Since California lawmakers approved a
takeout hike effective for the 2011 racing season, the price increase on
horseplayers has failed to deliver projected purse increases and has been
followed by reduced handle and race days.
After an initial small bump in purses
that fell well short of predicted increases, purses have declined the past two
years in California as the 2016 total is down 5.75% from 2014 total purses.
(For comparison's sake, these purse totals do not include Breeders' Cup purses
in years the event has been conducted in California.)
A
look at California's experience is topical as Keeneland plans to
increase its takeout beginning with its October meet in a move it hopes
will improve its purses. But
does increasing takeout improve purses long-term? A look at
California's experience in recent years suggests its similar price
increases came up short of initial projections and the purse increases
that initially did occur, have given way to decreases.
Declining California Thoroughbred
racing purses most assuredly deserved attention in 2010 because for a second
straight year they saw double-digit percentage declines. Total purses checked
in at just $132.5 million in 2010, which was down 26% from 2007. Unlike some of
the states it's competing with, California's racetracks do not have access to
revenue from gaming for purses.
Lawmakers addressed the declining
purses by increasing takeout on wagers involving two betting interests (such as
an exacta or double) from 20.68% to 22.68%. Takeout wagers involving three or
more wagering interests (trifecta, superfecta, pick three, pick four) were
increased from 20.68% to 23.68%.
All
of the money from the increased takeout
would be committed to purses. But such moves do not account for the
impact on the gambling product as players react to the increased prices.
Some chose to boycott or reduce play. Even players not aware of the
increased pricing, will see their winnings reduced and will not have as
much money to churn back into pools.
Beyond
that, these increases have come at a time that lower-takeout gaming has
proliferated, making pari-mutuel gambling less competitive against
ventures that include not only slot machines, but gambling similar to
pari-mutuel gaming in Daily Fantasy sports, poker, and sports gambling.
Horse
racing needs enough money from takeout to deliver the sport, but it has
to balance that with the impact of increased pricing on its gambling
product.
As for California's experience, a state Assembly analysis at the time
takeout was increased estimated the increased rake would generate an additional $70 million in purses
for 2011. Keith Brackpool, the California Horse Racing Board chairman at the time,
was more conservative, saying the increase would generate an additional $30
million.
The additional purse money would fall
well short of both estimates. The high-water mark to date being the $146.3
million paid in 2014, which was up less than $14 million from 2010 and failed
to match the $148.9 million in purses of 2009.
Facing higher prices, customers
initially boycotted. Price increases also reduce churn-money won by
horseplayers that they then bet back into racing. Those factors saw handle fall
9.8% in the first year of the increased rake. Handle has never bounced back;
the 2016 handle on California Thoroughbred races is down 11.3% compared with
2010 (Breeders' Cup handle is not counted). That rate is more than twice the
handle decline U.S. racing has seen in those years, down 5.2%.
California offered 3,792 races in 2016;
that number is down 13.8% since 2010. Overall during that stretch, the number
of U.S. races has declined 18.8%.
Besides declining handle, another
reason the price increase has not generated the projected handle is racing's
business model has changed with the continued emergence of advance-deposit
wagering.
Because a higher portion of the handle
is being pushed through ADWs, more wagers are subject to ADW fees. The
percentage of money committed to purses from total handle on California racing,
all breeds, has declined from 5.14% in fiscal year 2012-the first full fiscal
year after the takeout increase-to 4.88% in FY2016.
In
FY2011, ADW handle through the
licensed California ADW companies accounted for 21.1% of wagering on
state
tracks. That percentage ballooned to 30.4% in FY2016. As ADW expands,
unless the model changes, that expansion will only further reduce the
amount of money committed to tracks and purses.
Handle on California Thoroughbred races
Year Handle Percentage Change
2016 $1,942,004,596 -4.2%
2015 $2,027,399,114 1.5%
2014 $1,997,791,306 -3%
2013 $2,060,451,855 5.1%
2012 $1,960,739,706
-0.1%
2011 $1,975,062,441 -9.8%
2010 $2,190,160,458 -14.3%
2009 $2,555,428,576 -17.4%
2008 $3,095,038,694 -7.3%
2007 $3,339,954,260
California Purses
Year Purses Percentage
change
2016 137,914,213 -4.4%
2015 144,285,157 -1.4%
2014 146,337,195 +1%
2013 144,843,718 --
2012 145,039,513 +3.2%
2011 140,521,016 +6%
2010 132,541,382 -11%
2009 148,932,359 -13.3%
2008 171,903,569 -4.1%
2007 179,231,621 --
Notes: For easier
comparison year to year, these charts do not include Breeders' Cup handle or purses
in years event was conducted in California. Handle figures provided by CHRIMS; purse information provided by The Jockey Club.
