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Originally Posted by 098poi
This is very confusing to me. This is from the article.
Account-wagering companies typically retain 10 to 20 cents per dollar wagered.
I don't understand how everyone gets their piece of the pie. When I wager $50 through Twinspires isn't that money put in the pool where I wagered? Then there is the track take depending on the wager. I thought money got distributed to everyone else (outside of the bettors) from that.
Can someone do a simple breakdown of the flow of a wagered dollar from me making a bet, going to ADW, going to track etc. and where everything gets siphoned off including rebates and how that money fits into the picture. I don't consider myself a newbie but it has always seemed like there is more more money taken out (I don't mean take out) than goes in and I've always found it a bit confusing. I am confused asking the question!
Thanks.
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The article below should help, now after reading this, the ADWs are going to be charged an additional 5% come January from New York residents. It's going to be like somebody that commented earlier, the ADWs are going to drop us, it's makes no business purpose to keep have us as customers if they are not going to profit from us.
ADW by the Numbers: How an ADW Operates
Posted on March 1, 2013 by Eric Troelstra
It can be argued that ADWs (Advance Deposit Wagering) have become to horse racing wagering what E*Trade has become to online stock trading. The ADW has brought the technology and the convenience of wagering on pari-mutuel horse racing to the desktop, laptop and mobile device of everyone that enjoys the game. Not only can you wager, but many ADWs offer you live video streaming, video replays as well as current odds, instant results, analysis, industry news, and player reward programs.
HOW DOES AN ADW MAKE MONEY?
So how does an ADW get compensated or make money for their offerings? There are several components that contribute to the bottom line of an ADW. ADWs negotiate with racetracks around the globe for the permission to offer the product on their ADW platform. In return, ADWs pay the track a negotiated “host fee” for the rights to carry the track signal. These fees can vary dramatically from track to track.
The next major cost component affecting the bottom line of an ADW is the “take out” on each pari-mutuel pool. The take out can be thought of as the tracks commission, or “rake,” if you were to think of it in poker terms. Take-out is set by the tracks and again varies widely by track and pool type. The difference between the take out and the host fee is the gross margin or contribution margin the ADW uses to cover all General and Administrative (G&A) fees, taxes and player rewards.
Let’s take a look at what this may look like in a potential real world example.
NUMBERS BREAKDOWN
Let’s assume the “take out” = 20% in an Exacta Pool at XYZ track. XYZ track charges ABC ADW 8% “host fee” on all volume (handle) that the ADW places through XYZ track. Simple math leaves 12% (20% – 8%) on every dollar wagered through ABC ADW on XYZ track for the ADW to cover all expenses and hopefully make a profit.
Typical racing commission fees, tote fees, interface fees, taxes etc. could range in the neighborhood of 1.5% of handle. General and Administrative (G&A) fees are all of the salaries and benefits, marketing, rent/mortgage, utilities, insurances, legal and professional – you get the idea – all the typical day-to-day operational expenses most businesses incur. Typical G&A could run around 3% of handle.
Now let’s assume XYZ ADW is very player and industry friendly and offers a 5% cash reward on all exacta wagers made at XYZ track. In our example, this leaves the XYZ ADW a 2.5% EBITDA (earnings before interest, taxes, depreciation and amortization).
XYZ Track Take Out on Exact Pool 20%
XYZ Host Fee to ABC ADW - 8%
Gross Margin 12%
Fees and Taxes -1.5%
General & Administrative (G&A) - 3%
Player Rewards - 5%
Earnings (EBITDA) 2.5%
As this illustration points out, ADWs operate on margins similar to that of online stock trading services. Like E*Trade, success is hinged on generating volume while offering its clients service, convenience and ultimately the best overall value.
