Archives for September 2013

WILLIE NELSON AND FRIENDS

CBS Radio News recently broadcast the results of its eight-month long investigation of some 150,000 American-based horses transported for slaughter each year in Canadian and Mexican processing plants.

Reporter August Skamenca began by saying, “From the rugged wilds of the West to the purses of the Kentucky Derby, the American experience is woven with that of the horse. But efforts to resume its slaughter in the U. S. and an already booming business of exporting it to its death are infuriating some big names of modern American history.”

One of those names is famed country music singer Willie Nelson.

The CBS expose is less than 10 minutes long but is replete with graphic material that is difficult to hear, including a slaughter advocate who spews hatred for those opposed to the practice and then fatally shoots a Quarter Horse to accentuate his callous contempt.

Skamenca went undercover at the New Holland, Pa. sale, notorious as a site for “killer buyers.” He portrays the pathos of a gaunt Thoroughbred that was auctioned for $160; and of how a long line of tractor-trailers departed the sale with doomed horses. Skamenca reads from the warning on “bute” packaging: “Not intended for use in horses intended for food.” Yet, he says, “toxic meat” is permissible for exports.

Willie Nelson detests this “shadowy” trade. In the past decade, the Willie Nelson & Family Habitat for Horses has rescued approximately 75 equine cast-offs. Many still reside on the Nelson ranch in, appropriately, Luck, Texas, and “Willie Signature Horses” are available for adoption.

While 75 rescues is a small quantity compared to the annual carnage, each horse saved by Nelson, and many others with much less name recognition, becomes a living testimony to what can be accomplished if enough people become seriously involved, on a scale they can afford.

Nelson will hold his annual Farm Aid concert in Saratoga Springs, N.Y. September 21. Meanwhile, the legal and legislative battles over horse slaughter and facilities that want to return the practice to the United States continue.

Originally published in the Blood-Horse. Used with permission.

WHAT IF TAKEOUT RATES ON PARI-MUTUEL WAGERING WERE DRASTICALLY REDUCED?

This is a follow-up post to:

“The Withering of U. S. Pari-Mutuel Handle” on August 30, 2013.

“Pari-Mutuel Handle, Purses, and Yearling Auction Prices, August 23, 2013.

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Fact: The current state takeout rates on horse racing wagers in the United States are uncompetitive when compared to popular alternative skill-based gambling products.

Proposition: Takeout rates on U. S. horse racing are economic disincentives and have been steadily destroying demand for the pari-mutuel product, as evidenced by the sharp and continuing downward trend (in real and inflation-adjusted dollars) in the amount of money (handle) bet on horse racing.

Analysis: For illustrative purposes, consider a fictional racetrack/advance deposit wagering company called Regis Downs and some basic (and necessarily very simplified) assumptions.

Regis Downs ends up 2013 with handle of $557.1 million from all sources. Straight wagers account for 35% of handle and exotic wagers for 65% of handle. The average takeout rate on straight wagers is 16% and the average takeout rate on exotic wagers is 19%. The blended takeout rate is (.35)(.16) + (.65)(.19) = .1795 or 17.95%.

Net Revenues for 2013 = $100 million ($557.1)(.1795).

In 2014, Regis Downs is considering reducing the takeout rate on straight wagers to 10% (in order to become competitive with the rake on sports betting) and lowering the takeout rate on exotic wagers to 13%. This represents decreases of 37.5% on straight wagers (6%/16%) and 31.6% on exotic wagers (6%/19%). The new blended takeout rate (assuming that straight wagers still account for 35% of all handle and exotic wagers account for 65%) is (.35)(.10) + (.65)(.13) = .1195 or 11.95%.

(The demand for straight wagers is likely to be more sensitive to changes in the takeout rate than is the demand for exotic wagers. If that is the case, reducing the takeout rates would change the assumed 35%/65% division of handle between straight wagers and exotic wagers.)

Under the 2014 assumptions, Regis Downs would need to increase handle to at least $836.82 million to maintain 2013 net revenues of $100 million (.1195x = $100 million = $836.82 million). This would represent a 50.2% increase in handle from 2013 to 2014.

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Question:  Would reducing takeout rates by 37.5% on straight bets and 31.6% on exotic wagers lead to at least a 50.2% increase in handle? (This implies that price elasticity of demand would need to be around -1.5).

Answer: First, it depends largely on the price elasticity of demand (i.e., how sensitive is quantity demanded to changes in price) for pari-mutuel wagering in general and the Regis Downs pari-mutuel offerings in particular. Second, it depends to some degree on cross elasticity of demand, which measures the responsiveness in the quantity demanded of one product (i.e., gambling products other than pari-mutuel wagering on horse racing) when a change in price takes place in another product (i.e., pari-mutuel wagering on horse racing). Sports betting and pari-mutuel wagering are to some extent substitutes for one another. Third, it depends on how aggressively and effectively Regis Downs disseminates the information about the reduced takeout rates and reaches out to potential customers.

This question/answer is discussed in more specifics in a Horse Racing Business post within the next several weeks.

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