EXPERIMENTATION BADLY NEEDED ON TAKEOUT RATES

Pari-mutuel handle on horse racing in the United States peaked in 2003 and subsequently (not accounting for inflation) decayed 28.3% by 2013. A principal cause of the demand destruction is a plethora of competition from gambling choices that offer much better financial inducements.

The pari-mutuel wagering product may or may not be profitable at takeout rates more in line with alternatives like sports betting, but continuation with the status quo is a confirmed path to further downsizing. Without a significant catalyst for bettors, there is no reason to expect handle on pari-mutuel wagering to grow.

Einstein’s observation comes to mind that “We can’t solve problems by using the same kind of thinking we used when we created them.”

Lengthy and scientifically controlled experimentation at multiple racetracks is imperative in order to determine empirically how handle responds to changes in takeout rates on various types of bets. Realistically, racetracks cannot decrease takeout percentages by small amounts and expect results, much less instant results.

Bettors are not automatons that immediately respond to middling changes in financial incentives. It took years for handle to atrophy and it might require years to reverse the trend and attract new and lapsed bettors.

Decreases in takeout percentages must be meaningful and it might take a year or more to be able to determine optimal rates on straight bets and exotics. In the initial phases of a takeout-reduction trial, racetracks would be apt to see profitability drop, and most of them are unwilling to take the chance.

The publicly-traded racetracks are unlikely candidates for investigating the effects of takeout on handle, over a protracted period of time, because of their short-term emphasis on keeping shareholders satisfied by boosting current earnings and stock prices. The ideal place for research is in the privately-held Stronach Group, with its six racetracks and major ADW outlet and the freedom to focus on long-term strategies.

Copyright © 2013 The Blood-Horse. Used with permission.

Comments

  1. Nancy Taylor says

    Horsemen’s groups and politicians are not the solution to the problems in the industry, they are the problem. Their only focus is to keep raising takeout and purses in the short term, also to continue to fight much needed medication reform, which is devastating for the players and the Racetrack Operators in the long term. They have shown zero ability to make positive changes to their failed long term business model.

  2. Robert L. Losey says

    Your proposal for a long-term experiment makes eminent good sense. In Economics 101 we learn that if demand falls for your product (as has been the case for race track betting due to the proliferation of alternative gaming) you either lower your price or you sell less product, and that typically profit drops more when you don’t lower your price.
    You’re right that Mr. Stronach has the ability to do the controlled experiment that might determine whether lowering price (the takeout rate) will work. Mr. Stronach might stick with the status quo at all of his tracks but one, or try two different takeout rates at two different tracks and see what that leads to in a couple of years. The industry would benefit from the experiment, and hopefully Mr. Stronach’s operations would benefit as well.

  3. I have loved horse racing and have been a huge better for the last 35 years All the”so called experts that try to explain why horse racingl is in such a decline have missed the vey obvious explanation; Greed ($$$) for all of those that make monetary decisions where the para mutuel take money will go GET A ClLUE RACING FANS
    HELLO; FACT
    Why is it that all race tracks that get huge financial income every day only raise purses for HORSEMEN(owners,trainers,jockeys,etc)
    It is outrageous what the top trainers and jockeys income is now
    Not one of them could light a candle to the Shoemakers whittinghams and all of the great jockeys ,trainers,and owners in The Glory Days of horse racing
    So why is it that with all financial support given to race tracks with casinos that only the INSIDERS get this windfall money !!!!
    The INSIDERS are the reason why racetracks close down and longtime employees lose their jobs
    There is only one place this cash wind fall from casino fueled race tracks should go
    “Lowering all para mutuel take outs to help the racing fans that are the only reason that any of those so called horse have a job!! is

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