.vistainfoservices.com/documents/2006-07-08.pdf

[DJofSD]

When looking at the different models and methods for determining the optimal withholding, it occurs to me there is a fundamental difference between those discussions and the racetrack which renders the discussion moot. The optimum price point discussion assumes a competitive landscape, i.e. a free market place in which there are multiple competitors vying for the consumer's dollar. When it comes to wagering on race horses, you have no real alternative: the various state oversight organizations set the rate of the vig, there is not another competitor within a single state to go to for a lower price, if a lower price is available.

[rwwupl]

When looking at the different models and methods for determining the optimal withholding, it occurs to me there is a fundamental difference between those discussions and the racetrack which renders the discussion moot. The optimum price point discussion assumes a competitive landscape, i.e. a free market place in which there are multiple competitors vying for the consumer's dollar. When it comes to wagering on race horses, you have no real alternative: the various state oversight organizations set the rate of the vig, there is not another competitor within a single state to go to for a lower price, if a lower price is available.



It is a complicated subject... Here is more. The real answer is trial and error to maximize profit, and each situation is different. But the number is real and it is up to the people who put on the show to find it, and they have not had the desire to do so, because they have been used to a monopoly... which is no more. Economics and competition will force the issue.

REFERENCES REGARDING TAKEOUT AND RELATED ISSUES
Commission on the Review of the National Policy Toward Gambling (1976). Gambling in
America (2 volumes), U.S. Government Printing Office.
Cummings, Will and McQueen, Patricia (1987). “Declining Per Capita Wagering at Pari-Mutuel
Sports,” Seventh International Conference on Gambling and Risk Taking, Reno, Nevada.
Gruen, Arthur (1976). “An Inquiry into the Economics of Race Track Gambling,” Journal of
Political Economy, 84 #1, 169-177.
Guthrie, Robert S. (1980). “State Revenue Potential of Parimutuel Taxation,” National Tax
Journal, 33, 509-510.
Guthrie, Robert S. (1981). “Taxing Horse Racing Gambling: The Revenue Potential,” Public
Finance Quarterly, January 1981, 79-90.
Hirschhorn, Eric and Wolff, Maury R. The Economics of Greyhound Racing (1975-1984),
March 1986.
Killingsworth Liddy & Company, Inc. The Impacts of Reducing the Takeout (2 volumes), April
1980.
Killingsworth Associates Inc. The Likely Impacts of Reducing the Takeout in Nebraska,
February 6, 1984.
Pescatrice, D. R. (1980). “The Inelastic Demand for Wagering,” Applied Economics, 12, 1-10.
Pescatrice, D. R. (1995). “Redistributing Rewards to Revitalize Racing,” Journal of Applied
Business Research, Winter 1995.
Suits, Daniel B. (1979). “The Elasticity of the Demand for Gambling,” Quarterly Journal of
Economics, 9, 155-162.
Thalheimer, Richard and Ali, Mukhtar M. (1995a). “The Demand for Parimutuel Horse Race
Wagering and Attendance,” Management Science, 41, 129-143.
Thalheimer, Richard and Ali, Mukhtar M. (1995b). “Exotic Betting Opportunities, Pricing
Policies and the Demand for Parimutuel Horse Race Wagering,” Applied Economics, 27, 689-
703.
Thalheimer, Richard and Ali, Mukhtar M. (1995c). “Intertrack Wagering and the Demand for
Parimutuel Horse Racing,” Journal of Economics and Business, 47, 369-383.
Cummings Associates

[InsideThePylons-MW]

Very simple........

If a tracks blended takeout rate is 20%.....

It is a without a doubt certainty that if the takeout is lowered to 10%, handle will double long before handle rises 25% if the takeout is raised to 25%.

[InsideThePylons-MW]

Very simple........

If a tracks blended takeout rate is 20%.....

It is a without a doubt certainty that if the takeout is lowered to 10%, handle will double long before handle rises 25% if the takeout is raised to 25%.

WTF did I just say......that's what I get for typing while doing 4 other things.

What I meant to say was that it is without a doubt certainty that if takeout was reduced to 10% handle would triple long before handle would rise 50% if takeout stays at 20%.

[Robert Fischer]

thanks for the replies

I want to really sit down and read over the optimal price links and comments, before i comment

looks interesting.

[Robert Fischer]

good stuff

looking at marginal revenue (the revenue for serving one more horseplayer)
and marginal cost (cost of serving one more horseplayer)

I don't think that marginal profit should be "zero" (mr-mc=?) as in a so called perfectly competitive market, but some simple balpark calculations can give an idea.

If the average revenue of taking 1 more wager transaction is $1.26 (wager size $7 (:confused: very rough guestimate *18% take)
and the average cost of taking that one extra wager is 50cents (this is an over-estimate (to boost the wager-providers), the cost is probably more like 20cents at MOST probably much less)

the racetracks are making a marginal profit of 76cents per unit :eek:

10% Take puts the marginal profit at a more marketable 20cents per unit.


I don't see anything wrong with REBATES (offering good large volume customers to play for less than 20cents per unit profit (in other words for lower take)), although offering rebates should not change the basic unit market value.

sci-fi
Theoretically? it could be possible to create a players-club type of wagering process that tracks all wagers, calculates things like marginal cost, and assigns that wagering entity an appropriate takeout level for players who feel the standard aprox20% is insane.

interesting stuff