EMPIRICAL EVIDENCE FOR SLASHING TAKEOUT RATES

The conviction here is that the two strongest catalysts for a turnaround in stagnant pari-mutuel handle in North America are dramatically reduced takeout rates and fuller fields.  Particularly frustrating for those of us who want to see horse racing succeed as a sport and commercial enterprise is the unwillingness of upper-echelon racetrack executives to experiment with much lower takeout rates.

Actual statistics from Balmoral Park, a harness track near Chicago, Illinois, strongly indicate that reduced takeout can have a very salutary effect on handle.  Following are longitudinal data pertaining to Balmoral’s Pick 4 after the takeout rate was slashed from 25% in 2009 to 15% in 2010–an enormous 40% decrease.

Takeout Rate        Average Monthly Handle ($)

2009           25%                        8,827
2010           15%                      14,211
2011           15%                      23,675
2012           15%                      31,655
2013           15%                      32,254
2014           15%                      30,895
2015           15%                      33,176

Once Balmoral Park cut the takeout rate, handle grew year-over-year except in 2014.  The average price elasticity of demand over the seven-year period is 2.32, meaning that for every one percent reduction in the takeout rate, betting handle increased by a remarkable 2.32 percent.

While one cannot extrapolate to the entire North American horse racing pari-mutuel enterprise based on a single bet at a single racetrack, one can conclude that the response of handle to reduced takeout at Balmoral is positive and encouraging.  What needs to be done with alacrity is for racetracks in other venues to engage in similar experiments, not by whittling takeout rates by almost imperceptible percentages, but rather, by attention-getting percentages that boost returns to winning bettors.

The future of horse racing depends on such bold action.  Unfortunately, top managers at racetracks, for the most part, seem to cling to old ways of doing things, timid and virtually immobilized by the rapidly changing competitive landscape around them.

Copyright © 2015 Horse Racing Business

Comments

  1. Ulf Lindstrom says:

    Bill,
    From the European harness (trotting) racing scene, handle and takeout correlate, just as in America, breeding is down, just as in America.
    Remedies? Immediate: cut all kinds of marginal/expendable overhead, staffing and the wasteful use of staff such as meetings with agendas of even more marginal issues. Long-term: get into the world of middle-class young girls (and their dads’ pocketbooks as prospective horse owners), break the cultural barrier between companionship horse activity and racing, RUS too for trotters.
    Best wishes for the new year!

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