MORE ON TAKEOUT RATES

Consider a very simplified illustration of takeout rates (with zeros left off handle and handle set at a round figure).  Assume that a racetrack’s current takeout rate on win, place, and show bets is 17%.  Further, assume that the racetrack generated $100,000 in handle on such straight bets in the past year, providing it with $17,000 in revenue.

The following tabular presentation illustrates how much handle would need to increase in dollars and percentages for the racetrack to continue to receive $17,000 in revenue should it lower the takeout rate on straight bets.  In other words, what would be the break-even point at various reduced takeout rates.

Takeout Rate    Handle to Yield $17K     % Increase

17%                      $100,000                                NA

16%                      $106,250                                 6.25%

15%                      $113,333                                13.33%

14%                      $121,429                                21.43%

13%                      $130,769                                30.77%

12%                      $141,667                                41.67%

11%                      $154,545                                54.55%

10%                      $170,000                                70.00%

Would a 1% percent reduction in the takeout rate generate at least a 6.25% increase in handle, or would, say, a 4% reduction boost handle by 30.8%?

There is no way to determine the answers without experimentation over a representative period of time, perhaps a year.  Bettors are not automatons who respond immediately to changes in incentives.  Moreover, it takes time for word of pricing modifications to disseminate to people who are not avid gamblers.

In my view, the top executives at racetracks are reluctant to experiment for two reasons.  First, they fear that reduced takeout rates won’t result in enough additional handle, especially in the short-term.  Second, they are concerned about criticism and negative publicity from raising rates back to old levels if reduced takeout rates prove not to be successful.  These issues can be addressed, of course, by limiting experiments to test markets and/or certain bets, as one need not go all in by reducing rates across the board.

The view here is that the vast majority of racetrack executives, especially at racinos, are working under the strategic assumption that pari-mutuel wagering is a cash cow to be milked as long as possible while receiving as little time, effort, and money as possible.  The bloodstock side of the industry has its fate tied to individuals who increasingly tend to view pari-mutuel wagering as a sideline.

Copyright © 2014 Horse Racing Business

Comments

  1. a fair solution would be a 1.5% takeout, per starter. For example, a 5 horse field would have a 7.5% takeout while a 10 horse field would take 15%. Anyone betting US racing has to frustrated with the never-ending stream of 5 and 6 horse fields. This solution would make those 6 horse fields more playable.

Speak Your Mind

*