article on the effect of takeout.

[jballscalls]

I was talking to some ADW guys yesterday and as i do with most racing execs, I asked about why takeout is so high. They had some interesting and well backed up responses.

I was curious if any of you had any studies or factual based articles to which i could use to retort. I mean i know lowering takeout on jackpot wagers wouldnt spike handle (pick 6, super etc) but i would venture a guess that reduced takeout in your churn wagers (wps, ex) could actually positively effect handle. They say it wont make a bottom line difference for anyone, just hoping someone had some factual evidence so i can produce a good argument.

thanks guys,
Jason

[chickenhead]

aside from common business principals (price effects sales), the existence of rebate shops (they aren't philanthropists)...you could ask about the Cummings report

http://www.nationalhbpa.com/resource...ort7-17-04.PDF

[Cangamble]

Originally Posted by jballscalls

I was talking to some ADW guys yesterday and as i do with most racing execs, I asked about why takeout is so high. They had some interesting and well backed up responses.

I was curious if any of you had any studies or factual based articles to which i could use to retort. I mean i know lowering takeout on jackpot wagers wouldnt spike handle (pick 6, super etc) but i would venture a guess that reduced takeout in your churn wagers (wps, ex) could actually positively effect handle. They say it wont make a bottom line difference for anyone, just hoping someone had some factual evidence so i can produce a good argument.

thanks guys,
Jason

Since lowering takeout across the board hasn't happened in North America, one can only guess.
However, we do know that handle per capita is higher in nations that have lower takeouts.
We also know that lower takeouts seem to attract young people to poker, Betfair, and sports betting etc.

In theory, lowering takeout will get most of the money that would have been lost by the current players regardless (they would just last longer).

But by lasting longer, they might decide to devote more time to it, get their friends and family involved, and therefore create more players.

Winners may also be created, and it is winners that could be the attraction that the young crowd needs to motivate them to try horse racing over poker, etc.

Lowering takeout will also attract those who are betting offshore, adding to profit potential for the tracks.

[jonnielu]

Originally Posted by Cangamble

In theory, lowering takeout will get most of the money that would have been lost by the current players regardless (they would just last longer).

But by lasting longer, they might decide to devote more time to it, get their friends and family involved, and therefore create more players.

Winners may also be created, and it is winners that could be the attraction that the young crowd needs to motivate them to try horse racing over poker, etc.

So, if lowering takeout still won't make you a winner, why should management bother? Winners would attract and retain a new market/fan base, but all racing has to feature is losers after cultivating losers for 50 years.

The problem that racing has now, is never having taken a position in the first place. It has always relied on the racing information industry to cultivate and publicize winners, and it has only been able to muster the current crop of losers for the most part.

Now, some faction has to take the risk of doing an about face and actually train people in winning or racing just goes down the toilet.

jdl

[rrbauer]

Originally Posted by jballscalls

I was talking to some ADW guys yesterday and as i do with most racing execs, I asked about why takeout is so high. They had some interesting and well backed up responses.

I was curious if any of you had any studies or factual based articles to which i could use to retort. I mean i know lowering takeout on jackpot wagers wouldnt spike handle (pick 6, super etc) but i would venture a guess that reduced takeout in your churn wagers (wps, ex) could actually positively effect handle. They say it wont make a bottom line difference for anyone, just hoping someone had some factual evidence so i can produce a good argument.

thanks guys,
Jason

Take a look at Tampa Bay Downs. They have reduced takeout on a variety of pools over the past five years. And their handle (and purses) has grown over that same period of time. Contact Margo Flynn at the track for specifics on takeout reductions and handle-per-meet stats. Take a look at Keeneland. They reduced takeout (in '04 I believe) partly in response to the NTRA Players' Panel recommendations, and have kept it at that level. And, they have increased handle since then. The other thing that both of these venues have done is to improve their product and make their facilities more fan-friendly.

Out of curiousity, what was the nature of the "interesting and well backed up responses" that your ADW friends presented? I ask this because a person who attended the recent industry Expo in Arizona, PM'd me to tell me that he spoke with a racetrack exec who said that "horseplayers don't know what the takeout levels are".

If these people really think this, then it is the most compelling reason that I can think of to launch a boycott of high-takeout venues and reward low-takeout venues with our business. Maybe it's the people running the show that need to be educated; and, if we succeed in doing that, maybe low-takeout will become a marketing factor (instead of cheap admissions that nobody cares about because nobody is going there).

[DeanT]

Jason,

They stand behind the "high prices are good" thing and always ask for data.

Since racing here has not tried anything it is easy to use that argument. It is chicken and egg.

Fortunately there are other places who have done something with takeout, and as well there is racings own numbers.

1 - Betfair. Simple. They had 20,000 customers in 2002. Now they have 2 million. Their takeout is around 5%. $150,000 will be matched there with UK clients on a 4 claimer race at Penn National.

2- Australia - Mandated takeout maximum at 16%. This was done to make sure handles and revenue are maximized. If those two figures were maximized at our 22% takeout, Australia would be there, not at 16%

3 - Ask those execs what the churn rate is for racing. They will answer 7. It is their own number. By simple mathematical formula a churn rate of 7 tells us that revenue is maximized at 12% takeout.

I am quite annoyed at the "show me some numbers" argument they use. If we were a ball manufacturer and we wanted to offer a purple ball, we would study it and do it. We would not say "I can not offer purple balls as there is no data, because we have never sold any purple balls." We would never offer a product with that criteria.

Then again, even people in racing say things are dysfunctional, so I guess that roundabout argument makes sense.

[jballscalls]

Thanks for the responses guys. I just had an interesting conversation with my boss about these matters. Interesting topic, hopefully its something that everyone in the business can get done for the good of the game.

[jballscalls]

Originally Posted by rrbauer

Take a look at Tampa Bay Downs. They have reduced takeout on a variety of pools over the past five years. And their handle (and purses) has grown over that same period of time. Contact Margo Flynn at the track for specifics on takeout reductions and handle-per-meet stats. Take a look at Keeneland. They reduced takeout (in '04 I believe) partly in response to the NTRA Players' Panel recommendations, and have kept it at that level. And, they have increased handle since then. The other thing that both of these venues have done is to improve their product and make their facilities more fan-friendly.

Out of curiousity, what was the nature of the "interesting and well backed up responses" that your ADW friends presented? I ask this because a person who attended the recent industry Expo in Arizona, PM'd me to tell me that he spoke with a racetrack exec who said that "horseplayers don't know what the takeout levels are".

If these people really think this, then it is the most compelling reason that I can think of to launch a boycott of high-takeout venues and reward low-takeout venues with our business. Maybe it's the people running the show that need to be educated; and, if we succeed in doing that, maybe low-takeout will become a marketing factor (instead of cheap admissions that nobody cares about because nobody is going there).

I thought Keeneland's handle has been going way down? maybe thats polytrack though?

And the exec was partly right about players not knowing the takeout. The serious players of course do, but when i privately polled about 100 customers, all regulars that bet here at PM and bet on simulcasts, 2 of them knew what our takeout was. And we post the takeout rate list on our players board for everyone to see. then I asked the guys i know are serious bettors, guys that are 15k to 50k a month guys, 7 out of 13 of them knew who had the best takeouts, our biggest bettor said he had no clue who had what takeouts.

The ADW friend said their has been numerous studies done by the tracks and the industry that have shown lowering takeout in certain churn wagers to a point would drive up handle, but that its actually a negative effect when reduced in jackpot wagers cause you have fewer people making massive scores. Hence why carryover takeout is higher on a pick 6 than on non carryover days cause most of that money isnt going to come back to the track. If one guy wins 100k you think he's gonna put all that money back in to the races?? no he's gonna pay off bills, buy a car, and put a certain fraction back into the game, but probably not much more than he would of anyways. This was his main points, but he did say that lowering takeout in the churn wagers would help.

Anyways, i just find this an interesting topic. I've talked to some execs who are very very smart people, some of them will discuss it with me, some just laugh and say "that there is no way lowering takeout would help the bottom line"

anyways, thanks for your input guys, lets keep fighting the fight and hopefully someday takeout can get to a proper level.

[DeanT]

Jason,

The extra-weird thing to me is the following discussion you may have:

track guy: takeout does not matter.
you: Do you do business with rebate shops?
track guy: yes
you: why?
track guy: because they send in tons of handle
you: why?
track guy: because they rebate and lower takeout for their players
you: ... so?
track guy: takeout does not matter.

[jballscalls]

Originally Posted by DeanT

Jason,

The extra-weird thing to me is the following discussion you may have:

track guy: takeout does not matter.
you: Do you do business with rebate shops?
track guy: yes
you: why?
track guy: because they send in tons of handle
you: why?
track guy: because they rebate and lower takeout for their players
you: ... so?
track guy: takeout does not matter.

What is the effect of lowering takeout for the purse accounts?? if you lower takeout by 25% from 20 to 15 lets say, do the purses go down 25% as well?

[chickenhead]

And the exec was partly right about players not knowing the takeout. The serious players of course do, but when i privately polled about 100 customers, all regulars that bet here at PM and bet on simulcasts, 2 of them knew what our takeout was.

Logically beside the point for 2 reasons:

A.) What might matter is whether people who ARE NOT playing know that the takeout in racing is worse than any other "gambling" endeavor. A more proper test might be to go into a poker room and ask the players which has a higher rake, poker or horse racing.

B.) Players don't need to know the takeout to have it effect their play. I think we'd all agree that lottery players are probably the least price sensitive people in the world. They are after all betting on getting hit by lightning, basically, against a huge rake. But even lottery players show a very strong response to lower takeout (without having any clue what it actually is):

http://cpr.ca.gov/CPR_Report/Issues_...nues/GG06.html

A proven strategy for lotteries across the country to generate additional funding for their beneficiaries has been to increase prize payouts. Higher payouts generate more winning experiences for players. This makes the games more entertaining and increases sales dramatically. Every lottery in the U.S. that has increased prize payouts has increased sales. [3] The most successful lotteries in the country have one major thing in common, a prize payout of at least 60 percent. There are 39 state lotteries, 36 of which allocate 60 percent or more of ticket sales to prizes. Two of the poorest performing lotteries, California and Louisiana, have a limited prize payout of only 50 percent of ticket sales. [4]

The Massachusetts State Lottery is the most successful lottery in the nation. It also has the highest prize payouts in the nation ranging from 60 percent to 79 percent of ticket sales. With a population of only 6.4 million, compared to California's population of over 35 million, Massachusetts out-produced California in 2002 total revenues by approximately $1.3 billion. [5]

In New York, the payout for their instant games was increased to 65 percent in 1999. After the fourth year of the program, contributions to education increased by more than $500 million a year with higher payouts a major contributing factor. In 2002, Florida increased instant game payouts from 56 percent to 67 percent. Revenues from these products increased 62 percent in the first year, thereby increasing annual contributions to education by $49 million the first year. In Texas, sales sharply declined from $3.7 billion to $2.5 billion after prize payouts were capped in 1998 at 52 percent. Four years after the cap was restored to its prior level, revenues have steadily increased to $3.1 billion. [6]

Top lottery officials from Massachusetts, New York, Florida, Texas and Georgia have recently stated that higher payouts were instrumental in increasing revenues and generating additional funds for their beneficiaries. [7]

Now that's not theory, that's practice. It's pretty pathetic that the friggin lottery has this figured out, yet people in this industry haven't.

[stu]

Originally Posted by jballscalls

What is the effect of lowering takeout for the purse accounts?? if you lower takeout by 25% from 20 to 15 lets say, do the purses go down 25% as well?

Only if the takeout reduction doesn't result in increased business.

The whole goal in lowering the rate is to make your product more attractive and boost its handle.

[Cangamble]

Originally Posted by jballscalls

What is the effect of lowering takeout for the purse accounts?? if you lower takeout by 25% from 20 to 15 lets say, do the purses go down 25% as well?

Again, no. People will last longer and bet more. By lowering takeout you are hoping to drum up all the business from existing customers, and new business from those who see the game could be beatable.

[Charlie D]

The whole goal in lowering the rate is to make your product more attractive and boost its handle.

The key word is bold


Make it attractive and they will come

See UK racing for example, free info, Betting choice, no tax

[Cangamble]

Originally Posted by jonnielu

So, if lowering takeout still won't make you a winner, why should management bother? Winners would attract and retain a new market/fan base, but all racing has to feature is losers after cultivating losers for 50 years.

The problem that racing has now, is never having taken a position in the first place. It has always relied on the racing information industry to cultivate and publicize winners, and it has only been able to muster the current crop of losers for the most part.

Now, some faction has to take the risk of doing an about face and actually train people in winning or racing just goes down the toilet.

jdl

Lowering takeout could make you a winner. And it definitely could give one the delusion of being a winner or someone who is breaking even.
Why do you think that slots doesn't up their takeout from 10% to 15%?
They found 10% max is the best to give the player the delusion that he or she isn't losing that much and may be one pull away from winning big or at least breaking even. And they also know that if the player loses too quickly, you may lose the player for good.

As for winner. Unconfirmed, but I heard that at HPI over the last year or so the odds that an account holder wins is 1 in a 1000, and the winners are the ones who hit a big super or pick 4. They are also unlikely to repeat.

Why do you think that HPI doesn't show the players results for more than a day? They even cut off your credit card deposits in their records so you can't track how much you lost over any lengthy period of time.

Of course, if you phone them, I think they do give out that info.