Archives for May 2012


In “The Balmoral Park Takeout-Rate Experiment” of May 11, 2012, I wrote that the inordinately high average or blended takeout rate in pari-mutuel wagering was, in my judgment, the principal reason that handle on horse racing has plummeted in the last decade. (Certainly, however, it is not the only reason.)

Today, May 14, the Horseshoe Casino opens in Cleveland, Ohio, the first of four casinos coming on line in the Buckeye state. The Horseshoe Casinos in Cleveland and Cincinnati are owned by Rock Ohio Caesars, which also owns Turfway Park racetrack in northern Kentucky and Thistledown racetrack near Cleveland.

Yesterday’s Cleveland Plain Dealer published an article that identified the games available at the Horseshoe Casino and the approximate house take (or rake) on each. Following is the list:

Blackjack, 0.5%
Roultette, 5.3%
Craps, 1.4%
3-Card Poker with 6-Card Bonus, 2.32%
Mini-Baccarat with Dragon Bonus, 1.2%
Poker, up to $6 on each pot
Fortune Pai Gow, 2.8%
Other Poker-based games, 2% to 5%
Slot Machines, maximum of 15%

Outside of Las Vegas, Nevada, sports betting is illegal in the United States. The house cut on sports betting is about 10%, with the losing side of the bet paying the charge.

For comparison purposes, click here to see takeout rates on various horse-racing bets at racetracks across the United States.

My contention is that the aggregate amount bet on horse racing in North America is highly sensitive to meaningful (obvious and sizeable) reductions in the takeout rate over a two-to-three year period of time. Further, unless the takeout rates on handle become far more competitive with the rake on sports betting in particular, handle will at best remain stagnant after accounting for inflation. The main reason for this is that horse-race wagering is supported by a very limited number of large-scale bettors, who are acutely aware of takeout rates.

Copyright © 2012 Horse Racing Business


Pari-mutuel wagering in North America (USA, Canada, and Puerto Rico) has been in trouble for nearly a decade. The amount wagered on horse racing peaked in 2003 at $15.2 billion and declined to $10.8 billion in 2011. Factor in inflation and the drop off is even worse than it looks.

Multiple causes contribute to this malaise. My hypothesis is that an inordinate takeout rate for pari-mutuel wagering, as compared to gambling alternatives, is the principal factor. The vast majority of handle on horse racing is accounted for by a very limited number of prolific bettors, who are acutely aware of takeout rates. These players get takeout-rate reductions in the form of rebates. Other “whales” mostly avoid horse racing and opt for betting plays wherein the takeout rate is less punitive, particularly sports betting.

If opinion is not to masquerade as fact, hypotheses need to be tested empirically. Data from Balmoral Park harness track in Chicago offer some preliminary insights. In 2009, the takeout rate on the racetrack’s Pick-4 wager was 25%. In 2010, the takeout rate was slashed to 15%, for a whopping 40% reduction. In 2010, handle on the Pick-4 increased by 53.7% over 2009. In 2011, handle increased by 75.9% over 2010. In total, handle rocketed by nearly 170% in two years.

The numbers kept getting better in 2012. For example, the January 2012 Pick-4 handle was up an amazing 272% over January 2009.

I don’t have access to Balmoral Park’s internal financials, but I estimate that the Pick-4 was more profitable for Balmoral Park in 2009 (with the 25% takeout) than it was in 2010 (with the 15% takeout). However, by the end of 2011, Pick-4 profits were better for the racetrack than in previous years.

These results strongly suggest that it takes time for word to spread about lowered takeout rates, but once it does, handle and profitability markedly improve (until the optimum takeout percentage is reached).

The 2011 McKinsey study for the Jockey Club found that big bettors are very aware of takeout rates, whereas fewer than 20% of casual bettors are knowledgeable. Though casual bettors may not be cognizant of takeout rates, when rates are lowered by 40%, they begin to notice that their returns from winning bets have escalated. This good news encourages more betting and promotes word-of-mouth communication.

No hard-and-fast conclusions can be drawn about the response of handle and profits to takeout-rate reductions from the Balmoral Park trial because the sample is not representative of all racetracks and all kinds of bets. Additional racetracks need to replicate the experiment.

Racetrack managements tend to be oriented to the next quarter’s financial performance, particularly in companies in which stock is traded by the public. Thus management is reluctant to drastically reduce takeout rates–even if experimentation shows that it takes only a couple of years for large percentage takeout-rate reductions to cause handle to surge and profitability to increase.

Top racetrack executives need to demonstrate resolve by dramatically (not by a meager one or two percent) reducing takeout on select products. And they need to stay with the reductions to test the outcome over several years, regardless of the short-term effects on profits. This strategic initiative should be explained in advance to shareholders. In the privately-held racetracks, of course, there are no public shareholders to assuage.

The view here is that over two or three years’ time, the price elasticity of demand for pari-mutuel wagering is highly elastic (i.e., the magnitude of handle is very sensitive to obvious changes in the takeout rate). More Balmoral Park-type experiments are needed to confirm this hypothesis.

The future of pari-mutuel wagering depends on some bold trial-and-error moves by a normally staid cadre of racetrack executives. As is usually the case, the risk is in not taking risks.

Copyright © 2012 Horse Racing Business

Click here to see the month-by-month handle on the Balmoral Park Pick-4 since 2009.


In the weeks and months leading up to the Kentucky Derby, horse racing in the United States was pummeled with negative press. Most notably, the New York Times ran a series of articles depicting horse racing in the worst possible light (never mind that the methodology on which the articles was based was severely flawed.) The Times followed up with an editorial that called horse racing a “disreputable industry.”

Moreover, ESPN—The Magazine printed a graphic picture of a racehorse down on the track after being euthanized. Then, just two days before the Kentucky Derby, Andrew Cohen of The Atlantic magazine published “The Kentucky Derby and the Slow Death of Horse Racing.”

During Derby week, a Congressional hearing on drugs in horse racing was held and generated considerable publicity. To add further fuel to the fire, a quasi-scandal surfaced at NYRA pertaining to allegations of cheating bettors.

In spite of this barrage, the Kentucky Oaks and the Kentucky Derby produced the following results:

The Kentucky Oaks on Friday (May 4) had near-record attendance of 112,552 (even though the weather was not ideal and racing was halted for about a half an hour) and had record handle of $39.9 million—up 6.5% over 2011.

The Kentucky Derby set an attendance record, with 165,307 people, up from the previous record of 163,628 in 2011. All-sources handle for the Kentucky Derby card was $165.2 million, which was a 13.2% increase over 2011. All-sources handle on the Kentucky Derby itself was $137.1 million; this represented an 18.8% increase over 2011 and a 12.4% increase over the previous record handle in 2006.

Racetracks all around the country showed substantial increases in both attendance and handle. For instance, Hollywood Park Casino at Penn National Race Course experienced a 21% increase on Derby betting over 2011. Some advance deposit wagering websites slowed to a crawl near race time and one reportedly went down altogether.

Given the contemporaneous and virtually unrelenting bludgeoning that horse racing took from a few leading newspapers and magazines, these results are amazingly strong. NBC-TV deserves much of the credit for the effective way the network promoted the race. But there is more at work here because Keeneland also had a record meet in the weeks prior to the Kentucky Derby and national pari-mutuel wagering is reversing its downward direction.

One can state with a high degree of confidence that wagering on the Kentucky Derby card would have been even more robust had horse racing not been so undesirably portrayed in some print sources.

Like all mature industries, horse racing in North America is undergoing severe disruptions and consolidation, but it is far from moribund, as the data show. The outstanding wagering on the Kentucky Derby was not confined to Kentucky, as the all-sources figures clearly demonstrate.

Horse racing will never return to its halcyon days before casino and lottery competition, but to assert that it is dying is to ignore facts.


The downward trend in newspaper circulation shows that these former media kingpins are increasingly losing their clout and their ability to shape public opinion, as the digital world takes over.

When the New York Times published its series on horse racing, I wrote that newspapers like the Times sensationalize in order to gin up flagging circulation. A former racing columnist for a major newspaper indignantly commented: “To blame the New York Times and its so-called agenda – especially loathsome is the accusation that the series was crafted out a need to build circulation – is shameful. The New York Times is the finest newspaper in the country…”

That’s like saying the horse is the prettiest one in the glue factory.

Copyright © 2012 Horse Racing Business