California and the Customers
Until we find a better way to finance purses and horse racing in California, we have to have more horse players to bet more money, creating larger handle numbers.
In order for the industry to return to success, the fan base must expand and not contract, and due to two main factors the regulators and managers of our game are punishing California residents and causing contraction of the fan base, rather than growth.
Most handle is coming from off track wagering, and ADW’s and out of state wagering on California races has become an important factor.
There is a rule, sponsored by the TOC that for practical purposes prevents Californians from receiving the same rebates that players outside of California are receiving.
Section 19604 of the Business and Professions Code states:
"(5) "Contractual compensation" means the amount paid to an ADW provider from advance deposit wagers originating in this state. Contractual compensation includes, but is not limited to, hub fee payments, and may include host fee payments, if any, for out-of-state and out-of-country races. Contractual compensation is subject to the following requirements:
(A) Excluding contractual compensation for host fee payments, contractual compensation shall not exceed 6.5 percent of the amount wagered."
Translated into plain English, the above paragraph means that ADWs do not have enough room margin-wise to rebate anything back to the California resident customer. Californians who pay more for a bet are subsidizing those out of state who pay less for the same bet through ADW rebates. The playing field is not level.
Instead of betting within the established system and paying full takeout, California's serious price sensitive players have moved their handle dollars out of state and offshore where they can and do get rebates. This amounts to a serious amount of money, denied to people who put on the show in California.
The Pari-Mutuel system is where the facilitator takes from the top of the pool and the players compete with each other for the remaining dollars. The players are not competing with the “house”.
The science of handicapping is designed to determine who gets the largest share over time. Rebates to some and not others have distorted the traditional way handicapping determines who wins. If you are competing with someone for a pool limited amount of dollars and your competition gets a 10% head start, you will be discouraged from competing with your money quickly or bet outside of the mainstream where California gets zero of those dollars.
Section 19604 needs to be changed to give California's large volume players a reason to return their handle dollars to the pari-mutuel pools. Until that happens, California players will continue wagering offshore and outside of California's pari-mutuel pools where their handle dollars bring no benefit whatsoever to California's tracks and horsemen.
Take outs for wagering have risen over time from 10% in California to 20% plus and heading for 30% territory. The TOC and the regulators have raised them again on certain bets another 2-3% starting January1, 2011, and that is the largest raise in our history (equal to 10-15% for the betting dollar), and all going for bigger purses to “save” our game.
This strategy has never been successful in the past with horsemen and the regulators singing the same tune about saving the game through higher purses.
California S/B 27 was $40 million to do the same thing a few years ago and there have been others. If any of this legislated increase for purses, taking money from horse player’s pockets to pockets of horsemen had been successful, why would we need to further distort the business model and do it again?
Any successful gaming (like Pari-Mutuel horse wagering) must allow some reasonable percentage of winners or there is no reason for anyone to participate. There are not enough winners now.
The regulators should be seeking through experimentation the optimum price point of the bet, which is where the people, who put on the show, make the most profit.
Industry paid for study by the Cummings Report indicates California is far above optimum level now for the price of a bet and going further will only cost the industry more money in terms of declining attendance and handle .
California race managers and regulators are out of step with the world, when in the face of declining sales they raise the price of the product and punish the local residents they have left.
Racing should be presented to attract customers, not discourage them. The customers have not caused any of these problems, they love horse racing.
The problem with California racing is the way it is being managed and regulated.
Hey, TOC and CHRB, are you listening? You can do better. You can correct this for California.
roger@hanaweb.org
