WHERE DID THE PARI-MUTUEL HANDLE GO?

U. S. pari-mutuel handle peaked in 2003 at $15.2 billion and dipped in 2010 to $11.1 billion. As a result, major metrics in the U. S. racing and breeding industry have followed suit. Gross purses in 2010 were $1.03 billion, the same as in 2000. The average auction price per yearling was $39,982 in 2010, the lowest average since 1997; the median of $10,000 in both 2009 and 2010 was the lowest since 2001. (These dollar figures are not adjusted for inflation, so the nominal decreases are greater than they appear.) The Jockey Club forecasts a foal crop in 2011 of 24,900—a drop of 38.3% from 1990.

This downsizing or rationalization is usually correctly attributed to intense competition from casinos, offshore pari-mutuel companies, and global Internet gaming that is illegal in the United States but difficult for authorities to stop. A languid economy is also often cited, although the Thoroughbred industry has been in a downturn too long to place much fault on “current” economic conditions—a secular trend is a more accurate description.

An often overlooked long-term development in the U. S. economy is a key contributor to what has transpired with pari-mutuel handle. Personal income, as measured by The Department of Commerce, consists of three components: (1) wages, salaries and employee benefits; (2) dividend, interest, and rental income; and (3) government benefits. In 1970, wages, salaries, and employee benefits comprised approximately 75% of personal income, whereas by 2010 this component had dropped to 64%. As the nation has aged, government benefits have risen as a percentage of personal income, as has dividend, interest, and rental income. Moreover, the bulk of the latter category accrues to the more affluent segments of the population, which exacerbates wealth differences.

Despite its “sport of kings” image, horse racing in the United States has a long history of being heavily supported financially by low-to-middle income bettors wagering at blue-collar tracks in large industrial cities. These are precisely the individuals who have had less to spend as the wage, salaries, and employee benefits element of personal income has shrunk. Moreover, they are least able to cope with rising food and gasoline prices and underwater house mortgages. Hoping for the imminent financial recovery of racing’s proverbial $2 bettor to stem the tide in pari-mutuel handle is a chimera, although offering lower priced bets like the .10 Superfecta is a step in the right direction in terms of making wagering more affordable to cash-strapped people.

A statistic indicative of this transformation in U. S. personal income distribution is that households with an income level placing them in the top 20% of all households now account for about 40% of consumer spending. The racetracks and advance deposit wagering firms that are able to attract more of these customers are the ones that should do relatively well.

Copyright © 2011 Horse Racing Business

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

Comments

  1. My father is a plumber and he used to go to the races regularly on Saturday afternoons. Now he rarely goes because he does not work as many hours and is more cautious about what he spends. But he loves the small-change Superfecta and plays that on an Internet betting site.

  2. The thing I like most about your blog, Bill, is that it is always factually based. No speculation. I had heard that blue-collar workers were hard hit, but did not know how hard until you cited these stats. This is no doubt part of the reason for the decrease in wagering.

  3. Although you may be right to some extent, there is three factors that have contributed the most to the decline in handle. I’m a professional player and my handle peaked somewhere between 2000-2-005, which is not surpising, but the rate it has declined is shocking. My handle in 2010-2011 is 1/6 the amount it was during that time period. There are essentially 3 reasons why this has happened, and the first two are semi-related.

    1) LOWER REBATES FOR PLAYERS. From their start in the early 90s, the amount a rebate a bettor could receive slowly increased until it peaked in 2003. Also, more rebate shops opened throughout this period, not only creating better rates for the players, but giving more players the ability to receive a rebate. The early 2000s were the wild wild west, and you could get enormous rates, and just like economists will tell you, the lower the take, the higher the churn, thus higher the handle. The increases in handle in the US from 1995-2003 were directly a result of this principle. From 2003-2011, the exact opposite has happened, the amount the big players receive has slowly gone down. Therefore , there is less churn, and less handle.

    2. TRACKS PHILOSOPHY OF MORE PERCENTAGE OF LESSER HANDLE. Along the lines of 1, but more complicated. Tracks were oblivious to their own off track handle before 2003. Starting around that time, they started to demand a higher rate for their signals. Almost all tracks have raised their rate in this time frame, but Churchill Downs have actively gone with the philosophy of “more percentage of less handle.” The Breeders Cup has doubled or tripled their cut in this time. Fighting over rates has also led to many wars between tracks and ADWS. There are too many to name here, but TVG and Churchill, Tracknet and Youbet, etc. There were years where many players couldn’t play all the tracks at any ADW, or even at their neighborhood simulcasting facility. Youbet and TVG had tracks one day, and then they didnt have them the next day. The effects of this were substantial, and should never be understimated. When players stop playing one venue, it’s extremely hard to get them back again. Even today, there are still issues at some ADWs and some states but it seems to be finally being straightened out, but the end result will still result in a less handle.

    3. OFF SHORE (LOSERS). 2003 was the year Pinnacle opened up. This led to a boom in off shore horse racing betting (with and without rebates). Although Pinnacle has shut down horse racing, there are millions of dollars still being bet illegally. There also is a compound factor of bettors playing out of the pools. The only players off shore places will take is losers. They cut off the winners. As a result, there are more losers out of the pools, and more winners in the pools. This creates an enviroment that is harder to win in. Because it’s harder to win, players who win have to bet less, players who lose go dead sooner, both resulting in less churn, or less handle.

    Of course there are other industry related contributing factors that have effected the handle negatively. More computer players in the pools and the invention of the polytrack are two that come to mind.

    Those in the racing business will always blame factors outside the horse racing industry, and it has slightly but the decline in handle since 2003 is primarily because of his factors within the horse racing industry.

  4. Bill Shanklin says

    Paul,

    I agree with the causes you list and over the years have written about them, especially the need for a lower takeout percentage. In fact, this article states: “This downsizing or rationalization is usually correctly attributed to intense competition from casinos, offshore pari-mutuel companies, and global Internet gaming that is illegal in the United States but difficult for authorities to stop.” My point is that the decline of the blue-collar worker in the USA has contributed to some extent as well. Thanks for such a well-thought-out comment.

  5. palaceplace says

    finally, an intelligent discussion.
    i too have been a horseplayer for 50 years.
    it used to be fun to spend saturday afternoons at woodbine. not anymore. slots, slots and slots. that’s all they care about.
    no more clerks to bet with during the week.
    their plan is to get everyone to bet on a s.a.m. machine or from home.
    also, the abundance of casinos, poker rooms, and on-line betting will keep a new generation of horseplayers from ever developing.
    becoming a horseplayer is the hardest job to master, but also the most rewarding. too bad it’s all coming to an end.

  6. DaisyDipper says

    The ‘personal income’ point you’re attempting to make doesn’t wash at all, considering you oh-so-cleverly ‘forgot’ (I’m guessing) that the U.S. population has during the same 40 years increased by 50%. (thus if 1 1/2 times as many people each have 11% less to spend then, well, you know…)

    Racing’s path toward its eventual demise began in earnest at just about the time that “full-card simulcasting with commingled pools” became the norm. This path was put and kept in motion by near-sighted track management who are singularly responsible for the game’s evolution. What used to be a fun, casual outing for anybody has become a catch-22 where new fans simply have no interest in showing up to compete against the “Paul’s” of the world, who are presumably afforded a big gambling edge.

    And why should new fans take interest in racing? They can play the lottery and be afforded the very SAME chance of success known to anybody else in the game.

    People don’t mind paying too much for a service, or for an airline ticket (when they simply HAVE to go there) but what irritates them most is when the person beside them paid much less for the same service.

    Horse racing is like an aircraft which seats 400, and which appears to be filled by 75 or 80 ‘preferred customers’ (who are given all the breaks, and who know how to out-fox everybody else). This prevents the casual fans from wanting anything to do with filling that aircraft.

    Magnify the conundrum by the impact of the scenario which has fliers in direct competition with one another, and there you have racing 2012 in a nutshell.

    Horse racing management nitwits: you ARE the problem. This was created long ago, and you have done nothing for the casual fan despite a window of nearly 25 years during which you could have solved this whole mess.

    Doesn’t anybody ever realize that pigs never line-up and go to slaughter of their own free will? Attempting to get thinking humans to do same is a very silly exercise.

    Finally, one wonders why this post landed on Equidaily in December of 2011.

  7. Bill Shanklin says

    Daisy,

    Personal income is adjusted for inflation and accounts for population growth. Moreover, the following sentence explains: “In 1970, wages, salaries, and employee benefits comprised approximately 75% of personal income, whereas by 2010 this component had dropped to 64%.” Percentages hold across time regardless of population growth. Math answers are not subject to opinion.

  8. DaisyDipper says

    Bill,

    You still don’t understand your own math (if that’s what you want to call it).

    If 200 million people each had $10 to spend in 1970, that makes for a cumulative total of $2 billion. To suggest that they or their equivalent now have $1.706,666,000 to spend is more than offset by the fact that there are 50% more OF those people in 2011.

    Furthermore, “personal income” is not “adjusted” for anything. “Personal income” remains “personal income”. As a complete variable, “personal income” cannot even be anticipated, let alone ingeniously “adjusted” by somebody who can’t even grasp the downfall of horse racing in the present.

    Nowthen, when you will agree to take a giant step back from your myopic scrutiny of the minutiae relating to rebates, mutuel-take, breakage, and all of that other stuff, and understand horse racing’s BIG picture, you will find the following:

    During these days of RECORD LOTTERY SALES all across the land, human beings do not wish to enter into what are effective lottery situations wherein OTHER human beings have, or are perceived to have, an ADVANTAGE while participating in the same lottery.

    Your days of “1970” are GONE!!! Those were the days when the house effectively stood there, with hands out and merely awaiting the masses while long entrenched in a tradition of DOING NOTHING for their customers.

    It is precisely that tradition, begun by those of your ilk, which is choking horse racing today. Had your days never existed, then any right-minded businessperson would have enacted horse racing’s future in, oh, say, the late 1980’s when today’s math first presented itself.

    Speaking of math, and since you profess to be somehow capable in that category, why can’t you figure out that it is in the best interest of everyone in the horse racing business, top to bottom, to actually do something at each individual track and satellite wagering facility, to literally assist both newcomers and (many clueless) veterans at doing better financially vs. the rest of the nation as a whole???

    The secrets are indeed in the MATH, where unlike in your day (1970), the house need not sit idly by, doing nothing, while would-be newcomers ignore horse racing as a whole merely for the (usually correct) perception that “horse racing is an ‘insiders’ game”.

    Stop with the pure fluff. Stop concerning yourselves with the giving away of rain ponchos, car vacuums, baseball caps and other trinkets.

    Stop whining to cash-strapped state governments for some sort of assistance when you yourselves ceased to provide 1970’s-style revenue directly to the states from which you’re now trying to exact various forms of assistance.

    Instead step out of your 1970’s and into the future, wherein a track operator will actually DO something for just about every soul on the premises as the day’s first order of business.

    This concept has prolonged the life of every other active business on the planet, so why do those running race tracks feel they should be among the few businesses which routinely do zero for their customers?

  9. Bill Shanklin says

    The personal income data are calculated by the Bureau of Economic Analysis of the US Department of Commerce and are adjusted for inflation. That is what is meant when the BEA talks about “real income.” Following is a BEA link you can consult

    http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm

  10. DaisyDipper says

    Funny how, after FOUR months, the word “real” appears on this page now the sum total of ONCE (prior to this post of mine).

    We have not been talking about “real income”.

    At any rate, it would behoove you to quit attempting to dodge today’s realities and instead give serious thought to actually introducing common sense to today’s horse racing environs.

    Apparently there are still a few important people who might on occasion read what you have to say. With that in mind, stop with the insignificant mutuel takeout data, and start circulating thoughts and ideas that will be the first steps toward reversing 20 years of bumbling up above.

    I bet Hialeah’s pick-4 will handle more in 2011-2012 with a much higher takeout than it did at 12% last year. Stop trying to appeal to the HANA morons and start thinking about the other 99.9982% of the could-be horse racing public. Please, and for the good of everyone involved…

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