NOMINAL VERSUS POST-REBATE TAKEOUT RATES

Nominal takeout rates at various racetracks are public information.  For example, at Santa Anita, the rake on win, place, and show bets is 0.1543 and the percentage takeout on exactas is 0.2268.  Yet a published takeout rate is like the sticker price on a new automobile in that it is usually negotiable.

For example, consider an excerpt from the website of the advance deposit wagering company (ADW) OffTrackBetting.com or OTB:

OFF TRACK BETTING is an online horse betting ADW committed to horseplayers.  Every successful horseplayer that we know is playing with a rebate, and you should be too.

A rebate is a cash reward paid on every wager you make, win or lose.  The amount of the reward will vary by track and by bet type.  OTB understands that handle is the one thing that drives this industry, and that handle is generated by its customers, the horseplayers.  By delivering daily rebates, OTB hopes to create an increase in handle leading to more revenue for race tracks, and more money that can be distributed back to horsemen in the form of purses.  In addition, by matching and surpassing current average rebate amounts offered by offshore racebooks, OTB ensures that money will go directly into the U.S. pari-mutuel pools, where it belongs.

Off Track Betting believes that we have established a very generous horse racing betting rebate program.  The more you wager, the more you make.  All horse racing betting cash rebates are placed into your OTB accounts the very next morning. “

Rebates, of course, have the net effect of reducing the cost of playing for people who bet increasingly more money with OTB.  Therefore, if 25% of OTB’s customers account for 75% of its handle and receive rebates accordingly, OTB’s nominal takeout rates are markedly misleading.  While the vast majority of OTB’s customers may be paying the published rates, the bettors whose wagers amount to the lion’s share of the handle certainly are not once rebates are factored in.

Unless one has access to a racetrack’s (or an ADW’s) historical betting data, he or she can only speculate as to what its true or weighted-average takeout rates are on different types of wagers.  Absent the data, the effects of changes in takeout rates on betting revenues, or price elasticity of demand, can’t be estimated with confidence.

When outsiders call for racetracks and ADWs to lower takeout rates, they do so without exact knowledge of what the authentic non-published blended takeout rates actually are.  Maybe it is perfectly rational for racetracks and ADWs to maintain nominal rates for rate-insensitive casual bettors and lower them for rate-sensitive large-scale bettors.  Maybe.

A key question is:  to what extent would total handle expand if nominal takeout rates were significantly decreased, over a protracted period of time, to cultivate additional participation by relatively small-scale bettors?  Perhaps racetracks and ADWs have already done extensive scientific experimentation and know the answer, but I doubt they have.

Copyright © 2015 Horse Racing Business

(Look for a follow-up article soon on a few possible mathematical relationships between takeout rates and betting revenues.)

Comments

  1. Sal Carcia says:

    In the end, the small- to mid-range players pay the higher rates and the high-end players pay the low rates. Economics 101, right? Maybe, not! It is a parimutuel pool and is not really similar to other open markets. In the case of a parimutuel pool the high-end players ultimately cause the effective takeouts for the small- to mid-range player to be higher. It is an imbalance in the market. It is very possible this is driving to low to mid-range market down. This needs to be looked at more scientifcally than it is today.

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