Minus Pool Workings

[Track Collector]

Perhaps someone like Ian or Maury can confirm how this works.

It is my understanding that contracts between tracks and ADWs are now written in a manner to make the ADW financially responsible for minus pools when it involves one of the ADW's clients.

My question will be based on a situation with the following conditions:
--> Someone wagers $ 1,000 to show via their ADW on a horse that finishes in the money.
--> The true show payout for this horse is calculated to be $ 2.04 for a $2 ticket. (Thus, the existence of a minus pool.).
--> The track is in a state where the minimum payout for a $2 ticket is 5% or $ 2.10.

Under the above situation, the bettor would be entitled to receive back $1050.

The track would obviously give the ADW back the original wager amount of $1000, so my question is who is on the hook and for how much of the balance of $50? Is it the ADW for $50, or is $30 from the ADW and $20 from the track (due to the calculated payout of $2.04)? Perhaps it is even something else?

In any event, one can see how ADWs stand to lose quite a bit on large show wagers that end up in a minus pool, and are thus likely have a general policy limiting the size of a show bet.

[lamboguy]

rich perloff of tvg says that minus pool wagers are the worst type of bet going. he bets against every single minus pool that he can put his hands on. he bets every single horse except for the one that has all the money. perloff claims he makes money that way

[InTheRiver68]

Your assumptions are a bit off.

If $1,000 is bet at the ADW, then only about $830 makes its way to the track, and goes into the pool for bettors that win. The ADW probably forks over another $50 in signal fees, but that check doesn't get cut until much later. The other $170 is kept by the ADW as commission.

So the horse finishes in the money, and now the ADW has to pay the customer back $1,050.

So the track "sends" the $830 back to the ADW, and the ADW has to make up the difference between the $830 and the $1,050. So they end up forking over their $170 in commission, plus another $50. They just lost $50 of their own money, plus $170 in commissions that they don't get to keep, plus they have to pay an additional $50 in signal fees. And I hope they're not rebating the guy that bet the $1,000, because they just forked over that, too.

- InTheRiver68

[Track Collector]

Your assumptions are a bit off.

If $1,000 is bet at the ADW, then only about $830 makes its way to the track, and goes into the pool for bettors that win. The ADW probably forks over another $50 in signal fees, but that check doesn't get cut until much later. The other $170 is kept by the ADW as commission.

So the horse finishes in the money, and now the ADW has to pay the customer back $1,050.

So the track "sends" the $830 back to the ADW, and the ADW has to make up the difference between the $830 and the $1,050. So they end up forking over their $170 in commission, plus another $50. They just lost $50 of their own money, plus $170 in commissions that they don't get to keep, plus they have to pay an additional $50 in signal fees. And I hope they're not rebating the guy that bet the $1,000, because they just forked over that, too.

- InTheRiver68

Thanks for the explanation InTheRiver68.

My assumptions are off because my brain was in neutral which caused me to forget about the takeout. :blush::lol:

So according to your explanation, and based on a signal fee range of 5% to 10%, the ADW's net (out of pocket) loss due to a minus pool would seem to be in the 10% to 15% range. OUCH! No wonder they have policies regarding show wagers and minus pools! Tracks, on the other hand, would seem to welcome this type of activity off-track as they still make the signal fee without any other risk.

[vikingrob]

Thanks for the explanation InTheRiver68.

My assumptions are off because my brain was in neutral which caused me to forget about the takeout. :blush::lol:

So according to your explanation, and based on a signal fee range of 5% to 10%, the ADW's net (out of pocket) loss due to a minus pool would seem to be in the 10% to 15% range. OUCH! No wonder they have policies regarding show wagers and minus pools! Tracks, on the other hand, would seem to welcome this type of activity off-track as they still make the signal fee without any other risk.

This is indeed one of the effects of net pool pricing.

For the sake of discussion, let’s say there is a show pool of $100,000, of which $90,000 is bet on the favorite. Another $2,000 each is bet on the other two in-the-money horses. The takeout rate is 17.5%.

The net value of the show wagers of the favorite total $74,250, and the other in-the-money horses are $1,650 each. The profit available to be split is $4,950; split three ways, this is $1,650 per horse in the money.

The base price on the favorite is therefore 1+(1650/74250) or 1.022222. The base price on the other two in-the-money horses is each 2.000000.

A base price of 1.022222 converted to a $2 wager at a 17.5% takeout rate is 1.022222 * .825 * 2 = $1.686666. Since the minimum payoff is $2.10, the amount each guest site (the one that actually takes the bet) would have to make up to cover the minus pool is 41.333333 cents per $2 wager. Across the entire $90,000 bet on the favorite, it works out to $18,600. The other two in-the-money horses would each pay $3.20 on a $2 bet.

[InTheRiver68]

Excellent calcs, vikingrob. You're spot-on.

- InTheRiver68