SCIENTIFICALLY EXPERIMENTING WITH TAKEOUT RATES

Observing change in the retail horse racing industry is like watching molasses roll downhill or grass grow. I’ve rarely seen a commercial enterprise jeopardized by competition that is so reluctant to try something new to reverse the trajectory. In particular, I’m referring to resistance to testing the effects of reduced takeout rates on wagers.

This generalization certainly does not apply to top executives at all racetracks and advance deposit wagering operations (and, in some states, governmental rules and regulations greatly constrain racetracks in markedly lowering takeout rates). Kentucky Downs and Keeneland, for example, are bettor-friendly racetracks that have endeavored to offer more attractive pari-mutuel offerings, but even so, their takeout rates are still sky high when compared to alternative gambling products.

In order for a scientific experiment to be of value in estimating mathematically how sensitive handle is to changes in takeout rates for various types of bets (or price elasticity of demand), three conditions must be met.

First, takeout rates must be lowered sufficiently to make a difference to bettors. Small percentage reductions won’t be attractive.

Second, reduced takeout rates have to be in place long enough, for at least six months, to allow for the information to disseminate among bettors and get a true reading of efficacy.

Third, the experiment absolutely has to include multiple racetracks across the country. If only one or two racetracks are used in the experiment and handle increases, that won’t indicate to what extent bettors from other racetracks were simply shifting their bets. The key questions are: was there a net increase in pari-mutuel wagering overall and, if so, by what percentage? At least five or six geographically dispersed racetracks are needed to at least partially rule out the possibility that increased handle at the racetracks in the experiment was the result of cannibalization of betting at other racetracks.

The modus operandi in the retail horse racing business is to study and talk a strategic issue to death, which does not provide much hope that six or seven racetracks would agree to participate in a takeout-reduction experiment over a six-to-twelve month period of time.

The response at most racetracks to stagnant pari-mutuel handle has been to maintain or even raise takeout rates. The underlying assumption must be that the vast majority of bettors (those not receiving rebates) are insensitive to levels of takeout rates, which aggregate wagering declines year-after-year demonstrate is just flat-out wrong.

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