The Rise of Bet Takers in North America - By Fred Pope

(Originally published in the July 10, 2010 issue of The Blood-Horse magazine. Feel free to share your own thoughts and opinions at the bottom of the column.)  

France just banned Betfair, the popular betting exchange. Rude? No, the country has always protected its horse industry. French racing doesn’t own a white flag. No outside bet takers are allowed.

Bookmakers rule England, where they take bets and the risks. France created the pari-mutuel system, where there are no risks. A portion of the wager, called takeout, funds its racing and breeding.

We adopted the pari-mutuel system and outlawed bookmakers too. When our wagering was all “on track,” just like France’s, all takeout stayed with those putting on the show.

Then Congress passed the Interstate Horseracing Act of 1978, allowing offtrack wagers across state lines. It should have skyrocketed the sport. Instead, it opened the door for bet takers in North America.

Offtrack bet takers at other racetracks, offtrack betting outlets, and advance deposit wagering companies now control 90% of our wagering revenue. As they rise, revenue to live racing falls, just as in England.

As France does, we used to protect racing. We didn’t care if people wanted to bet on other sports. We stopped people from gambling on Internet games. The number of agricultural jobs racing provides has made the case for this position. Such “hardboot” actions built and protected this industry until we fell prey to bet takers.

Our industry does not have a “think tank.” A few of us spend our personal time and money on research and analysis of problems. My area is marketing, which involves this distribution and pricing issue.

Recently, I spoke to the Kentucky Thoroughbred Association’s Vision 2020 Club (maximum age 39) about the offtrack problem and touched on the ebb and flow of bloodstock among countries. I related how 30 years ago my clients used artificial tax laws to acquire leading stallions and bloodstock from France.

France has turned the tables, using racing to fuel its rebound. No slots, no other games, just racing. Regardless of where the bet is made, or technology used, all revenue flows to the sport, not to bet takers. France is the only open port in a worldwide Thoroughbred storm.

When offtrack wagering started, we should have used the same distribution model. The IHA could have specified a small fee to those taking the offtrack bets. Instead the tracks forced an upside-down revenue model, in which bet takers keep the lion’s share. Incredibly, they also allowed casinos and OTBs to use the same model and keep the host tracks’ money.

When ADWs introduced phone and Internet wagering, they cannibalized the tracks and OTBs. Today, bet takers are pulling more money out of purses than slots are artificially pushing into purses nationwide.

Our tracks made this terrible distribution mistake. But for some reason our industry has not corrected the problem. It bothers me this problem is not recognized and our young people are told the sport has no future. We can make a surgical repair to the enabling legislation and bring new life to racing in the world’s largest economy.

Congress can set a price floor in the IHA for host tracks to receive a minimum 50% of the takeout, similar to the price floor set for milk. This will put live racing on equal footing with bet takers and start the transition to direct wagering, where the revenue stays with the host track/purse account. When the IHA is corrected, analysis shows most tracks will see net increases in total revenue. In addition, purse accounts will rise dramatically. The bet takers will see revenue fall.

This transition to host tracks accepting wagers directly will also solve the offtrack “settlement” problem, where bankrupt bet takers now owe hundreds of millions to host tracks and owners’ purse accounts. The IHA can insure that never happens again.

Thousands of owners and breeders impact hundreds of thousands of jobs, but there are just a few bet-taking operations. Politically the numbers favor change, but some in our industry are invested in these bet-taking companies, and, as you can imagine, they do not want the IHA changed. If you think that’s why nothing has been done, you might be right.

Let’s not have to look the next generation in the eye and tell them it wasn’t worth an internal fight to save this sport. In true “hardboot” fashion, reject the interests of others—even if it is someone you know—and do what is best for your industry.

You can turn the page now, or you can start writing down names of fellow owners and breeders to call and correct the IHA. 

Fred Pope is a marketing and advertising executive in Lexington. He has worked for racing and breeding clients most of his career. 

33 Comments

Leave a Comment:

luckycatracing

Thank you for your lucid analysis of the financial shape of racing.What a mistake! However, it seems to me that racetracks are in a strong negotiating posistion as they have the content(i.e. horses) without which betting exchanges couldn,t exist.Could you comment please?

07 Jul 2010 3:01 PM
grg edge

just remember this next time you are watching the schmucks on T. V. G  on mute

07 Jul 2010 3:29 PM
KY Horseplayer

Too bad none of this will never happen.  CDI has purchased almost all of the retail ADWs (Brisbet, Winticket, Youbet, Twinspires.)  Now they just need to acquire TVG, which they will do when the time is right.  They are pushing their customers into playing via ADW instead of ontrack.  They in turn keep a higher percentage of the takeout, which is the horsemen's money.  Why would CDI allow any changes to the IHA?!?!  They have more political muscle than any other industry stakeholders.  I appreciate the thoughts, but it is pie in the sky.  CDI doesn't care about the hardboots.  They just want to increase profits for their stockholders.  CDI has no interest in the horsemen or the fans...just whatever it takes to increase profits ($10 at the door on Friday nights quickly comes to mind.)

07 Jul 2010 4:08 PM
GoodOldTed

France is a stubborn country where the govt aren't afraid to ignore the rest of the world, and modern business principles. Try that in the US, UK or Australia, and the industry will spend all its money on lawyers.

Don't automatically strike out betting exchanges as evil - they bring a new wave of interest to the sport, because of the low margins. When was the last time you saw new players at a racetrack??

Whether the current type of bets are taken by the host track or by ADW, handle is way, way down, courtesy of price margins more suited to the low tech days of the 70s, not to the tech era of 2010. Move with the times, or the game is over.

07 Jul 2010 4:29 PM
BetterThanBonds

Mr. Pope,

Your analysis chooses to ignore the obvious correlation between net takeout and handle.  50% of the take to the host tracks results in higher net take to horseplayers.  If you're plan were to be adopted handle would fall by 25% or more immediately and tracks where rebate handle is 50%+ of total (Turfway, Canterbury, Los Alamitos, etc) would fail within 2 months.

Don't take my word for it.  Why not solicit opinions from rebate players like Andy Beyer or Ernie Dahlman?

07 Jul 2010 5:31 PM
Cangamble

I have to laugh every time Pope writes something.  He so doesn't get it.

His specialty is marketing?  He doesn't have even the foggiest clue about the customer.

Better Than Bonds, what you said has been explained to Pope over and over again, and he just doesn't get it.

Horse racing total handle should have taken off since ADWs are everywhere and betting can be made at home in almost every state.  But it hasn't because it fails to compete for the customer.  Takeout is way too high, and if left to Pope he would do nothing but make at least 25% of the current customer base say bye bye.

Horse racing needs to stop appeasing the horse owners and should start working on attracting new customers.

07 Jul 2010 8:47 PM
Manila

If your biggest worry as a horseplayer is reduced takeout and getting a bigger rebate, YOU deserve a Turfway fall meeting without a Kentucky Cup and having to listen to Maggie Wolfendale tell you about the "full field of six runners" in the next race at Colonial.

And you played right into their hands -- You got what you paid for.

07 Jul 2010 10:03 PM
David

You’re correct,pricing of the thoroughbred-racing product is and has been out of whack since interstate exchange began in the early eighties.  We failed to make a distinction between resellers who conduct live racing and those new-fangled account-wagering outfits.  We should have adopted a similar model to the Australian TAB whereby retail outlets (pubs, etc. in their case) were commissioned based on volume, say in the 5% to 7% range.  Instead host tracks held a lousy 4-6% and turned over the entire working margin to a dealer!  All control including the ability to utilize rebates as incentive to large players was lost to something other than the host track and their respective horsemen.  Racing still needs to go to such a system along with separating video rights under an Equibase model.  But the unfortunate thing it would take reform the industry simply couldn’t pull off and, it’s too late.

07 Jul 2010 10:25 PM
Mr_Punch

Jesus, what an embarrassment.  Pope gets even the most basic facts wrong:  France opened its entire gambling industry earlier this year, awarding licenses to over a dozen foreign vendors, including those providing online poker and sports betting.  PokerStars and Party Poker are already in, for example -- would Pope care to speculate how much further US racing handle would decline w/online poker fully legalised in the States?

Racing is dying in the US because those "putting on the show" charge too much for a product that is too widely available, too infrequently compelling, and too tainted by doping.  

At a time when meaningful leadership would help, Pope suggesting that the way forward is to imitate... the French.  (Try imagining another US industry doing that.)  And of course, he whiffs on even the basic facts of what the French are actually doing.

Sad stuff, but not atypical.

08 Jul 2010 11:36 AM
BetterThanBonds

"If your biggest worry as a horseplayer is reduced takeout and getting a bigger rebate, YOU deserve a Turfway fall meeting without a Kentucky Cup and having to listen to Maggie Wolfendale tell you about the "full field of six runners" in the next race at Colonial."

Can you please explain this to me?  98% of all horseplayers lose because of the high takeout.  You are either a) one of them or b) an owner/trainer that doesn't bet a nickel.

Cangamble has is right.  If takeout continues this high and handle continues to fall horse owners will go back to running for ribbons in a field.  Have you lost sight of the fact that purses are paid for by handle.

By the way, I happen to own about a dozen runners as well as being an every day player.

08 Jul 2010 11:41 AM
stanley

MR. Pope;

your anaysis conventiently skips over the history of the IHA and why the legislation exists.  There was much fear back in 78 when simulcasting began that small "LOCAL" tracks could not compete with major racing venues; thus the plan for distributing simulcast dollars was slanted to give small local tracks a bigger piece of the pie to ensure their survival.  it was a conscious decision by the designers of the legislation that the sport was better off including all the existing tracks rather than just a handful of "brand"  venues where most gambling dollars would go.   the industry decided that they didn't want a handful of powerful tracks surviving at the expense of the future survival of most of the small local venues.  

Your analysis now seems to  insinuate that the economic problems of major tracks today is due to small tracks proportion of simulcasting wagers.    

This plays well to an uninformed audience and to the owners of the big tracks.  But how does your plan address the potential negative consequences of a new distributive model to existing small tracks. Much of your new plans addresses the "whales", and current rebate scene.  The more complicated aspect of changing the IHA is how do we not kill off small local venues.    

08 Jul 2010 12:03 PM
Jason

This article is @ssbackwards if you ask me.  The problem with the industry is that they are unable to embrace technology and get the product out there.   There are a 100 competing sources of entertainment and betting now a days, the goal should be making the product easily accessible to the bettor, on all technology platforms and get it out on as many sites as possible.  Instead we have this constant control and "fear" of distribution.  Australia has an OTB or online betting facility everywhere...you can't escape horse racing...it's everywhere you look...it thus becomes top of mind and something everyone participates in.  

Mr. Pope is one of those people who dreams of the "old days" and fails to recognize that times have changed and the industry has to change with them.

08 Jul 2010 12:05 PM
john roark

Fred:  Allowing

Betfair to own TVG is like letting the fox guard the henhouse.  It allows the bookmakers to get our signals basically free and take wagers without paying us anything.

In addition, to turn the adw mess upside down would require simply a not-for-profit adw in which the adw received a small amount for taking the signals and the majority of the revenue would be returned to the host tracks and horsemen.  The bettors would get better andlarger fields to bet into and also, the site could offer the players free information and other incentives they don't get anywhere else unless they wager certain amounts...

08 Jul 2010 12:58 PM
Fred Pope

John, the problem now isn't the ADW's, it is the receiving tracks where 60% of all off-track is still wagered. They get 16-17% and only pay the host 3-4%.

While the tracks know the ADW's are going to steal their bettors, they will not give up the 17%. If they will just change the IHA and split the takeout when they are the "host", then they will move up from 3-4% to 9-10% and charge that amount or more to the ADW's, OTB's, and Casinos.

Believe me, most of the net importing tracks become net Exporters when they start getting half (9-10%) of the takeout as the host. They just need to run the numbers and get on board with changing the IHA to their benefit.

Re takeout, I don't care if the takeout is 15% or 25%. I have yet to see a group of takeout specialists put up their money and buy a track to show everyone how to do it.

08 Jul 2010 4:09 PM
Dwelt A. Start

If Mr. Pope's ideas were actually implemented, he would become the George Costanza of the industry.

Handle would see some serious shrinkage.

08 Jul 2010 5:55 PM
David

Why do persist in decreeing the federal government to do what the tracks and horsemen should be doing for themselves?  Face it, the industry deserves exactly what’s happening.

08 Jul 2010 7:30 PM
concerned

It seems Australia has the successful business model. IHA should be changed to require breeders sign simulcast contracts.  The breeders have all the risk and no political power.  It is the breeders who create the product tracks show and betting venues distribute and who support the farms.

08 Jul 2010 11:18 PM
Cangamble

Breeders should get out of the way.  Contracts have nothing to do with them.  It would be like Wal Mart having their suppliers price their products to the consumer.

Lower takeout, and more players will eventually be created.  More money for everyone from tracks to owners to breeders.

Focus on getting more horseplayers, forget about owners and breeders, they will reap the benefit once lower takeouts are implemented industry wide.

09 Jul 2010 11:28 AM
JerseyBoy

Fred:

I believe you have assumed too much knowledge on the part of some in your audience, like me. I had to read the  Interstate Horseracing Act of 1978 to understand what the issue was.

I agree that a higher percentage of the takeout should stay with the host track regardless of where the bets originate. But in my reading of the legislation it seems that this is a matter of negotiation among the parties.

Who cares about rebates? If you bet $1000 and get $75 dollars back as a rebate, why is that a big deal to a big-time gambler?

Am I missing something?

09 Jul 2010 2:50 PM
David

Having (literally) an act of congress officiate a dysfunctional business is not the answer.  Nor is having so many seats at the table you’re constantly dealing by committee.  This business is no different than any other in that camps exist.  The difference is with racing is even if consensus could ever be achieved (which it never is), factions not getting its way would rather stonewall a process rather than see initiatives of different persuasion go forward.  Racing is a parochial endeavor that only pretends to want something different.

09 Jul 2010 3:14 PM
jb

I think more than 20% of total handle in US racing is generated by large teams playing for rebate. Without rebate, these 20%+ handle will be gone overnight.

Large share to tracks means less rebate. Less rebate means lower handle. Believe it. It's the reality.

10 Jul 2010 1:25 PM
BetterThanBonds

"Who cares about rebates? If you bet $1000 and get $75 dollars back as a rebate, why is that a big deal to a big-time gambler?

Am I missing something?"

Yes, perhaps your frontal lobe.  

Do you think ANYONE can beat a 25% takeout long-term?  Very few can beat football long-term and that's playing into a 10% take.

Let me ask you Jersey, are you an owner or a trainer because you can't be a horseplayer?

10 Jul 2010 1:49 PM
Kime

I agree with most of the comments above,  the pricing and the distriubtion of the product is backwards.  If you can't control the distribution of your own product you're screwed. As well, the takeout is so high in racing that it prevents it from becoming a success, too many player lose because it's impossible to overcome a 20% chop on every bet.  Racing, however, is an extremley expensive gambling event to put on.  The costs of putting on one race can't compare to the miniscule costs of a roll of dice a craps table or a hand of BJack.  Lower takeout would be great for the players but how does the track get there without going out of business?  If handle doesn't increase in tandem when takeout is lowered you're out of business; there's no guarantee it will go up enough to offset the loss of revenue so most CEO's won't take the risk. But you'll likely be out of business if you dont do something, it may just take a bit longer.  Betting Exchanges may be the answer, but when is TVG going to start building racetracks of their own?

10 Jul 2010 4:27 PM
JerseyBoy

People betting on horses are gamblers first and rebate recipients second. They bet in the hope of making money.

It would be remarkable if they bet say $1000 just to get the rebate of say $75. A gambler is a gambler. It is largely addictive.

They would never go away if the rebate is reduced or eliminated. If they tell you otherwise they are deluding themselves. The rebates simply reduce their losses.

10 Jul 2010 4:52 PM
JerseyBoy

BetterThanBonds:

I am an occasional horseplayer.

I never said the  takeout should be 25%. I said " a higher percentage of the takeout should stay with the host track regardless of where the bets originate".

I love horseracing and will be playing horses the rest of my life.

I am good at it.

I stand by my statement.

Horse racing preceded rebates and will outlive rebates.

My frontal lobe is intact. That is why I remain rational.

Nice rant.

11 Jul 2010 7:40 AM
Cangamble

Jersey Boy, you are completely out to lunch here.

We aren't talking $1000 but $250.000 to millions for the largest rebate players per year.  So yeah, 7 points matter.

Rebates allow even smaller players to last longer.  When they are betting on horses, they are more likely to be drawing in friends or family as well....at least a lot more likely than if they weren't playing.

That is the same with lowering takeout.  The longer a player lasts, the more likely they are to bring in others, the less likely they are to quit, and less likely to find a new hobby or something other than horses to bet on.

Your statement that rebates don't matter shows you are completely out of touch with the customer base.  Leads me to believe you are either a breeder, horseman, or track exec.

11 Jul 2010 7:43 AM
JerseyBoy

I have attached a link to takeouts nationwide.

I like the introductory note:

"It is always preferable to wager at tracks with a lower takeout in the same way that it is preferable to shop in store with lower prices or a state with lower taxes."

I hope it is accurate.

www.sportsbettingacumen.com/horse-racing-track-takeout-chart.asp

11 Jul 2010 8:17 AM
David

In fairness to JerseyBoy, the price of a bet on the horses is invisible to most.  The vast majority of those attending live racing and, for that matter, bet online or at an OTB fail to acknowledge anything except whether they won or lost.  The maybe 20% of those that do actually know the rates they’re being charged (like the one in this discussion) account for a disproportionate portion of total handle; if you decrease the hold for them (thru rebates) churn increases and handle goes up, right?  Short term, yes; long term, no.  What happens is that fewer dollars get channeled back to the other 80% of the players and, the other 20% takes a bit longer to lose their original stake.  You guys are the choir; what really needs to happen is for the 80% to graduate to the more sophisticated 20% side of the equation.  Good luck on that one.

11 Jul 2010 11:35 AM
Dwelt A. Start

Jersey Boy wrote: "The rebates simply reduce their losses."

Jerseyboy you are really ill informed.

The rebates turn losers into winners. Without the rebates, many of these players will go away.

That is a FACT.

11 Jul 2010 5:58 PM
JerseyBoy

Well, this is the last I have to say. If they need rebates to make a profit they must not be very good. They should stop gambling.

I have been betting for over 30 years, am I am not exactly poor.

12 Jul 2010 9:18 AM
Cangamble

Wow, Jersey Boy if I had a quarter from all the horseplayers who say they can beat the races and a 20% takeout, I'd be rich.

I'd also come out with almost exactly the same money if I took a quarter from these same people who were lying about beating the races (some don't know they are lying).

The reality is that many of the ones getting rebates are very good players and some are making a living betting horses.

Google Dana Parham and tell me why he should quit again.

Seriously, you should educate yourself a little more before putting comments here and acting like your points are relevant.

14 Jul 2010 9:49 AM
rwwupl

Cangamble wrote...

"I have to laugh every time Pope writes something.  He so doesn't get it.

His specialty is marketing?  He doesn't have even the foggiest clue about the customer.

Better Than Bonds, what you said has been explained to Pope over and over again, and he just doesn't get it.

Horse racing total handle should have taken off since ADWs are everywhere and betting can be made at home in almost every state.  But it hasn't because it fails to compete for the customer.  Takeout is way too high, and if left to Pope he would do nothing but make at least 25% of the current customer base say bye bye.

Horse racing needs to stop appeasing the horse owners and should start working on attracting new customers"

The "Me First" business plan and leadership has to learn that with out customers,the business will fail.

The "cooks " have to serve the meal that the customers wants...not what they want.

Good for cangamble.

14 Jul 2010 11:14 AM
Barry Meadow

Fred Pope wrote, "Re takeout, I don't care if the takeout is 15% or 25%."

Well, your customers do.  Including every single one of the large rebate teams, who at some tracks are responsible for 20% or more of the handle.  Raise your price (takeout) by 10% and that money is gone, immediately.

In addition, high takeout means players go broke faster, which lessens churn, which reduces pool sizes, which makes players less likely to make big bets because their bets affect the odds.  In addition, a horse I might have bet at 3-1 is now (due to the higher takeout) 5-2 or even 2-1, so instead of betting $1500 on the horse I bet nothing because his odds are too low.

It may be true that a couple on a date betting $10 a race may not care about the takeout.  But all your big players do.

Why stop at 25%.  Why not 35%, or 60%, or 95%?  Won't that raise the money going to horsemen?

Not in a million years.

Geez--why is this simple concept so difficult for some people to understand?

04 Aug 2010 1:46 AM

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